One monopoly that modern central banks have is in:
A. regulating other banks.
B. making loans to banks.
C. issuing U.S. Treasury securities.
D. issuing currency.
Answer:
An expected appreciation of the dollar, everything else held constant, should cause:
A. the supply of dollars to increase.
B. the demand for dollars to increase.
C. the demand for dollars to decrease.
D. the dollar to depreciate now relative to other currencies.
Answer:
The ECB’s temporary operations typically involve the use of:
A. discount loans.
B. repurchase agreements.
C. an outright purchase of U.S. Treasury Securities.
D. an outright sale of U.S. Treasury Securities.
Answer:
If inflation increases, this could be illustrated as a:
A. rightward shift of the long-run aggregate supply curve.
B. leftward shift of the long-run aggregate supply curve.
C. rightward shift of the short-run aggregate supply curve.
D. movement down along the short-run aggregate supply curve.
Answer:
The Governors of the Federal Reserve System are appointed by the:
A. member banks from their home district.
B. Board of Directors of the Reserve Bank from their home district.
C. President of the United States.
D. Chairman of the Federal Reserve System.
Answer:
Stock prices may rise from a reduction in interest rates because:
A. the present value of future earnings will increase.
B. stockholders will expect lower future earnings.
C. financial market participants are less optimistic about future earnings.
D. the present value of future earnings will decrease.
Answer:
One way for a bank to deal with credit risk is to:
A. charge all borrowers from the same industry an average rate for that industry.
B. add a mark-up for a specific borrower based on the borrower’s credit history to the
cost of funds.
C. avoid making loans to borrowers from a broad spectrum and to specialize
geographically and in specific industries.
D. increase the number of loans made in any year.
Answer:
If a negative supply shock is associated with a decline in potential output, keeping
inflation at its target requires:
A. a leftward shift in the monetary policy reaction curve because there is an
expansionary gap.
B. a rightward shift in the monetary policy reaction curve because there is an
expansionary gap.
C. a leftward shift in the monetary policy reaction curve because there is a recessionary
gap.
D. a rightward shift in the monetary policy reaction curve because there is a
recessionary gap.
Answer:
The ability to control inflation expectations is most closely related to a central bank’s:
A. transparency.
B. credibility.
C. accountability.
D. willingness to communicate.
Answer:
A pension fund manager who plans on purchasing bonds in the future:
A. wants to insure against the price of bonds falling.
B. can offset the risk of bond prices rising by selling a futures contract.
C. will take the long position in a futures contract.
D. will take the short position in a futures contract.
Answer:
Most individuals borrow:
A. directly without the use of a financial intermediary.
B. using a financial intermediary because it lowers the cost of borrowing.
C. using a financial intermediary, but would save money if they financed directly.
D. without using financial intermediaries, preferring credit cards.
Answer:
What do bondholders and stockholders have in common?
A. Both are claimants.
B. Both have voting rights.
C. Both are shareholders in the company.
D. Both receive fixed payments on their securities each year.
Answer:
The original Basel Accord was:
A. the basic set of guidelines the Federal Reserve applies in regulating domestic banks.
B. a set of guidelines for basic capital requirements for internationally active banks.
C. an agreement between state and federal regulators to try to have one standard set of
guidelines for all banks.
D. a set of guidelines applied only to international banks operating with U.S.
boundaries.
Answer:
The relationship between the price and the interest rate for a zero coupon bond is best
described as:
A. volatile.
B. fluctuating.
C. inverse.
D. non-existent.
Answer:
If the required reserve rate is ten percent and banks do not hold any excess reserves and
there are no changes in currency holdings, a $1 million open market purchase by the
Fed will result in deposit creation of:
A. $9 million.
B. $90 million.
C. $10 million.
D. $900,000.
Answer:
The weighted average difference between the interest received on assets and the interest
rate paid for liabilities for a bank is the bank’s:
A. interest rate spread.
B. net interest margin.
C. net interest income.
D. return on equity.
Answer:
Fixing an exchange rate between two countries makes the most sense when:
A. the countries macroeconomic fluctuations are positively correlated.
B. the countries macroeconomic fluctuations are negatively correlated.
C. the countries’ macroeconomic fluctuations are uncorrelated.
D. one country has a lot of international reserves and the other doesn’t.
Answer:
The Federal Open Market Committee began operating in:
A. 1913.
B. 1929.
C. 1914.
D. 1936.
Answer:
Which of the following would tend to decrease the size of the time value of the option?
A. The price volatility of the underlying asset is high.
B. The time to expiration of the contract is far away.
C. The underlying price of the asset approaches the strike price.
D. The time to expiration of the options contract is near.
Answer:
The Fed is reluctant to change the required reserve rate because:
A. changes in the rate have a small impact on the actual quantity of money.
B. the money multiplier is not impacted by the required reserve rate.
C. the time lag between changing the required reserve rate and changes in the money
supply can be too long.
D. small changes in the required reserve rate can have too big of an impact on the
money multiplier and the level of deposits.
Answer:
The Japanese experience of the 1990s shows:
A. monetary policy is always more effective than fiscal policy.
B. monetary policy always works.
C. sometimes monetary policy does not work.
D. central bankers should not try to counter the business cycle.
Answer:
The main reason for diversification for an investor is to:
A. take advantage of the fact that returns of assets are perfectly positively correlated.
B. take advantage of the fact that returns on assets are not perfectly correlated.
C. lower transaction costs.
D. gain from the greater returns that come from greater risk.
Answer:
The law of one price:
A. is based on arbitrage.
B. applies only to real goods and not financial assets.
C. can explain short-run exchange rates but not long-run exchange rates.
D. is a mathematical concept that is not useful in explaining exchange rates.
Answer:
The dual banking system in the U.S. today refers to:
A. a bank’s ability to issue checking and saving accounts.
B. a bank’s ability to own another financial institution.
C. the ability of banks to be either federally or state chartered.
D. a deposit institution’s decision to be either a bank or a savings and loan.
Answer:
What would be the impact on the monetary policy reaction curve if the Fed were to
raise the target inflation rate?
A. The monetary policy reaction curve shifts to the left
B. A movement up the existing monetary policy reaction curve
C. A movement down the existing monetary policy reaction curve
D. The monetary policy reaction curve shifts to the right
Answer:
To obtain a discount loan from the Fed, a commercial bank must:
A. prove that it will fail if it does not obtain the loan.
B. prove that the loan will be used to make loans.
C. provide collateral.
D. agree to more frequent examinations.
Answer:
Investment A pays $1,200 half of the time and $800 half of the time. Investment B pays
$1,400 half of the time and $600 half of the time. Which of the following statements is
correct?
A. Investment A and B have the same expected value, but A has greater risk.
B. Investment B has a higher expected value than A, but also greater risk.
C. Investment A has a greater expected value than B, but B has less risk.
D. None of the statements are correct.
Answer:
A fixed exchange rate policy:
A. decreases central bank policy accountability and transparency.
B. strengthens domestic interest rate policy.
C. will likely make domestic inflation more volatile.
D. imports monetary policy.
Answer:
A risk-averse investor versus a risk-neutral investor:
A. will never take a risk, while the risk neutral investor will.
B. needs greater compensation for the same risk versus the risk neutral investor.
C. will take the same risks as the risk neutral investor if the expected returns are equal.
D. needs less compensation for the same risk versus the risk neutral investor.
Answer:
We have a stock selling for $90.00. There is a put option for this stock with a strike
price of $85 and an option price of $1.20:
A. the intrinsic value of this option is $0.00 and the time value of the option is $1.20.
B. the intrinsic value of this option is $90.00 and the time value of the option is $1.20.
C. the intrinsic value of this option is -$5.00 and the time value of the option is $1.20.
D. you cannot determine the intrinsic value or time value of the option since the strike
price is less than the underlying asset price.
Answer:
At expiration, the time value of an option:
A. is equal to the intrinsic value.
B. is greater than the intrinsic value.
C. is zero.
D. is less than the intrinsic value.
Answer: