Mutual funds offer investors:
A. a greater return for greater risk than what an investor can earn on his own.
B. a lower return for more risk than what the investor could earn on his own.
C. a lower return for less risk than what the investor could earn on his own.
D. a way for individuals to eliminate the idiosyncratic risk associated with any single
investment.
Answer:
The standard deviation is generally more useful than the variance because:
A. it is easier to calculate.
B. variance is a measure of risk, where standard deviation is a measure of return.
C. standard deviation is calculated in the same units as payoffs and variance isn’t.
D. it can measure unquantifiable risk.
Answer:
The velocity of money equals:
A. nominal GDP times the price level.
B. nominal GDP times the money supply.
C. nominal GDP divided by the price level.
D. nominal GDP divided by the money supply.
Answer:
If the returns of two assets are perfectly positively correlated, an investor who puts half
of his/her savings into each will:
A. reduce risk.
B. have a higher expected return.
C. not gain from diversification.
D. reduce risk but lower the expected return.
Answer:
Harry gets $1000 in currency from his grandfather when he graduates from college. He
deposits these funds into his checking account. What is the impact on the monetary base
of Harry’s deposit?
A. The monetary base did not change
B. The monetary base increased by $1000
C. The monetary base decreased by $1000
D. The monetary base increases by more than a $1000
Answer:
One thing that is common for all bank loans is that they are:
A. securitized.
B. liquid.
C. part of the banks’ assets.
D. unsecured.
Answer:
All other factors equal, as nominal interest rates decrease, checking account balances
should:
A. increase.
B. decrease.
C. remain constant.
D. be converted to cash.
Answer:
One reason that financial regulations restrict the assets that banks can own is to:
A. combat the moral hazard that government safety nets provide.
B. limit the growth rate of banks.
C. prevent banks from being too profitable.
D. keep banks from spending lavishly on perks for executives.
Answer:
Derivatives are financial instruments that:
A. present high levels of risk and should only be used by the wealthy.
B. when used correctly can actually lower risk.
C. should only be used by people seeking high returns from low risk.
D. represent the outright purchase of a bond.
Answer:
Empirical research seems to verify that:
A. countries that have less independent central banks experience lower rates of
inflation.
B. countries that have high rates of inflation seem to have central banks with low levels
of independence.
C. there is no relationship between the independence of central banks and rates of
inflation.
D. the rate of inflation seems to vary directly with the amount of central bank
independence.
Answer:
The quantity theory of money can explain which of the following?
A. If the %ΔY > 0 and the %ΔV = 0; the %ΔP < %ΔM
B. If the %ΔV = 0 and the %ΔM = 0; the %ΔP must be = 0
C. If %ΔY and the %ΔV = 0; the %ΔP > %ΔM
D. If the %ΔP > 0; the %ΔM must also be > 0
Answer:
Bank panics have often begun as a result of:
A. rumors only.
B. real economic events only.
C. both rumors and real economic events.
D. neither rumors nor economic events.
Answer:
Financial intermediaries:
A. increase the cost of financial transactions but offset these higher costs by providing
safekeeping of customer funds.
B. provide handling of payments but usually less efficiently than other firms.
C. reduce the cost of financial transactions.
D. provide safety of resources, but only for the large borrowing customers who can
afford it.
Answer:
Real business cycle theory explains fluctuations in output through:
A. changes in aggregate demand.
B. changes in productivity.
C. shifts of the short-run aggregate supply curve.
D. changes in monetary policy.
Answer:
If interest rates in the U.S. increases relative to interest rates in Europe:
A. the demand for dollars on the foreign exchange market would increase.
B. the supply of euros on the foreign exchange market would increase.
C. the price of U.S. assets should increase.
D. all of the answers given are correct.
Answer:
Which of the following statements is not true?
A. Home mortgage loans are secured loans.
B. Credit card loans are secured.
C. Most automobile loans are secured loans.
D. Secured loans usually carry less risk than unsecured loans.
Answer:
To an economist, the term “inflation” refers to:
A. any price increases.
B. a continually rising price level.
C. a one-time change in the average price level.
D. increases in prices of important goods like food and energy.
Answer:
Over the long run if central banks want to avoid high rates of inflation, they need to be
concerned with the:
A. unemployment rate.
B. money growth rate.
C. real economic growth rate.
D. productivity of labor.
Answer:
Which of the following assigns widely followed bond ratings?
A. The Federal Reserve
B. The Wall Street Journal
C. Moody’s Investor Service
D. The Nasdaq
Answer:
A risk-averse investor will:
A. never prefer an investment with a lower expected return.
B. always prefer an investment with a certain return to one with the same expected
return but that has any amount of uncertainty.
C. always require a certain return.
D. always focus exclusively on the expected return.
Answer:
If the market federal funds rate were below the target rate, the response from the Fed
would likely be to:
A. raise the required reserve rate.
B. purchase U.S. Treasury securities.
C. sell U.S. Treasury securities.
D. raise the discount rate.
Answer:
An increase in the real interest rate on U.S. bonds, everything else equal, will have the
following impact on the foreign exchange market:
A. the demand for dollars will increase.
B. the supply of dollars will increase.
C. the dollar will depreciate relative to foreign currencies.
D. there will be a movement up the existing demand for dollars curve.
Answer:
In the U.S., loans made by Federal Reserve to banks fall in the categories of:
A. discount loans.
B. reserves.
C. discount loans and reserves.
D. discount loans and foreign exchange reserves.
Answer:
If you were going to write a function for money demand, you would say that the
demand for money holdings:
A. varies directly with both the nominal interest rate and nominal income.
B. varies inversely with both the nominal interest rate and nominal income.
C. varies inversely with nominal income and directly with the nominal interest rate.
D. varies inversely with the nominal interest rate and directly with nominal income.
Answer:
Which of the following is an example of the economies of scope argument for increased
profits for large financial holding companies?
A. Financial holding companies offer a wide array of services under one name.
B. Financial holding companies need only one CEO, one Board of Directors, and one
accounting system regardless of size.
C. Financial holding companies face declining average costs per dollar of deposits.
D. The profitability of financial holding companies relies on one particular line of
business.
Answer:
The fact that a bank’s assets tend to be long-term while its liabilities are short-term
creates:
A. interest-rate risk.
B. credit risk.
C. lower risk for the bank, this is why they follow this strategy.
D. trading risk.
Answer:
An investment grows from $100.00 to $150.00 or 50% over five years. What annual
increase gives a 50% increase over five years?
A. 12.00%
B. 10.00%
C. 9.25%
D. 8.45%
Answer:
The dynamic aggregate demand curve shifts as a result of:
A. discretionary fiscal policy.
B. automatic fiscal policy.
C. either discretionary or automatic fiscal policy.
D. fiscal policy but only when it’s used in conjunction with monetary policy.
Answer:
Which of the following best expresses the present value of $500 that you have to wait
four years and three months to receive?
A. ($500/4.25) × (1 + i)
B. $500 × 4.25 × (1 + i)
C. $500/(1 + i)4.25
D. ($500/4) × (1 + i)3
Answer:
The value of fiat money:
A. comes from its intrinsic value.
B. is worth more as a commodity than its value as money.
C. comes from government decree.
D. means that it is more desirable than currency.
Answer:
One reason the theory of purchasing power parity may not explain price differences
between countries is:
A. real exchange rates are almost impossible to calculate.
B. inflation rates differ across countries.
C. some products do not trade.
D. nominal exchange rates are flexible.
Answer:
The federal funds market:
A. is the term used for bank borrowing from the Federal Reserve System.
B. is the lending to banks by the U.S. treasury when banks face liquidity emergencies.
C. is the inter-bank market where excess reserves from one bank can be loaned to
another bank.
D. is the borrowing by American banks from foreign lenders.
Answer:
Pension funds resemble insurance companies by:
A. pooling the savings of only large investors.
B. accepting deposits.
C. spreading risk.
D. becoming better investments the longer you live.
Answer:
If the market federal funds rate were above the target rate, the response from the Fed
would likely be to:
A. purchase U.S. Treasury securities.
B. sell U.S. Treasury securities.
C. lower the required reserve rate.
D. lower the discount rate.
Answer: