Archives: Quiz

1) Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ________ […]

1) The Fed’s discount lending is of three types: ________ is the most common category; ________ is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks that have experienced severe liquidity problems […]

1) Which of the following is most likely to lead to inflationary monetary policy? A) Declining oil prices B) Resolution of conflict in the Middle East C) The enactment of a free-trade agreement with Mexico D) Rising government budget deficits […]

1) A tax cut initially A) increases consumption expenditure by an amount greater than the tax cut B) increases consumption expenditure by an amount equal to the tax cut C) increases consumption expenditure by an amount that is less than […]

1) The ________ interest rate is adjusted for expected changes in the price level A) ex ante real B) ex post real C) ex post nominal D) ex ante nominal 2) If additional information is not used when forming an […]

1) Assume a bank has $200 million of assets with a duration of 25, and $190 million of liabilities with a duration of 105 If interest rates increase from 5 percent to 6 percent, the net worth of the bank […]

1) Loophole mining refers to financial innovation designed to A) hide transactions from the IRS B) conceal transactions from the SEC C) get around regulations D) conceal transactions from the Treasury Department 2) If workers do not believe that policymakers […]

1) If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $95 trillion, then real GDP growth from 2002 to 2003 is A) 05% B) 5% C) 0% D) -5% 2) The spectacular growth in international […]

1) The net amount of international reserves that move between governments to finance international transactions is called the ________ balance A) capital account B) current account C) trade D) official reserve transactions 2) If borrowers with the most risky investment […]

1) In the Gordon growth model, a decrease in the required rate of return on equity A) increases the current stock price B) increases the future stock price C) reduces the future stock price D) reduces the current stock price […]

1) With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is A) 3 percent B) 10 percent […]

1) The nominal interest rate minus the expected rate of inflation A) defines the real interest rate B) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate C) is a less […]

1) Critics of nationwide banking fear A) an elimination of community banks B) increased lending to small businesses C) cutthroat competition D) banks with economies of scale problems 2) If a contractionary monetary policy lowers the price level by more […]

1) If the money supply is $600 and nominal income is $3,000, the velocity of money is A) 1/50 B) 1/5 C) 5 D) 50 2) When we say that money is a stock variable, we mean that A) the […]

1) Using the Gordon growth model, if D1 is $50, ke is 7%, and g is 5%, then the present value of the stock is A) $250 B) $25 C) $50 D) $4673 2) In the liquidity trap, monetary policy […]

1) Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input A) three; ten B) five; ten C) three; twelve D) five; twelve 2) Suppose the economy is producing at […]

1) The time it takes for policy makers to be sure of what the data are signaling about the future course of the economy is called A) the data lag B) the recognition lag C) the legislative lag D) the […]

1) If your nominal income in 1998 is $50,000, and prices increase by 50% between 1998 and 2011, then to have the same real income, your nominal income in 2011 must be A) $50,000 B) $75,000 C) $100,000 D) $150,000 […]

1) The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall A) shifted the aggregate demand curve to the right B) shifted the aggregate demand curve to the left C) shifted the […]

1) Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock […]

1) When the IS and LM curves are combined in the same diagram, the intersection of the two curves determines the equilibrium level of ________ as well as the ________ A) aggregate output; price level B) aggregate output; interest rate […]

1) When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in A) a contraction of economic activity B) an economic boom C) an increased opportunity for growth D) a call for government regulation 2) If the Federal Reserve conducts […]

1) Conflicts of interest are a type of ________ problem that can happen when an institution provides multiple services A) adverse selection B) free-riding C) discounting D) moral hazard 2) The ability to use one resource to provide different products […]

1) A lesson of the Enron collapse is that government regulation A) always fails B) can reduce but not eliminate asymmetric information C) increases the problem of asymmetric information D) should be reduced 2) The originate-to-distribute business model has a […]

1) Banks hold capital because A) they are required to by regulatory authorities B) higher capital increases the returns to the owners C) it increases the likelihood of bankruptcy D) higher capital increases the return on equity 2) The most […]

1) Because banks engage in regulatory arbitrage, the Basel Accord on risk-based capital requirements may result in A) reduced risk taking by banks B) reduced supervision of banks by regulators C) increased fraudulent behavior by banks D) increased risk taking […]

1) Referring to the Economic Stimulus Act of 2008, the expansionary effect of the government stimulus was overwhelmed by the continuing deterioration in credit market conditions Everything else held constant and using the ISLM model, the net effect would cause […]

1) The interest rate the Fed charges banks borrowing from the Fed is the A) federal funds rate B) Treasury bill rate C) discount rate D) prime rate 2) If the economy is on the IS curve, but is to […]

1) As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant A) foreign; foreign B) foreign; dollar C) dollar; foreign D) dollar; dollar 2) Evidence […]

1) Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves Given this information, we can say […]

1) Bonds that are sold in a foreign country and are denominated in the country’s currency in which they are sold are known as A) foreign bonds B) Eurobonds C) equity bonds D) country bonds 2) The actual execution of […]

1) Unemployment resulting from a mismatch of workers’ skills and job requirements is called A) frictional unemployment B) structural unemployment C) seasonal unemployment D) cyclical unemployment 2) In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the […]

1) On January 25, 2009, one US dollar traded on the foreign exchange market for about 333 Romanian new lei Therefore, one Romanian new lei would have purchased about ________ US dollars A) 030 B) 186 C) 286 D) 333 […]

1) A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity B) pays the bondholder the face value at maturity C) pays all interest and the face value at maturity D) pays […]

1) The teal book is the Fed research document containing A) the forecast of national economic variables for the next three years B) forecasts of the money aggregates conditional on different monetary policy stances C) information on the state of […]

1) The trend in recent years is that more and more governments A) have been granting greater independence to their central banks B) have been reducing the independence of their central banks to make them more accountable for poor economic […]

1) If Treasury deposits at the Fed are predicted to fall, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves A) defensive; inject B) defensive; drain C) […]

1) Prior to 2008, bank managers looked on reserve requirements A) as a tax on deposits B) as a subsidy on deposits C) as a subsidy on loans D) as a tax on loans 2) The view that expectations change […]

1) Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending A) merely causes a movement along the IS curve and not a shift […]

1) State whether the following statement is true or false AND explain why: “An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate” 2) State whether the following statement […]

1) Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. i. What is the maximum gain when a butterfly spread is created from the put options? ii. What is the maximum […]

1) A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on the S&P index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to […]

1) A binomial tree prices an American option at $3.12 and the corresponding European option at $3.0 The Black-Scholes price of the European option is $2.98. What is the control variate price of the American option? 2) The spot price […]

1) An American put option to sell a Swiss franc for USD has a strike price of 0.80 and a time to maturity of 1 year. The volatility of the Swiss franc is 10%, the USD interest rate is 6%, […]

1) Consider a European call option on a currency. The exchange rate is 1.0000, the strike price is 0.9100, the time to maturity is one year, the domestic risk-free rate is 5% per annum, and the foreign risk-free rate is […]

1) For equities it is usually assumed that the number of trading days in the year is a. 365 b. 252 c. 262 d. 272 2) In a LIBOR-in-arrears swap the following is true (Circle one) a. The floating payment […]

1) Which of the following is true (circle one) a. Principals are not usually exchanged in a currency swap b. The principal amounts usually flow in the opposite direction to interest payments at the beginning of a currency swap and […]

1) The Black-Scholes and Merton pathbreaking papers on stock option pricing were published in (circle one) a. 1983 b. 1984 c. 1974 d. 1973 2) A portfolio of ten companies is formed. In a third-to-default swap (Circle one) a. There […]

1) Volatility can be defined as (circle one) a. The standard deviation of the return, measured with continuous compounding, in one year b. The variance of the return, measured with continuous compounding, in one year c. The standard deviation of […]

1) In a shout call option the strike price is $30. The holder shouts when the asset price is $40. What is the payoff from the option if the final asset price is $35? (Circle one) a. $0 b. $5 […]