Archives: Quiz

Which of the following would cause the long-run aggregate supply curve to shift? A) an increase in the price level B) a decrease in the expected price level C) an increase in labor productivity D) an autonomous increase in consumption […]

The relationship between the output gap and the cyclical rate of unemployment is known as A) the Phillips curve. B) the LM curve. C) Murphy’s law. D) Okun’s law. Answer: When the price of a coupon bond increases, A) the […]

Losses in which holding resulted in BNP Paribas not allowing investors to redeem shares from three of its investment funds? A) mortgage-backed securities B) Lehman Brothers C) Bear Stearns D) Real Estate Investment Trusts Answer: Suppose First National Bank has […]

The yen is considered to be stronger if: A) it takes fewer yen to acquire a foreign currency such as a dollar B) it takes more yen to acquire a foreign currency such as a dollar C) it takes fewer […]

A futures contract is A) an agreement that specifies the delivery of a commodity or financial instrument at an agreed-upon future date at a currently agreed-upon price. B) an agreement that specifies the delivery of a commodity or financial instrument […]

Suppose Exxon-Mobil announces that its profits in the third quarter of 2013 were $40 billion. This will cause the price of Exxon-Mobil stock to A) rise. B) fall. C) remain unchanged. D) rise, fall, or remain unchanged depending on the […]

If the expected path of interest rates on one-year bonds over the next five years is 2%, 4%, 3%, 2%, and 1%, the expectations theory predicts that the bond with the lowest interest rate today is the one with a […]

When conducting open market operations, at what price is it willing to buy or sell securities? A) at the price agreed upon by the Federal Open Market Committee B) at the price agreed upon by the Board of Governors C) […]

An options contract A) confers the rights to buy or sell an underlying asset at a predetermined price by a predetermined time. B) is another name for a futures contract. C) may be written for debt instruments, but not equities. […]

Economists believe that as a saver’s wealth increases, the saver will generally A) increase his or her holdings of all assets proportionately. B) increase the fraction of wealth held as cash. C) increase the fraction of wealth held as common […]

Interest rate fluctuations A) are usually not considered to be of much importance and are largely ignored by the Fed. B) have the paradoxical effect of increasing the rate of economic growth. C) make it difficult for households and firms […]

What effect would economic weakness in Europe due to a sovereign debt crisis have on the U.S. economy? A) IS shifts to the right B) IS shifts to the left C) potential GDP increases D) potential GDP decreases Answer: A […]

Which of the following is NOT an important criterion for whether a good will be usable as a medium of exchange? A) The good must be of standardized quality. B) The good must be valuable relative to its weight. C) […]

The seller of a futures contract A) assumes the short position. B) assumes the long position. C) has the obligation to receive the underlying financial instrument at the specified future date. D) is expecting the price of the underlying financial […]

Finance companies A) issue stock and use the proceeds to purchase bonds. B) raise funds in financial markets to lend to households and firms. C) raise funds from banks to lend to households and firms. D) issue bonds and use […]

Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic? A) The Fed sets the required reserve ratio. B) The Fed is able to affect the level of reserves in the banking system. C) Banks loan […]

The prime interest rate is the A) interest rate on six-month U.S. Treasury bills. B) discount rate. C) Federal funds rate. D) interest rate that banks charge high-quality borrowers. Answer: Which of the following assets is the most liquid? A) […]

Since crowd funding sites do not themselves invest in business start ups that raise funds on their sites, they don’t reduce: A) the principal-agent problem B) information costs C) transaction costs D) asymmetric information Answer: If a corporation pays a […]

A loan officer uses a credit scoring system to A) compare the interest rate on a loan to interest rates on other assets with comparable risk. B) keep track of the fraction of a bank’s assets tied up in loans […]

Which of the following is considered a default-risk-free instrument? A) a three-month commercial paper issued by GE B) a share of stock issued by Google C) a three-month Treasury bill D) a ten-year bond issued by Intel Answer: On August […]

Banks use “credit-risk analysis” to A) determine the appropriate interest rate to charge borrowers. B) determine whether to invest in the stock of a corporation. C) determine the appropriate interest rate to pay depositors. D) determine the likelihood of an […]

Everything else being constant, a lower real interest rate A) increases desired saving and net exports. B) decreases desired saving but increases net exports. C) increases desired saving and investment. D) increases desired investment but decreases net exports. Answer: Suppose […]

The balance sheet channel describes ways in which interest rate changes resulting from monetary policy affect A) the portfolio decisions of households. B) the portfolio decisions of businesses. C) borrowers’ net worth. D) lenders’ net worth. Answer: Which of the […]

Moral hazard is not eliminated in debt financing because A) borrowers have an incentive to assume greater risk than is in the interest of the lender. B) firms with a great deal of debt often go bankrupt. C) principal-agent problems […]

A balance sheet A) is a statement showing an individual’s or a firm’s financial position at a particular point in time. B) is a statement showing an individual’s or a firm’s income over a period of time. C) is a […]

Bank capital will decline following an increase in interest rates if the value of its A) fixed-rate assets is greater than the value of its fixed-rate liabilities. B) fixed-rate assets is less than the value of its fixed-rate liabilities. C) […]

The sensitivity of bank capital to market interest rates is measured by A) gap analysis. B) duration analysis. C) leverage ratio. D) capital analysis. Answer: If a nation’s current account is -$200 billion and its financial account (excluding its official […]

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 […]

Historically, most industrial loan companies have operated to: a. accept deposits. b. assist their parent company in some facet of the firm’s core business. c. exclusively make commercial loans. d. increase the safety and soundness of the parent company. e. […]

Covered interest rate arbitrage is possible when: a. both currencies are appreciating. b. the actual inflation rates are identical in both countries. c. the difference in the interest rates in two countries exactly equals the spot-to-forward exchange rate differential. d. […]

Under FASB 157, Level _______ assets valuation are based on observable market prices for similar assets or liabilities. a. 1 b. 2 c. 3 d. 4 e. 5 Answer: Under FASB 157, Level _______ assets valuation are based on observable […]

If a bank expects interest rates to decrease in the coming year, it should: a. increase its GAP. b. issue long-term subordinated debt today. c. increase the rates paid on long-term deposits. d. issue more variable rate loans. e. become […]

Which of the following are likely to occur when interest rates rise sharply? a. Fixed-rate loans are pre-paid. b. Bonds are called. c. Deposits are withdrawn early. d. All of the above occur when interest rates rise sharply. e. a. […]

The value of a basis point for 90-day Eurodollar Time Deposit futures contract is: a. $10. b. $100. c. $25. d. $250. e. $500. Answer: If the yield curve is inverted, a portfolio manager can take advantage of this by: […]

Which of the following primarily takes futures positions that are outstanding for just minutes? a. Scalper b. Local c. Day trader d. Position trader e. Hedger Answer: A bank can establish a floor on interest rate costs by: a. buying […]

Cash flows from a firm’s normal business activities are reflected in: a. cash flows from investing. b. cash flows from financing. c. cash flows from operations. d. cash flows from income. e. cash flows from budgeting. Answer: Use the following […]

A firm’s borrowing base is: a. based on cash flow from operations. b. a measure of long-term profit potential. c. the amount of the firm’s unused credit. d. an estimate of the available collateral on a company’s current assets. e. […]

If a security is a first-time placement for a firm, it is called a(n): a. initial public offering. b. first time equity offering. c. primary offering. d. secondary offering. e. seasoned offering. Answer: A savings and loan that sold off […]

What is the strength of static GAP analysis relative to duration gap analysis? a. Static GAP analysis recognizes the time value of money of each cash flow. b. Static GAP analysis provides a measure of the total portfolio’s interest rate […]

The world’s largest financial company (as of September 2013) is: a. Industrial & Commercial Bank of Chia b. J.P. Morgan Chase & Co. c. Citigroup d. HSBC Holdings e. BNP Paribas Answer: The _________ authorized money market deposit accounts. a. […]

Use the following firm working capital cycle information. What are the firm’s estimated working capital needs? a. $90 b. $315 c. $660 d. $1,125 e. $2,250 Answer: Why is liquidating collateral not a preferred means of loan repayment? a. It […]

Use the following firm working capital cycle information. What is the firm’s liability cycle? a. 21 days b. 31 days c. 65 days d. 75 days e. 121 days Answer: Which of the following is not one of the five […]

When constructing ratios, average balance sheet data should be used. Answer: Community banks tend to operate in a limited geographic region. Answer: True Banks should never assume any interest rate risk. Answer: False Investment banks are prohibited from making a […]

An adequately capitalized bank may obtain brokered deposits without FDIC approval. Answer: A borrower making a changing their accountant could be viewed as a negative signal regarding the borrower’s condition. Answer: True As more lenders securitize loans, the supply of […]

A memorandum of understanding is a legal document that orders a firm to stop an unfair practice. Answer: Today, most demand deposit accounts are owned by individuals. Answer: False In 2008, the U.S. Treasury committed over $50 trillion dollars in […]

Credit cards typically provide lower risk-adjusted returns than other types of consumer loans. Answer: In general, bank capital ratios have increased over the last 100 years. Answer: False A low days inventory on hand and a high inventory turnover relative […]

The Federal Reserve serves as the lender of last resort. Answer: GAP is defined as the difference between fixed-rate assets and fixed-rate liabilities. Answer: False A dual banking system means that both the federal government and individual states charter banks […]

Consider the following four investors. Rank each according to who has the most to gain from investing in 30-year tax-exempt municipal bonds. Each investor has $1000 in a savings account that he/she plans to use to buy bonds. Explain briefly […]

A central bank holds foreign exchange reserves for: A. diversification purposes. B. foreign exchange interventions. C. safekeeping. D. diversification and safekeeping. Answer: Which of the following cities has a Federal Reserve Bank located in it? A. Denver B. Philadelphia C. […]

Discuss the effects on the current price of a stock from each of the following: a) An increase in the growth rate of the dividend; b) A decrease in the risk-free interest rate; c) An increase in the equity-risk premium; […]