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By the summer of 2008, about what percent of subprime mortgages were overdue by at
least 30 days?
A) 10%
B) 25%
C) 34%
D) 50%
Answer:
Who organized the Bank of the United States?
A) Alexander Hamilton
B) George Washington
C) Andrew Jackson
D) Woodrow Wilson
Answer:
When prices rise, the purchasing power of money
A) rises.
B) falls.
C) is unaffected.
D) may rise, fall, or be unaffected depending upon circumstances.
Answer:
Why might Congress benefit from the Fed being self-financed?
A) Self-financing increases Congressional control over the Fed.
B) Self-financing reduces the Fed's exposure to external pressures.
C) Self-financing gives the Fed an incentive to expand the money supply, which
ultimately results in Congress having additional funds to spend.
D) Congress does not benefit from the Fed being self-financed; Congress is obliged by
the Constitution to allow the Fed to be self-financed.
Answer:
Financial intermediaries emerged
A) to make loans to governments.
B) to provide a market for municipal bonds.
C) to reduce transactions costs for small savers and borrowers.
D) to reduce transactions costs for traders in stocks and bonds.
Answer:
A key reason that firms and financial institutions might participate in an interest rate
swap is
A) to transfer interest rate risk to parties that are more willing to bear it.
B) the low information costs of swaps compared with other derivative contracts.
C) the greater liquidity of swaps compared with other derivative contracts.
D) the favorable tax implications of swaps compared with other derivative contracts.
Answer:
Smaller firms tend to rely on financial intermediaries instead of financial markets for
external financing due to
A) transactions costs.
B) adverse selection.
C) moral hazard.
D) all of the above.
Answer:
The risk structure of interest rates refers to
A) the amount of additional interest necessary to compensate savers for the greater risk
of default on some bonds.
B) the relationship among the interest rates on similar bonds with different maturities.
C) the relationship among the interest rates on bonds with the same maturity.
D) the amount of additional yield necessary to compensate savers for the lesser liquidity
of some bonds.
Answer:
Checks are
A) not acceptable for settling transactions in most industrialized countries.
B) less important than currency as a means of settling transactions.
C) promises to pay on demand money deposited with a financial institution.
D) promises to pay coins minted from precious metals on demand.
Answer:
In 2010, doubts were raised about the debt of all of the following countries EXCEPT
A) Ireland.
B) Greece.
C) Poland.
D) Portugal.
Answer:
A discount bond involves
A) interest payments from the borrower to the lender periodically during the life of the
loan.
B) payment by the borrower to the lender of the face value of the loan at maturity.
C) no payment of principal by the borrower to the lender.
D) payment of interest by the borrower to the lender every six months during the life of
the loan.
Answer:
All of the following have been proposed as reasons for an unusually high level of
uncertainty following the financial crisis of 2007-2009 EXCEPT:
A) the severity of the financial crisis
B) concerns of small businesses regarding how the Affordable Care Act would affect
the cost of hiring workers
C) concerns by households and firms regarding potential tax increases and spending
cuts scheduled to take place in January 2013
D) the Fed indicating that it would withdraw stimulus as soon as there was any
evidence of economic recovery
Answer:
The yield on a thirty-year Treasury bond is 8% at the same time as the yield on
two-year Treasury note is 5%. This occurrence
A) indicates that the yield curve is downward sloping.
B) is well explained by the segmented markets theory.
C) is largely explained by the favorable tax treatment of Treasury notes.
D) indicates that the bond market is anticipating that inflation will fall.
Answer:
According to the liquidity premium theory, the yield curve normally has a positive
slope because
A) short-term interest rates are expected to rise.
B) term premiums rise as the time to maturity increases.
C) risk premiums rise over time.
D) long-term bonds are more liquid than short-term bonds.
Answer:
Which of the following is NOT a popular stock market index?
A) Dow Jones Industrial Average
B) NASDAQ
C) S&P 500
D) Moody's Market Index
Answer:
Financial intermediaries
A) include banks and other depository institutions.
B) include the New York and American Stock exchanges.
C) directly issue claims on individual borrowers to savers.
D) are owned and operated by the federal government.
Answer:
A one-year discount bond with a face value of $1000 that is currently selling for $900
has an interest rate of
A) 26%.
B) 10%.
C) 1%.
D) 100%.
Answer:
International reserves are
A) assets denominated in a foreign currency and used in international transactions.
B) reserves the Fed requires banks to hold against Eurodollar deposits.
C) reserves the International Monetary Fund requires banks to hold if they wish to
participate in the market for foreign exchange.
D) central bank holdings of gold.
Answer:
Where do the FDIC's funds come from?
A) Congress appropriates money for the FDIC, just as it does for other federal agencies.
B) The FDIC earns income through the insurance premiums paid by insured banks and
from investment earnings.
C) The FDIC sells bonds in the financial markets.
D) The FDIC relies on voluntary contributions from the banking community.
Answer:
Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell
for $30 and pay a dividend of $3 per share. If your required return on equity is 10%,
what is the most you should be willing to pay for the share today?
A) $3.30
B) $23
C) $30
D) $33
Answer:
Municipal bonds are issued
A) only by local governments.
B) only by state governments.
C) by both state and local governments.
D) by the federal government, and by state and local governments.
Answer:
For a specific change in the yield to maturity
A) the shorter the time until a bond matures, the greater will be the change in its price.
B) the longer the time until a bond matures, the greater will be the change in its price.
C) the longer the time until a bond matures, the greater will be the change in its par
value.
D) the shorter the time until a bond matures, the greater will be the change in its coupon
rate.
Answer:
If you deposit $300 in your bank and the required reserve ratio is 10%, your bank will
have
A) an increase in required reserves of $300.
B) an increase in required reserves of $270.
C) an increase in required reserves of $3000.
D) an increase in required reserves of $30 and an increase in excess reserves of $270.
Answer:
A bank run involves
A) a failure by a bank to get the maximum return on its investments.
B) large numbers of depositors withdrawing their deposits within a short period of time.
C) a bank being forced out of business.
D) fraud on the part of a bank's managers.
Answer:
What would happen in the foreign exchange market if the European Central Bank raises
European interest rates?
A) There will be a decline in the value of the euro.
B) There will be a decline in the value of the dollar.
C) There will be an increase in the value of the dollar.
D) U.S. interest rates will decline.
Answer:
A matched sale-purchase transaction is also known as a
A) reverse repo.
B) discount loan.
C) put option.
D) federal funds loan.
Answer:
If oranges sell for $100 per crate in the United States and 4000 pesos per crate in
Mexico, the law of one price indicates that you should be able to exchange $1 for
A) 025 peso.
B) 4 pesos.
C) 40 pesos.
D) 400 pesos.
Answer:
A one-year discount bond with a par value of $5000 sold today, at issuance, for $4750
has a yield to maturity of
A) 5.00%.
B) 5.26%.
C) 2.50%.
D) 9.75%.
Answer:
A one-year bond currently pays 5% interest. It's expected that it will pay 4.5% next year
and 4% the following year. The two-year term premium is 0.2% while the three-year
term premium is 0.35%. What is the interest rate on a three-year bond according to the
liquidity premium theory?
A) 4.5%
B) 4.68%
C) 4.85%
D) 5.05%
Answer:
Loans by the Federal Reserve to banks are known as
A) repurchase agreements.
B) Federal funds.
C) discount loans.
D) cash items in the process of collection.
Answer:
What is the most direct method the Fed uses to change the monetary base?
A) open market operations
B) changing the required reserve ratio
C) changing the federal funds rate
D) changing the level of discount loans
Answer:
The world real interest rate is
A) set annually by a special commission at the United Nations.
B) set annually by a special commission at the International Monetary Fund.
C) determined in the international capital market.
D) determined daily on the New York Stock Exchange.
Answer:
The beige book is prepared by
A) district banks.
B) Board of Governors.
C) FOMC staff members.
D) commerce department.
Answer:
At the time monetary union in Europe began in 1999, which of the following countries
declined to participate?
A) France
B) United Kingdom
C) Italy
D) Germany
Answer:
