The supply curve for loanable funds would increase due to a(n)
A) increase in wealth.
B) increase in expected inflation.
C) decrease in the liquidity of bonds relative to other assets.
D) increase in the information costs of bonds relative to other assets.
Answer:
Using forward transactions allows
A) holders of common stock to lock in future dividend payments.
B) the federal government to stabilize fluctuations in tax receipts.
C) corporations to reduce problems arising from future fluctuations in their dividend
payments.
D) both buyers and sellers to reduce risks associated with price fluctuations.
Answer:
The era of bank panics in the United States was effectively ended by
A) establishing the Fed as lender of last resort.
B) implementing the gold standard.
C) abandoning the gold standard.
D) introducing deposit insurance.
Answer:
The risk structure of interest rates refers to
A) the amount of additional interest necessary to compensate savers for the greater risk
of default on some bonds.
B) the relationship among the interest rates on similar bonds with different maturities.
C) the relationship among the interest rates on bonds with the same maturity.
D) the amount of additional yield necessary to compensate savers for the lesser liquidity
of some bonds.
Answer:
In a closed economy, national saving equals
A) C + I + G.
B) Y – C – G.
C) Y – C – I.
D) Y – G – I.
Answer:
A lender who is worried that its cost of funds might rise during the term of a loan it has
made can hedge against this rise by
A) buying futures contracts on Treasury bills.
B) selling futures contracts on Treasury bills.
C) buying call options on Treasury bills.
D) increasing the amount of money which it lends.
Answer:
How does the use of adjustable-rate mortgages affect interest-rate risk?
A) It reduces the interest-rate risk of lenders.
B) It reduces the interest-rte risk of borrowers.
C) It reduces the interest-rate risk of both lenders and borrowers.
D) It increases the interest-rate risk of both lenders and borrowers.
Answer:
A key difference between small-denomination and large-denomination time deposits is
that
A) small-denomination time deposits pay no interest.
B) large-denomination time deposits may be bought and sold on secondary markets.
C) large-denomination time deposits carry a significant penalty for early withdrawal.
D) small-denomination time deposits carry a significant penalty for early withdrawal.
Answer:
The price of a financial asset equals the
A) future value of all payments
B) sum of all payments
C) present value of all future payments
D) difference between the future value and present value of all payments
Answer:
The wealth of most people declined as a result of the financial crisis of 2007-2009. As a
result, which asset was most likely became a larger portion of their portfolio?
A) bonds
B) stocks
C) house
D) checking account
Answer:
The liquidity premium theory holds that investors
A) always choose the bond with the highest expected return, regardless of maturity.
B) require a term premium to compensate them for investing in a less preferred
maturity.
C) view bonds of different maturities as perfect substitutes.
D) view bonds of different maturities as completely unsubstitutable.
Answer:
The small-firm effect
A) shows that investments in the stocks of small firms would have earned a
below-normal return during the period beginning in the mid-1920s.
B) may be the result of the low liquidity and high information costs of small-firm stock.
C) was stronger during the 1980s than in previous decades.
D) is the tendency for stocks of large firms to outperform those of small firms.
Answer:
Under the expectations theory if market participants expect that future short-term rates
will be higher than current short-term rates, the yield curve will
A) slope upward.
B) slope downward.
C) be flat.
D) slope upward, slope downward, or be flat, depending on risk, liquidity, cost of
information, and tax considerations.
Answer:
The presence of transactions costs and information costs
A) lowers the cost of funds to borrowers.
B) raises the expected return to lenders.
C) lowers the expected return to lenders.
D) increases the efficiency of the financial system.
Answer:
If the interest rate in the United States rises
A) investors increase their demand for dollars and the U.S. exchange rate appreciates.
B) investors increase their demand for dollars and the U.S. exchange rate depreciates.
C) investors decrease their demand for dollars and the U.S. exchange rate appreciates.
D) investors decrease their demand for dollars and the U.S. exchange rate depreciates.
Answer:
Monetary policy refers to the government’s
A) decisions on how much money to spend.
B) decisions on how much money to collect in taxes.
C) plans for retiring the national debt.
D) management of the money supply and interest rates to achieve macroeconomic
objectives.
Answer:
In practice, the ECB has committed to what type of strategy for monetary policy?
A) inflation targeting
B) monetary targeting
C) unclear as to inflation or monetary targeting
D) exchange rate targeting
Answer:
On a bank’s balance sheet, liabilities are
A) the uses of acquired assets.
B) the sources of acquired funds.
C) all those items of value owned by the bank.
D) by definition equal to the bank’s assets.
Answer:
If a bank’s ratio of assets to capital is 25 and it’s return on assets is -5%, what is its
return on equity?
A) -0.2%
B) -5%
C) -30%
D) -125%
Answer:
In the United States, the lender of last resort is
A) Fannie Mae.
B) the Federal Reserve.
C) the Federal Deposit Insurance Corporation.
D) Securities and Exchange Commission.
Answer:
If the nominal interest rate parity condition is not met,
A) imports will exceed exports.
B) the return from holding domestic assets must exceed the expected return from
holding foreign assets.
C) the return from holding domestic assets must be less than the expected return from
holding foreign assets.
D) the return from holding domestic assets must be greater or less than the expected
return from holding foreign assets.
Answer:
All of the following tends to occur when unemployment is above the natural rate
EXCEPT:
A) wage increases will be limited
B) inflation will rise
C) increases in the cost of production will be limited
D) there is slack in the labor market
Answer:
The introduction of money to an economy results in:
A) higher incomes
B) higher productivity
C) increased specialization
D) a more efficient barter system
Answer:
In regard to crowd funding, it was expected that the SEC would limit the amount that
small investors can invest in any one company to no more than:
A) $1000
B) $10,000
C) $100,000
D) $1,000,000
Answer:
During most of the time in recent decades, the domestic government sector was
A) a net borrower.
B) a net lender.
C) neither a borrower nor a lender.
D) a major factor in keeping real interest rates low.
Answer:
Financial securities that represent partial ownership of a corporation are known as
A) bonds.
B) stocks.
C) coupons.
D) dividends.
Answer:
If there is a decrease in the expected future profitability of capital,
A) the aggregate demand curve will shift right.
B) the aggregate demand curve will shift left.
C) the aggregate demand curve will become steeper.
D) the aggregate demand curve will be unaffected.
Answer:
A speculator who believes strongly that interest rates will fall would be likely to
A) buy futures contracts on Treasury bills.
B) sell futures contracts on Treasury bills.
C) sell Treasury bonds in the spot market.
D) decrease now the amount of money which he lends.
Answer:
To help offset the costs from loan defaults, the First National Bank of Gotham decides
to increase the interest rate it charges on its business loans. As a result of this increase in
the interest rate, the creditworthiness of Gotham’s loan applicants is likely to
A) improve.
B) deteriorate.
C) be unchanged.
D) be unchanged, unless the economy enters a recession at the same time as the interest
rate is increased.
Answer:
If lenders anticipate no changes in liquidity, information costs, and tax differences, the
yield on a risky security should be
A) greater than that on a safe security and the price of a risky security should also be
greater than that of a safe security.
B) less than that on a safe security and the price of a risky security should also be less
than that of a safe security.
C) greater than that on a safe security and the price of a risky security should be lower
than that of a safe security.
D) less than that on a safe security and the price of a risky security should be greater
than that on a safe security.
Answer:
If the six-month Treasury bill has an interest rate of 0.5%, the ten-year Treasury bond
has an interest rate of 1.6%, and a ten-year bond issued by Dell has an interest rate of
4%, what is the risk premium on Dell’s bond?
Answer:
How can the difference between the current unemployment rate and the natural rate of
unemployment help explain changes in inflation?
Answer:
How does the relationship between housing prices and rental rates provide evidence for
or against the existence of a housing bubble?
Answer:
A one-year bond has an interest rate of 0.2% and is expected to rise to 0.5% next year
and 1.1% in two years. The term premium for a two-year bond is 0.1% and for a
three-year bond is 0.25%. What are the interest rates on a two-year bond and three-year
bond according to the liquidity premium theory?
Answer:
Why did Goldman Sachs and Morgan Stanley seek to become financial holding
companies in October 2008?
Answer:
Throughout most of the post-World War II period, the use of capital controls by
governments around the world was declining. But in the late 1990s, a number of
governments expressed renewed interest in capital controls. What accounts for this
renewed interest?
Answer:
How did the use of the euro limit the use of monetary policy by European nations
severely affected by the Financial Crisis of 2007-2009?
Answer:
Make use of the quantity equation to answer the following problem. If the Fed increases
the money supply by 6%, economic growth is 2%, and inflation is 2%, what is
happening to the velocity of money? Be specific.
Answer:
Suppose the required reserve ratio is 8%, excess reserve-to-deposit ratio is 2%, and the
currency-to-deposit ratio is 10%. What is the value of the money multiplier?
Answer:
How does proprietary trading expose investment banks to interest-rate and credit risk?
Answer:
How does an expansionary monetary policy affect aggregate expenditures according to
the bank lending channel?
Answer:
How do New Keynesians use the existence of long-term nominal contracts to help
explain the failure of prices to adjust in the short run?
Answer:
Describe the three types of unemployment?
Answer:
Briefly discuss three reasons why firms may borrow funds from a bank.
Answer:
What are the differences between common stock and preferred stock?
Answer: