In what way can the stock market affect the overall economy?
A) It’s an important source of funds for corporations.
B) It can affect consumer and business sentiment.
C) It is an important factor affecting consumer wealth and thus consumer spending.
D) All of the above
Answer:
When market participants have rational expectations,
A) the information they use contains only past experiences.
B) the information they use contains not only past experiences, but also their
expectations for the future.
C) the information they use contains only their expectations for the future.
D) their forecasts are always correct.
Answer:
Diversification refers to the
A) splitting of wealth into many assets.
B) difference between the liquidity of an asset and its risk.
C) difficulty of converting investments in common stocks into investments in bonds.
D) difficulty of selling common stocks in a weak market.
Answer:
The difference between the yield on 3-month Treasury bills and 10-year Treasury notes
is largest typically during:
A) recessions
B) expansions
C) periods of high inflation
D) when the yield curve is inverted
Answer:
An insurance premium is a
A) payment made by an insurance company to a policyholder after the occurrence of an
insurable event.
B) payment made by an insurance company to a policyholder following a period in
which the policyholder has filed no claims against the company.
C) fee paid by policyholders to insurance companies as payment for coverage.
D) fee paid by policyholders to insurance companies in exchange for special
considerations, such as a particularly large policy.
Answer:
The Bretton Woods system was expected to be more stable than the gold standard
because
A) the world supply of gold had increased greatly by the time the Bretton Woods
system was established.
B) large trade deficits and surpluses would be unlikely to occur under the Bretton
Woods system.
C) fewer countries were involved in the Bretton Woods system than had been involved
in the gold standard.
D) the IMF was set up to be a lender of last resort.
Answer:
When an insurance company makes a direct loan to a firm, the loan is known as
A) a private placement.
B) a commercial paper.
C) an account receivable.
D) an account payable.
Answer:
The choice between futures and options
A) depends on whether the underlying instrument is a debt instrument or an equity.
B) reflects a trade-off between the higher cost of using options and the extra insurance
benefits that options provide.
C) reflects a trade-off between the higher cost of using futures and the extra insurance
benefits that futures provide.
D) reflects a trade-off between the greater risk from using options and the extra
insurance benefits that options provide.
Answer:
Vesting refers to
A) the right of the holder of an insurance policy to collect for an insurable event.
B) the shielding of returns on whole life policies from taxation.
C) the length of service required of an employee before he or she is eligible for a
pension.
D) the payments made by an employee into a pension plan.
Answer:
If insurance is available on an activity:
A) more of that activity will occur
B) less of that activity will occur
C) investors will be less likely to hedge
D) it increases the risk of engaging in that activity
Answer:
Some claim that ratings agencies have a conflict of interest since:
A) they rate the quality of their own bonds
B) since agencies charge firms for their services rather than investors, they have an
incentive to give high ratings to gain business
C) government began to include bond ratings as part of regulations of mutual funds,
banks, and financial firms
D) they issued many of the mortgages that were later securitized into bonds
Answer:
Which of the following is NOT a primary center of foreign-exchange trading?
A) New York
B) London
C) Munich
D) Tokyo
Answer:
Which of the following is the source of funds for bank loans?
A) marketable securities
B) required reserves
C) excess reserves
D) bank capital
Answer:
Which of the following expressions is correct?
A) AE = C + I + G – NX.
B) AE = C + I + G + NX.
C) AE = C + I + (G – T) + NX.
D) AE = C + I + (G – T) – NX.
Answer:
An investor who bases the decision to buy an asset solely on the expected return of an
asset is considered to be:
A) risk loving
B) risk averse
C) risk neutral
D) risk avoiding
Answer:
A defined benefits plan
A) is always fully funded.
B) may be underfunded but cannot be overfunded.
C) may be overfunded but cannot be underfunded.
D) may be either underfunded or overfunded.
Answer:
A one-year discount bond with a face value of $10,000 that is currently selling for
$9400 has an interest rate of
A) 3.10%.
B) 6%.
C) 6.38%.
D) 60%.
Answer:
The M2 aggregate
A) includes M1 plus short-term investment accounts.
B) includes M1 plus large-denomination time deposits.
C) equals currency plus checking account deposits at commercial banks.
D) is the best definition of money purely as a medium of exchange.
Answer:
Why do investors hedge using futures contracts?
A) they are seeking to increase liquidity
B) they are willing to pay for a reduction in risk
C) in order to provide a counterparty to speculators
D) they are more flexible than forward contracts
Answer:
The rate of return is equal to the
A) sum of the coupon rate and the current yield.
B) yield to maturity.
C) sum of the current yield and the actual rate of capital gain or loss.
D) sum of the current yield and the expected rate of capital gain.
Answer:
States that restrict banks to having a single branch are said to require
A) mono banking.
B) nonbank banking.
C) unit banking.
D) semi-banking.
Answer:
As the time of delivery in a futures contract gets closer
A) the futures price gets closer to the spot price.
B) the futures price generally rises further above the spot price.
C) the futures price generally falls further below the spot price.
D) the futures and spot prices remain the same as they were when the contract was first
created.
Answer:
Suppose Exxon-Mobil announces that its profits in the third quarter of 2013 were $40
billion. This will cause the price of Exxon-Mobil stock to
A) rise.
B) fall.
C) remain unchanged.
D) rise, fall, or remain unchanged depending on the expectations of market participants
before the announcement.
Answer:
Financial intermediaries reduce transactions costs by
A) charging fees to small savers.
B) charging fees to small investors.
C) taking advantage of economies of scale.
D) avoiding risky investments.
Answer:
According to the Phillips Curve, which of the following may have taken place if both
the unemployment rate and inflation have risen?
A) a negative supply shock
B) an increase in expected inflation
C) a severe recession
D) a negative demand shock
Answer:
The relation between the nominal and real exchange rates is given by which of the
following equations?
A) EX = ( x P)/
B) = (EX x P)/
C) EX = ( x )/P
D) = (EX x )/P
Answer:
When the staff of the account manager at the Fed’s Open Market Trading Desk analyzes
forecasts on Treasury deposits and information on the timing of future Treasury sales of
securities, what agency does it interact with?
A) The Securities and Exchange Commission
B) The Treasury’s Office of Government Finance
C) The Treasury’s Office of Federal Reserve Relations
D) The Federal Deposit Insurance Corporation
Answer:
If a nation’s current account is -$200 billion and its financial account (excluding its
official settlements balance) is $175 billion, how much is its official settlements
balance?
A) -$25 billion
B) +$25 billion
C) -$375 billion
D) +$ 375 billion
Answer:
Most economists believe that the aggregate supply curve is
A) upward-sloping in the short run, but vertical in the long run.
B) upward-sloping in the long run, but vertical in the short run.
C) upward-sloping in both the short run and in the long run.
D) vertical in both the short run and in the long run.
Answer:
Moral hazard is not eliminated in debt financing because
A) borrowers have an incentive to assume greater risk than is in the interest of the
lender.
B) firms with a great deal of debt often go bankrupt.
C) principal-agent problems are greater with debt financing than with equity financing.
D) the use of restrictive covenants tends to increase moral hazard.
Answer:
The Fed tends not to use discount policy as its principal tool in influencing the money
supply since
A) discount loans do not affect the money supply.
B) it does not have as much control over discount loans as it has on open market
operations.
C) it is prohibited from doing so by an act of Congress.
D) it prefers to use reserve requirements.
Answer:
As a person’s wealth increases, which of the following portfolio holdings is likely to
increase the least?
A) checking account
B) stocks
C) money market fund
D) bonds
Answer:
If a British automobile sells for £20,000 and the British pound is worth $1.50, then the
dollar price of the automobile is
A) $1.60.
B) $12,500.
C) $20,000.
D) $30,000.
Answer:
Banks use credit rationing rather than simply raising the interest rate charged borrowers
with higher default risks because
A) of fear of adverse selection problems.
B) of interest rate ceilings in many states.
C) of fear of offending the loan applicants.
D) use of credit rationing is encouraged by the Federal Reserve.
Answer:
Illustrate the effect of the Fed purchasing $50 million worth of mortgage-backed
securities on the Fed’s balance sheet.
Answer:
Make use of the quantity equation to answer the following problem. If the Fed increases
the money supply by 4%, velocity increases by 1%, and economic growth is 3%, by
how much will the price level increase?
Answer:
Suppose a Nintendo Wii has a price of 24,000 yen in Japan and the yen-dollar exchange
rate changes from 80 yen to the dollar to 100 yen to the dollar? What happens to the
price of the Wii measured in dollars?
Answer:
What are the two most common reasons for a sovereign debt crisis?
Answer:
According to the expectations theory, what will be the interest rate on a three-year bond
if a one-year bond has an interest rate of 2% and is expected to have an interest rate of
3% next year and 5% in two year? Report your answer using a percentage with two
decimal places.
Answer:
Why do households hold less in checking accounts then they once did?
Answer:
How did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
affect the Fed’s
Answer:
Who are the members of the Financial Stability Oversight Council?
Answer:
Describe the three types of unemployment?
Answer:
What are the three books to which the FOMC has access and what information is
included in each?
Answer:
On which type of unemployment can monetary policy have the most effect? Why?
Answer:
How did securitization and the bursting of the housing bubble contribute to the
Financial Crisis of 2007-2009?
Answer:
What constitutes meaningful independence of a central bank?
Answer:
What are the principal sources of change in productivity growth?
Answer:
Suppose the required reserve ratio is 8% and that banks hold no excess reserves and the
public does not change its currency holdings. If the Fed sells $5 million worth of
securities, what happens to the amount of deposits in the banking system?
Answer:
Discuss the problems associated with the imposition of capital controls.
Answer:
How is the use of leverage a “double-edged sword”?
Answer:
What is an advantage of using options instead of forward contracts when speculating on
exchange rates?
Answer:
How does adverse selection affect the economic efficiency of the used car market?
Answer: