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1) Foreign banks may engage in banking activities in the United States by opening all
of the following except
A) an agency office of the foreign bank
B) a subsidiary US bank
C) a branch of the foreign bank
D) a McFadden Corporation
2) When a member of the nonbank public deposits currency into her bank account,
A) both the monetary base and bank reserves fall
B) both the monetary base and bank reserves rise
C) the monetary base falls, but bank reserves remain unchanged
D) bank reserves rise, but the monetary base remains unchanged
3) The legislation overturning the Glass-Steagall Act is
A) the McFadden Act
B) the Gramm-Leach-Bliley Act
C) the Garn-St Germain Act
D) the Riegle-Neal Act
4) When the government has a surplus, as occurred in the late 1990s, the ________
curve of bonds shifts to the ________, everything else held constant
A) supply; right
B) supply; left
C) demand; right
D) demand; left
5) Factors that led to worsening financial market conditions in East Asia in 1997-1998
include
A) weak supervision by bank regulators
B) a rise in interest rates abroad
C) unanticipated increases in the price level
D) increased uncertainty from political shocks
6) The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying
and selling bonds will cause the demand for money to ________ and the demand for
bonds to ________
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
7) Rules used to predict movements in stock prices based on past patterns are,
according to the efficient markets hypothesis,
A) a waste of time
B) profitably employed by all financial analysts
C) the most efficient rules to employ
D) consistent with the random walk hypothesis
8) The evidence from banking crises in other countries indicates that
A) deposit insurance is to blame in each country
B) a government safety net for depositors need not increase moral hazard
C) regulatory forbearance never leads to problems
D) deregulation combined with poor regulatory supervision raises moral hazard
incentives
9) Which of the following would not be a way to increase the return on equity?
A) Buy back bank stock
B) Pay higher dividends
C) Acquire new funds by selling negotiable CDs and increase assets with them
D) Sell more bank stock
10) The demand for money as a cushion against unexpected contingencies is called the
A) transactions motive
B) precautionary motive
C) insurance motive
D) speculative motive
11) Economists closely follow the current account balance because they believe it can
provide information on the future movement of
A) interest rates
B) gold flows
C) exchange rates
D) special drawing rights
12) An increase in which of the following leads to a decline in the monetary base?
A) Float
B) Discount loans
C) Foreign deposits at the Fed
D) SDRs
13) An autonomous appreciation of the US dollar makes American goods ________
expensive relative to foreign goods which ________ net exports in the US
A) less; decreases
B) less; increases
C) more; decreases
D) more; increases
14) A major controversy involving the banking industry in its early years was
A) whether banks should both accept deposits and make loans or whether these
functions should be separated into different institutions
B) whether the federal government or the states should charter banks
C) what percent of deposits banks should hold as fractional reserves
D) whether banks should be allowed to issue their own bank notes
15) Which of the following appears in the capital account part of the balance of
payments?
A) A gift to an American from his English aunt
B) A purchase by the Honda corporation of a US Treasury bill
C) A purchase by the Bank of England of a US Treasury bill
D) Income earned by the Honda corporation on its automobile plant in Ohio
16) The Federal Reserve System was created to
A) make it easier to finance budget deficits
B) promote financial market stability
C) lower the unemployment rate
D) promote rapid economic growth
17) The global financial crisis lead to a decline in stock prices because
A) of a lowered expected dividend growth rate
B) of a lowered required return on investment in equity
C) higher expected future stock prices
D) higher current dividends
18) Due to the lack of timely data for the price level and economic growth, the Fed's
strategy
A) targets the exchange rate, since the Fed can control this variable
B) targets the price of gold, since it is closely related to economic activity
C) uses an intermediate target, such as an interest rate
D) stabilizes the consumer price index, since the Fed can control the CPI
19) ________ within the US can make loans to foreigners but cannot make loans to
domestic residents
A) Edge Act corporations
B) International Banking Facilities
C) Universal banks
D) Euro banks
