1) The Bretton Woods agreement created the ________, which was given the task of
promoting the growth of world trade by setting rules for the maintenance of fixed
exchange rates and by making loans to countries that were experiencing balance of
payments difficulties.
A) IMF
B) World Bank
C) Central Settlements Bank
D) Bank of International Settlements
2) The segmented markets theory can explain
A) why yield curves usually tend to slope upward
B) why interest rates on bonds of different maturities tend to move together
C) why yield curves tend to slope upward when short-term interest rates are low and to
be inverted when short-term interest rates are high
D) why yield curves have been used to forecast business cycles
3) The process where financial intermediaries create and sell low-risk assets and use the
proceeds to purchase riskier assets is known as
A) risk sharing
B) risk aversion
C) risk neutrality
D) risk selling
4) The facility that was created in December of 2007 that banks can use to borrow from
the Fed that has less of a stigma for banks compared to borrowing from the discount
window is the
A) Term Securities Lending Facility
B) Term Auction Facility
C) Primary Dealer Credit Facility
D) Commericial Paper Funding Facility
5) Which of the following instruments are traded in a money market?
A) State and local government bonds
B) U.S. Treasury bills
C) Corporate bonds
D) U.S. government agency securities
6) The Fed prefers that ________ so that ________
A) banks borrow reserves from each other; banks can monitor each other for credit risk
B) banks borrow reserves from each other; the Fed can monitor banks for credit risk
C) banks borrow reserves from the Fed; banks can monitor each other for credit risk
D) banks borrow reserves from the Fed; the Fed can monitor banks for credit risk
7) Conditions that likely contributed to a credit crunch during the global financial crisis
include:
A) capital shortfalls caused in part by falling real estate prices
B) regulated hikes in bank capital requirements
C) falling interest rates that raised interest rate risk, causing banks to choose to hold
more capital
D) increases in reserve requirements
8) The duration of a coupon bond increases
A) the longer is the bond’s term to maturity
B) when interest rates increase
C) the higher the coupon rate on the bond
D) the higher the bond price
9) A movement along the bond demand or supply curve occurs when ________
changes.
A) bond price
B) income
C) wealth
D) expected return
10) The policy tool of changing reserve requirements is
A) the most widely used
B) the preferred tool from the bank’s perspective
C) no longer used
D) still used, even with its disadvantages
11) A disadvantage of virtual banks (clicks) is that
A) their hours are more limited than physical banks
B) they are less convenient than physical banks
C) they are more costly to operate than physical banks
D) customers worry about the security of on-line transactions
12) If, for a $1000 premium, you buy a $100,000 put option on bond futures with a
strike price of 110, and at the expiration date the price is 114, your ________ is
________.
A) profit; $1000
B) loss; $1000
C) profit; $3000
D) loss; $3000
13) As their relative riskiness ________, the expected return on corporate bonds
________ relative to the expected return on default-free bonds, everything else held
constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; does not change
14) If a firm must pay for goods it has ordered with foreign currency, it can hedge its
foreign exchange-rate risk by ________ foreign exchange futures ________.
A) selling; short
B) buying; long
C) buying; short
D) selling; long
15) All of the following are examples of coupon bonds except
A) Corporate bonds
B) U.S. Treasury bills
C) U.S. Treasury notes
D) U.S. Treasury bonds
16) In the United States, loans from ________ are far ________ important for corporate
finance than are securities markets.
A) government agencies; more
B) government agencies; less
C) financial intermediaries; more
D) financial intermediaries; less
17) The process of transforming otherwise illiquid financial assets into marketable
capital market instruments is know as
A) securitization
B) internationalization
C) arbitrage
D) program trading
18) When the European System of Central Banks uses long-term refinancing
operations, it is similar to the Federal Reserve using
A) dynamic open market operations
B) defensive open market operations
C) discount policy
D) reserve requirements
19) An increase in the expected rate of inflation will ________ the expected return on
bonds relative to the that on ________ assets, everything else held constant.
A) reduce; financial
B) reduce; real
C) raise; financial
D) raise; real
20) Nonfinancial businesses in Germany, Japan, and Canada raise most of their funds
A) by issuing stock
B) by issuing bonds
C) from nonbank loans
D) from bank loans
21) If the money supply is $600 and nominal income is $3,000, the velocity of money is
A) 1/50
B) 1/5
C) 5
D) 50
22) The chartering process is especially designed to deal with the ________ problem,
and regular bank examinations help to reduce the ________ problem.
A) adverse selection; adverse selection
B) adverse selection; moral hazard
C) moral hazard; adverse selection
D) moral hazard; moral hazard
23) The agency that was created to protect depositors after the banking failures of
1930-1933 is the
A) Federal Reserve System
B) Federal Deposit Insurance Corporation
C) Treasury Department
D) Office of the Comptroller of the Currency
24) Because sterilized interventions mean offsetting open market operations, there is no
impact on the monetary base and the money supply, and therefore a sterilized
intervention
A) causes the exchange rate to overshoot in the short run
B) causes the exchange rate to undershoot in the short run
C) causes the exchange rate to depreciate in the short run, but has no effect on the
exchange rate in the long run
D) has no effect on the exchange rate
25) The problems of raising the level of the inflation target include
A) if the zero-lower-bound problem is rare, then the benefits of a higher inflation target
are not very large
B) the costs of higher inflation in terms of the distortions it produces in the economy
are high
C) it is more difficult to stabilize the inflation rate at a higher targeting level
D) all of the above