In a competition of financial analysts vs. throwing a dart to choose stocks, according
Burton Malkiel, financial analysts came out ahead due to all of the following reasons
EXCEPT:
A) it considered only stock prices, not dividends
B) investors that followed the contest were influenced to purchase the stocks
recommended by the analysts
C) failure of the Efficient Markets Hypothesis
D) part of the return for the analysts resulted from compensation for the higher risk of
the stocks chosen
Answer:
How many times has the Fed has changed reserve requirements since 1993?
A) never
B) about once a year
C) only once
D) only twice
Answer:
In a matched sale-purchase transaction, the Fed
A) buys securities from a dealer and the dealer agrees to buy them back.
B) sells securities to a dealer and the dealer agrees to sell them back.
C) buys securities from one dealer and sells the same dollar amount of securities to
another dealer.
D) sells securities to one dealer and buys the same dollar amount of securities from
another dealer.
Answer:
Hyperinflations are usually caused by large budget deficits financed by
A) selling bonds to private investors.
B) selling bonds to the central bank.
C) raising taxes.
D) borrowing from commercial banks.
Answer:
Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco. If
the real exchange rate is one-third of a slice of U.S. pizza for one slice of British pizza,
how many pounds should you receive in exchange for $1?
A) 1/3
B) 1.5
C) 2
D) 3
Answer:
Former Fed chair Alan Greenspan’s use of ambiguous and vague language came to be
known as:
A) Greenspeak
B) Fedspeak
C) Alanguage
D) jibberish
Answer:
Which of the following is the highest bond rating assigned by Moody’s Investors
Service?
A) Aaa
B) A
C) B
D) Baa
Answer:
What is the most important factor for Federal Reserve currency to be accepted as
money?
A) its acceptance by businesses and households in the United States in exchange for
goods and services
B) its designation as legal tender by the federal government
C) the willingness of the federal government to accept it in exchange for an equivalent
amount of gold or silver coins
D) the willingness of foreign businesses and banks to accept it in exchange for goods
and services
Answer:
The free-rider problem faced by private information-collection firms results in their
A) usually going out of business within a few years.
B) collecting less than all the available information about the firms they investigate.
C) being plagued by lawsuits.
D) charging fees higher than can be justified by market conditions.
Answer:
If the Fed purchases securities worth $10 million from a commercial bank, the banking
system’s balance sheet will show
A) an increase in securities held of $10 million and an increase in bank reserves of $10
million.
B) an increase in securities held of $10 million and a decrease in bank reserves of $10
million.
C) a decrease in securities held of $10 million and an increase in bank reserves of $10
million.
D) a decrease in securities held of $10 million and a decrease in bank reserves of $10
million.
Answer:
A part of the Jumpstart Our Business Startups (JOBS) Act:
A) banks were required to provide special financing for start ups
B) differences between qualified and unaccredited investors were removed
C) the SEC is no longer is allowed to regulate funding of business start ups
D) Congress removed some of the restrictions on using crowd-funding to allow small
investors to buy equity in start-ups
Answer:
Which economist is credited with having been the first to discuss the “lemons
problem”?
A) George Akerlof
B) Milton Friedman
C) Robert Shiller
D) James Tobin
Answer:
What is the largest category of bank assets?
A) loans
B) reserves
C) securities
D) cash items in the process of collection
Answer:
What was the decline in the value of mutual funds held by households during the depths
of the financial crisis, between the third quarter of 2008 and the first quarter of 2009
A) $2 million
B) $2 billion
C) $200 billion
D) $2 trillion
Answer:
If the British pound depreciates against the U.S. dollar,
A) British businesses gain by an increase in the dollar price of exports to the United
States.
B) British consumers gain by a decrease in the pound price of U.S. exports to Britain.
C) British consumers lose by an increase in the pound price of U.S. exports Britain.
D) U.S. consumers lose by an increase in the dollar price of British exports to the
United States.
Answer:
Which of the following is NOT a nontransaction deposit?
A) a money market deposit account
B) a certificate of deposit
C) a savings account
D) a NOW account
Answer:
The Fed’s monetary policy tools
A) have proven to be of little value in helping the Fed to achieve its monetary policy
goals.
B) have allowed the Fed to achieve its monetary policy goals directly.
C) have allowed the Fed to achieve its monetary policy goals indirectly.
D) are no longer as effective in achieving its monetary policy goals, due to restrictive
legislation passed by Congress in the 1990s.
Answer:
Standby letters of credit
A) are a form of swaps.
B) are a promise by a bank to lend the borrower funds to pay off its maturing
commercial paper.
C) are a promise by a large depositor to provide additional funds to a bank should the
bank face an unexpectedly large deposit outflow.
D) represent the unused balance on a bank credit card.
Answer:
The default risk premium is measured
A) by an index published monthly by the Securities and Exchange Commission.
B) by an index published monthly by The Wall Street Journal.
C) as the difference between the yield on a non-Treasury security and the yield on a
U.S. Treasury security of the same maturity.
D) as the difference between the nominal yield on the security and the real after-tax
yield on the security.
Answer:
The default risk premium fluctuates mainly
A) because bond rating agencies tend to be inconsistent in their ratings of bonds.
B) because risk-neutral investors will often become risk-averse as time passes.
C) because taxes tend to rise over the long run.
D) as new information about a borrower’s creditworthiness becomes available.
Answer:
Currently, the dominant reserve currency is the
A) U.S. dollar.
B) Japanese yen.
C) euro.
D) British pound.
Answer:
An increase in the money supply will cause
A) the IS curve to shift down and to the right.
B) the IS curve to shift up and to the left.
C) the LM curve to shift down and to the right.
D) the LM curve to shift up and to the left.
Answer:
Which of the following will result in a decrease in the price of an existing corporate
bond?
A) lower expectations of inflation
B) new bonds issued at a lower interest rate
C) increased default risk
D) all of the above
Answer:
What happened to real interest rates during the early 1930s?
A) They declined as nominal interest rates declined.
B) They rose as nominal interest rates rise.
C) They declined due to deflation.
D) They rose due to deflation.
Answer:
In comparing actively managed mutual funds with those funds that simply buy and hold
a large market portfolio (index funds), we would expect that
A) the actively managed funds provide a higher return than the index funds.
B) the index funds provide a higher return after expenses than the actively managed
funds.
C) actively managed funds and index funds provide the same returns.
D) index funds provide a lower return than actively managed funds only if taxes are
taken into consideration.
Answer:
In which of the following periods was the yield curve inverted?
A) February 2004
B) February 2007
C) February 2010
D) The yield curve was not inverted during any of these periods.
Answer:
Funds flow from lenders to borrowers
A) indirectly through financial markets.
B) directly through financial intermediaries.
C) indirectly through financial intermediaries.
D) primarily through government agencies.
Answer:
A firm’s net worth is equal to the value of its
A) assets minus the value of its liabilities.
B) liabilities minus the value of its assets.
C) common stock minus the value of its outstanding bonds.
D) outstanding bonds minus the value of its common stock.
Answer:
Which of the following statements is correct?
A) A devaluation of the British pound would result in more dollars to the pound.
B) A revaluation of the British pound would raise the prices of U.S. goods in Britain.
C) A devaluation of the British pound would lower the prices of British goods in the
United States.
D) Revaluations and devaluations of a country’s currency were not allowed under the
Bretton Woods system.
Answer:
Which of the following describes the relationship between the actual federal funds rate
and that suggested by Taylor’s rule following the recovery from the 2001 recession?
A) The federal funds rate was above that suggested by Taylor’s rule.
B) The federal funds rate was below that suggested by Taylor’s rule.
C) The federal funds rate was about equal to that suggested by Taylor’s rule.
D) There was not a clear relationship between the federal funds rate and that suggested
by Taylor’s rule.
Answer:
Limits on the value of the assets that commercial banks can acquire relative to their
capital is known as:
A) equity requirements
B) capital requirements
C) required reserves
D) asset requirements
Answer:
At the 1976 IMF conference in Jamaica,
A) the United States reaffirmed its commitment to buy and sell gold at a fixed price.
B) currencies were formally allowed to float.
C) the major countries of the world agreed to continue a system of fixed exchange rates.
D) the gold standard was reestablished.
Answer:
A key difference between small-denomination and large-denomination time deposits is
that
A) small-denomination time deposits pay no interest.
B) large-denomination time deposits may be bought and sold on secondary markets.
C) large-denomination time deposits carry a significant penalty for early withdrawal.
D) small-denomination time deposits carry a significant penalty for early withdrawal.
Answer:
In comparing futures contracts with options contracts, we can say that
A) in a futures contract, the buyer and seller have symmetric rights, whereas in an
options contract, the buyer and seller have asymmetric rights.
B) in a futures contract, the buyer and seller have asymmetric rights, whereas in an
options contract, the buyer and seller have symmetric rights.
C) in both futures and options contracts, the buyer and seller have symmetric rights.
D) in both futures and options contracts, the buyer and seller have asymmetric rights.
Answer:
The buyer of a futures contract
A) assumes the short position.
B) assumes the long position.
C) may not sell the contract without the permission of the original seller.
D) has the obligation to deliver the underlying financial instrument at the specified
future date.
Answer: