What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44?
A) 5.56%
B) 8.50%
C) 9.00%
D) Not enough information has been provided to determine the answer.
Answer:
A falling dollar makes U.S. goods
A) more expensive abroad and increases the volume of U.S. exports.
B) less expensive abroad and increases the volume of U.S. exports.
C) less expensive abroad and decreases the volume of U.S. exports.
D) more expensive abroad and decreases the volume of U.S. exports.
Answer:
When a central bank buys foreign assets,
A) its holdings of foreign assets rise by the amount of the purchase, but the monetary
base is unaffected.
B) its holdings of foreign assets and the monetary base rise by the amount of the
purchase.
C) its holdings of foreign assets rise by the amount of the purchase, and the monetary
base rises by the amount of the purchase times the money multiplier.
D) the monetary base falls by the amount of the purchase.
Answer:
If there is an excess supply of bonds at a given price of bonds, then
A) the interest rate will fall.
B) the interest rate will rise.
C) the price of bonds will fall.
D) the interest rate may rise or the interest rate may fall depending upon the reasons for
the excess demand for bonds.
Answer:
Which of the following is NOT true of the yield curve for U.S. Treasury securities?
A) Typically, it slopes upward.
B) It depicts the relationship among yields on securities of different maturities.
C) Typically, it shifts up or down rather than twists.
D) Typically, it slopes downward.
Answer:
If the current price of a bond is equal to its face value,
A) there is no capital gain or loss from holding the bond until maturity.
B) the yield to maturity must be greater than the current yield.
C) the current yield must be greater than the coupon rate.
D) the coupon rate must be greater than the yield to maturity.
Answer:
In the foreign-exchange market, trading
A) is restricted to the hours 10 A.M. to 3 P.M. New York time.
B) may not take place after 5 P.M. London time.
C) takes place at any hour of the night or day.
D) takes place at prices set by the U.S. government in consultation with the
governments of other leading countries.
Answer:
The prime interest rate is the
A) interest rate on six-month U.S. Treasury bills.
B) discount rate.
C) Federal funds rate.
D) interest rate that banks charge high-quality borrowers.
Answer:
In a simple model of the economy, if the MPC is 0.8, the multiplier will equal
A) 0.2
B) 0.8
C) 1.25
D) 5
Answer:
Discount loans intended for banks that are not financially healthy are called
A) primary credit.
B) secondary credit.
C) seasonal credit.
D) repo loans.
Answer:
Which of the following best describes a policy of inflation targeting?
A) It’s an inflexible rule that requires the central bank to always achieve a specified
inflation rate.
B) It allows monetary policy to focus on inflation and inflation forecasts except in the
case of severe recession.
C) It allows the central bank the flexibility of setting different inflation targets each
year.
D) It requires central banks to target current inflation rather than inflation forecasts.
Answer:
Which of the following statements is correct?
A) The volume of open market operations is determined jointly by the actions of the
public, banks, and the Fed.
B) The volume of open market operations is determined jointly by the actions of banks
and the Fed.
C) The volume of open market operations is determined jointly by the actions of the
public and the Fed.
D) The volume of open market operations is determined solely by the Fed.
Answer:
The narrowest money measure is
A) currency plus non-interest bearing checking accounts.
B) currency plus all checking accounts.
C) currency plus all deposits at financial institutions.
D) definitive money.
Answer:
In a closed economy, the goods market is in equilibrium when
A) Y = S + I + G.
B) C + S = I + G.
C) C + I = S + G.
D) Y = C + I + G.
Answer:
The rate of return is equal to
A) the coupon rate plus the rate of capital gains.
B) the coupon rate plus the current yield.
C) the current yield plus the rate of capital gains.
D) the coupon rate multiplied by the rate of capital gains.
Answer:
All of the following are examples of electronic funds EXCEPT
A) credit cards.
B) debit cards.
C) stored value cards.
D) e-cash.
Answer:
Which of the following is NOT a key financial service provided by the financial
system?
A) risk sharing
B) profitability
C) liquidity
D) information
Answer:
In a barter system individuals
A) find it impossible to specialize.
B) must be entirely self-sufficient.
C) find it difficult to specialize, but may be able to do so.
D) will almost invariably specialize.
Answer:
The money multiplier
A) equals 1 over the required reserve ratio.
B) is an expression that converts the monetary base to the money supply.
C) is larger than the simple deposit multiplier.
D) is completely controlled by the Fed.
Answer:
Investment banks do NOT engage in which of the following?
A) proprietary trading
B) securitization
C) lending to households
D) underwriting
Answer:
Which group of investors vote for a corporation’s board of directors?
A) bond holders
B) holders of preferred stock
C) holders of common stock
D) both holders of common and preferred stock
Answer:
Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and the
expected annual inflation rate over the life of the mortgage is 2%. What is the expected
real interest rate?
A) 3%
B) 4%
C) 8%
D) 12%
Answer:
As of 2012, what portion of bank assets were owned by the five largest bank holding
companies?
A) 10%
B) 25%
C) 50%
D) 80%
Answer:
Which of the following involves banks borrowing funds from firms or other banks
using the value of underlying securities as collateral?
A) federal funds
B) repurchase agreement
C) counterparty lending
D) money market account
Answer:
When did the Federal Reserve Act become law?
A) 1836
B) 1913
C) 1936
D) 1951
Answer:
The Federal Reserve district banks
A) do not engage in monetary policy.
B) engage in monetary policy directly through discount lending.
C) engage in monetary policy directly through open market operations.
D) engage in monetary policy directly through their membership on Federal Reserve
committees.
Answer:
If currency outstanding equals $500 million, checkable deposits equal $2 billion,
reserves equal $200 million, and the required reserve ratio is 0.10, the money multiplier
equals
A) 1.14.
B) 3.57.
C) 4.35.
D) 5
Answer:
A shift of the AD curve
A) to the right is considered expansionary, and a shift to the left is considered
contractionary.
B) to the left is considered expansionary, and a shift to the right is considered
contractionary.
C) to the right or to the left is considered contractionary.
D) to the right or to the left is considered expansionary.
Answer:
Andy can’t make a deal with Danny. Andy has a Alex Rodriguez baseball card and
would like to trade it to Danny for Danny’s Albert Pujols card, but Danny doesn’t want a
Alex Rodriquez card. Andy’s problem illustrates the drawback to a barter system known
as
A) the specialization problem.
B) the double coincidence of wants problem.
C) the many prices problem.
D) the transactions problem.
Answer:
In order to reduce the likelihood of excessive leverage in the banking system,
governments have traditionally
A) imposed capital requirements on commercial banks.
B) imposed capital requirement on investment banks.
C) imposed capital requirements on both commercial and investment banks.
D) imposed asset requirements on all banks.
Answer:
When managers do not own very much of the net worth of the firm, then
A) there may be a principal-agent problem.
B) the firm will usually have to raise most of its funds in financial markets.
C) the firm will have to rely more on equity financing than debt financing.
D) the firm will have to rely more on debt financing than equity financing.
Answer:
The attribute that distinguishes money from other assets is that only money
A) retains its value during times of inflation.
B) is counted in determining the size of an individual’s wealth.
C) serves as a medium of exchange.
D) may be used as collateral for a bank loan.
Answer:
Why has M2 grown more quickly than M1 in recent decades?
A) Currency in circulation has declined.
B) People own more shares of stock than in the past.
C) The amount of funds in CDs and money market mutual funds shares has grown
faster than currency or checking deposits.
D) Most people use debit cards instead of checking accounts.
Answer:
According to the Gordon-Growth model, what is the value of a stock with a dividend of
$1, required return on equity of 10% and expected growth rate of dividends of 5%?
A) $2
B) $10
C) $20
D) $21
Answer:
Explain how each of the following might make use of the futures market.
(a) A lender who is worried that its cost of funds might rise during the term of a loan it
has made
(b) A speculator who believes strongly that interest rates will rise
Answer: