If the federal funds rate was above the discount rate
(a) banks would choose not to borrow from the Fed.
(b) banks would want to borrow as much as they could from the Fed.
(c) reserves would decline causing the two to become equal.
(d) the reserve supply curve would become vertical.
Answer:
According to Irving Fisher, the demand for real money balances should
(a) be constant.
(b) equal the reciprocal of velocity.
(c) be proportional to the level of real transactions.
(d) equal the price level multiplied by the volume of real transactions.
Answer:
The Federal Reserve issues a report indicating that future inflation will be higher than
had previously seemed likely. As a result
(a) the supply curve for bonds shifts to the right.
(b) the demand curve for loanable funds shifts to the left.
(c) the equilibrium interest rate falls.
(d) the equilibrium price of bonds rises.
Answer:
The most likely direction of bank regulation internationally will be to
(a) regulate by function rather than by institution.
(b) regulate interest rates rather than to regulate permissible investments.
(c) regulate permissible investments rather than to regulate interest rates.
(d) eliminate all banking regulation.
Answer:
Eurodollars are
(a) dollar deposits in the United States owned by European residents.
(b) dollar deposits in the United States owned by non-U.S. residents.
(c) deposits denominated in dollars in banks outside the United States.
(d) dollars that may only be spent on European goods and services.
Answer:
Many savers are willing to accept a lower interest rate on municipal bonds than on
comparable instruments because
(a) the after-tax yield on municipal bonds is greater.
(b) municipal bonds invariably have lower default risk.
(c) municipal bonds are more liquid than most other instruments.
(d) the yield on municipal bonds is considered inflation proof.
Answer:
Business cycles have been a feature of modern economies since
(a) World War II.
(b) 1900.
(c) 1970.
(d) the Industrial Revolution.
Answer:
When a check for $10,000 is initially presented to the Fed for clearing, the initial
impact on the Fed’s balance sheet is that
(a) cash items in the process of collection falls by $10,000 and deferred availability
cash items rises by $10,000.
(b) cash items in the process of collection and deferred availability cash items both rise
by $10,000.
(c) cash items in the process of collection rises by $10,000 and deferred availability
cash items falls by $10,000.
(d) cash items in the process of collection and deferred availability cash items both fall
by $10,000.
Answer:
According to the efficient markets hypothesis, the difference between today’s price for a
share of stock and tomorrow’s price is
(a) equal to today’s price plus any dividends to be received between today and
tomorrow.
(b) equal to tomorrow’s price plus any dividends to be received tomorrow.
(c) unforecastable.
(d) zero.
Answer:
Most of the foreign-exchange trading volume of banks is with
(a) governments.
(b) corporations.
(c) private individuals.
(d) other banks.
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:
Which of the following would NOT cause the demand curve for bonds to shift
(a) a change in wealth.
(b) a change in the price of bonds.
(c) a change in the liquidity of bonds.
(d) a change in expected inflation.
Answer:
Discount loans available to health banks which can be used for nay purpose are called
(a) primary credit.
(b) secondary credit.
(c) seasonal credit.
(d) repo loans.
Answer:
Intermediate targets are
(a) interim goals set on the way to fully achieving policy goals.
(b) targets for policy goals that are of secondary importance.
(c) targets the Fed hopes to achieve by June of each year.
(d) financial variables the Fed believes will help it to achieve policy goals.
Answer:
Trade barriers
(a) affect the real exchange rate but not the nominal exchange rate.
(b) lead to a higher nominal exchange rate in the long run for the country imposing
them.
(c) lead to a lower nominal exchange in the long run for the country imposing them.
(d) raise costs to consumers but do not affect the nominal exchange rate.
Answer:
What is the most important factor for Federal Reserve currency 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:
Risk-based capital requirements result in
(a) higher interest rates on deposits.
(b) higher capital requirements for banks with riskier portfolios.
(c) higher federal deposit insurance premiums for bank managers with poor records of
handling their personal finances.
(d) greater capital being required of banks with a history of bank runs.
Answer:
If the price level in the United States increases more slowly than the price level in
Canada, we would expect
(a) interest rates in the United States to be higher than interest rates in Canada.
(b) the U.S. dollar to depreciate against the Canadian dollar.
(c) the Canadian dollar to depreciate against the U.S. dollar.
(d) U.S. productivity to have increased more slowly than Canadian productivity.
Answer:
Which of the following is NOT a discount bond?
(a) A U.S. savings bond
(b) A U.S. Treasury bill
(c) A U.S. Treasury note
(d) A zero-coupon bond
Answer:
The McCarran-Ferguson Act of 1945
(a) established the FDIC.
(b) established the FSLIC.
(c) exempted insurance companies from federal antitrust laws.
(d) made insurance companies subject to federal antitrust laws.
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:
Deleveraging
(a) is another name for underwriting.
(b) refers to underwriting carried out by merchant banks.
(c) refers to investment banks helping firms reduce their debt burdens.
(d) refers to a takeover of a corporation by its management.
Answer:
Interest from U.S. Treasury securities is
(a) not subject to taxation.
(b) taxed at the federal level but not at the state and local levels.
(c) taxed at the state and local levels but not at the federal level.
(d) taxed at the local, state, and federal levels.
Answer:
Term life insurance
(a) is offered only by mutual insurance companies.
(b) may be converted into an annuity when the policyholder reaches retirement age.
(c) pays off only at the death of the policyholder.
(d) receives favorable tax treatment from the U.S. government.
Answer:
Keynes referred to the effect of portfolio allocation decisions on the demand for money
as the
(a) interest motive.
(b) transactions motive.
(c) precautionary motive.
(d) speculative motive.
Answer:
Evidence suggests that when government purchases rise
(a) national saving rises.
(b) consumers reduce their spending dollar for dollar.
(c) consumers reduce their spending less than dollar for dollar.
(d) the inflation rate falls.
Answer:
Members of the Board of Governors are
(a) elected by the district bank presidents.
(b) appointed by the President of the United States, subject to confirmation by the
Senate.
(c) appointed by the National Monetary Commission.
(d) appointed by the Securities and Exchange Commission, subject to congressional
veto.
Answer:
What fraction of the mutual fund market is held by money market mutual funds?
(a) 1%
(b) 5%
(c) 38%
(d) 75%
Answer:
Economists believe that the major reason that financial intermediaries move a greater
volume of funds between borrowers and lenders than do financial markets is
(a) the advantage that intermediaries have in reducing information costs.
(b) the tax advantages that financial intermediaries receive from the government.
(c) the higher interest rates they are able to offer to lenders.
(d) the lower interest rates they are able to offer to borrowers.
Answer:
In investment banking the ‘spread” is the difference between
(a) the value of a firm’s assets and the value of its liabilities.
(b) the bid and asked prices on a bond.
(c) the price of new capital guaranteed to the issuing firm and the price that can be
obtained in the market.
(d) the price of a new stock issue and the price of an equivalent new bond issue.
Answer:
If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest
rate on T-bills is lower than you expected, you will have
(a) lost money on your long position.
(b) gained money on your long position.
(c) lost money on your short position.
(d) gained money on your short position.
Answer: