Federal Reserve district banks perform all of the following roles EXCEPT
A) managing checking clearing in the payments system.
B) performing regulatory functions.
C) setting the federal funds rate.
D) managing currency in circulation by issuing new Federal Reserve Notes.
Answer:
Marking to market involves
A) changing the futures price to the spot price each day.
B) engaging in arbitrage so as to reduce the risk involved with futures contracts.
C) crediting or debiting the margin account based on the net change in the value of the
futures contract.
D) updating the futures price after the market closes each day.
Answer:
In derivative markets, trade takes place in
A) assets such as bonds or common stock that derive their value from the value of the
companies which issue them.
B) assets whose rates of returns must be derived from information published in
financial tables.
C) assets that derive their value from underlying assets.
D) assets which are not allowed to be traded on organized exchanges.
Answer:
In the federal funds market diagram, a decrease in the required reserve ratio
A) shifts the demand curve for reserves to the left.
B) increases the federal funds rate.
C) results in a multiple expansion of deposits, which increases the equilibrium level of
reserves held by banks.
D) shifts the supply curve for reserves to the right.
Answer:
Studies by economists suggest that
A) households do not increase their saving as the government’s dissaving increases.
B) households increase their saving, but not by the full amount of an increase in
government dissaving.
C) households also increase their dissaving when the government increases its
dissaving.
D) households also increase their saving when the government increases its saving.
Answer:
Which of the following is NOT an accurate description of open market operations prior
to 2008?
A) It was used to affect the market for bank reserves.
B) It was used to control the federal funds rate.
C) It involved buying and selling of short-term Treasury securities.
D) It involved buying and selling long-term securities.
Answer:
Which of the following is a liability of the Fed?
A) reserves
B) U.S. government securities
C) discount loans to banks
D) checkable deposits in commercial banks
Answer:
The segmented markets theory
A) has difficulty explaining why yield curves usually slope up.
B) has difficulty explaining why yield curves usually slope down.
C) has difficulty explaining why yields on instruments of different maturities tend to
move together.
D) provides a good explanation of why yields on instruments of different maturities
tend to move together.
Answer:
How can the Gordon Growth model help explain the major decline in stock indexes
during 2007-2009?
A) There was an increase in the required return on equities and a decrease in the
expected growth rate of dividends.
B) There was a decrease in the required return on equities and an increase in the
expected growth rate of dividends.
C) There was an increase in the required return on equities and an increase in the
expected growth rate of dividends.
D) There was a decrease in the required return on equities and a decrease in the
expected growth rate of dividends.
Answer:
Under the expectations theory, an upward-sloping yield curve indicates that investors
expect future short-term rates to
A) fall.
B) rise.
C) remain constant.
D) either rise or remain constant.
Answer:
All of the following are steps involved in basic currency swaps EXCEPT
A) counterparties exchange the net interest at the end of the swap.
B) the parties exchange principals in two currencies.
C) the parties exchange periodic interest payments over the life of the agreement.
D) the parties exchange the principal amount at the end of the agreement.
Answer:
A capital gain occurs when the
A) coupon rate increases.
B) current yield increases.
C) price of an asset increases.
D) yield to maturity increases.
Answer:
Factoring
A) involves selling stocks and using the proceeds to buy bonds.
B) is purchasing accounts receivable at a discount.
C) is calculating the optimal par values of stocks and bonds.
D) has been declared illegal under the Factoring Reform Act of 1994.
Answer:
Assuming a required reserve ratio of 8%, interest rate on reserves of 5%, and interest
rate on loans of 4%, what is the effective cost of the reserve requirement on a $1000
deposit?
A) 0.05%
B) 0.28%
C) 0.32%
D) 4%
Answer:
At the beginning of the financial crisis, banks were hurt by all of the following
EXCEPT
A) declines in the value of mortgage-backed securities.
B) defaults on mortgages by those with subprime mortgages.
C) holding too many Treasury bonds.
D) not being repaid on loans to real estate developers.
Answer:
A lender who is worried that its cost of funds might rise during the term of a loan it has
made can hedge against this rise without eliminating the chance to profit from a decline
in the cost of funds by
A) buying futures contracts on Treasury bills.
B) selling futures contracts on Treasury bills.
C) buying put options on Treasury bills.
D) buying call options on Treasury bills.
Answer:
The Fed’s portfolio of securities consists principally of
A) municipal bonds.
B) corporate bonds.
C) U.S. Treasury obligations.
D) obligations of foreign governments.
Answer:
When the Fed reduces the real interest rate, which of the following does NOT increase?
A) consumption
B) investment
C) government purchases
D) net exports
Answer:
All of the following are examples of risky mortgages that became more common in the
2000s EXCEPT
A) alt-A mortgages.
B) adjustable-rate mortgages with low rates for a few years and then higher rates in
later years.
C) mortgages requiring down payments of at least 20%.
D) subprime mortgages.
Answer:
The price at which an option may be exercised is called the
A) market price.
B) equilibrium price.
C) strike price.
D) fixed price.
Answer:
The proposition of monetary neutrality states that changes in the money supply have:
A) no impact on output in the short run
B) no impact on output in the long run
C) no impact on the price level in the short run
D) no impact on the price level in the long run
Answer:
The marginal propensity to consume can best be described as:
A) consumption/income
B) the impact of a change in income on GDP
C) the change in income divided by the change in consumption
D) the change in consumption divided by the change in income
Answer:
The first stage in the regulatory process is
A) a crisis.
B) response by the financial system.
C) regulation.
D) regulatory response.
Answer:
The supply curve for bonds would be shifted to the left by
A) a decrease in government borrowing.
B) a decrease in the corporate tax on profits.
C) an increase in tax subsidies for investment.
D) an increase in expected inflation.
Answer:
Bank capital will decline following an increase in interest rates if the value of its
A) fixed-rate assets is greater than the value of its fixed-rate liabilities.
B) fixed-rate assets is less than the value of its fixed-rate liabilities.
C) fixed-rate assets is greater than the value of its variable-rate assets.
D) fixed-rate liabilities is greater than the value of its variable-rate liabilities.
Answer:
Banks in the United States have been prohibited from investing deposits in significant
equity holdings since the passage of the
A) Bank Reform Act of 1980.
B) Securities and Exchange Acts of 1933 and 1934.
C) National Banking Acts of 1863 and 1864.
D) Sherman Antitrust Act of 1890.
Answer:
What is the name of the entity, composed of Federal Reserve district bankers, that
consults on monetary policy?
A) The Federal Open Market Committee
B) The Federal Advisory Council
C) The Monetary Policy Council
D) The District Bank Committee
Answer:
Which of the following is considered to be a goal of monetary policy?
A) a low federal budget deficit
B) fair wages
C) price stability
D) an end to poverty
Answer:
Assets denominated in foreign currency and use in international transactions are
referred to as:
A) foreign money
B) international reserves
C) international monetary base
D) foreign exchange
Answer:
If the Fed purchases $1 million in securities from the nonbank public, the monetary
base will rise by $1 million
A) if the public holds the proceeds as currency.
B) if the public deposits the proceeds as checkable deposits.
C) if the public deposits the proceeds with the Treasury in a monetary base account.
D) whether the public holds the proceeds as currency or deposits them as checkable
deposits.
Answer: