Archives: Quiz

1) Couples buying a home should generally put ownership in both names. 2) Insurance companies can easily rig their dividend and cash value accumulations to look especially good at specific points in time and thus produce favorable interest-adjusted cost indexes. […]

1) The opportunity cost of a decision is the value of the next best alternative that must be foregone. 2) To be most successful in negotiating, one must be willing to walk away from the deal. Answer: T 3) The […]

1) Simple interest is the interest computed on principal only, without adding the interest to the principal to determine future interest. 2) Ultraconservative investors should invest in instruments such as insured certificates of deposits and Series EE savings bonds. Answer: […]

1) Most types of tax-sheltered retirement accounts are tax-deferred rather than tax-free at withdrawal. 2) Research indicates that an investor can cut random risk in half by diversifying in as few as five stocks and bonds. Answer: T 3) A […]

1) For couples with two vehicles, each should be owned separately. 2) The key to reducing one’s tax liability is to reduce taxable income rather than gross income. Answer: T 3) Planting trees and shrubs on your rental property is […]

1) With an auto leasing arrangement, you are renting the car with the ownership title remaining with the lease grantor. 2) Approximately 20 percent of all loans granted by consumer finance companies are for the purpose of debt consolidation. Answer: […]

1) A health care proxy is a legal document in which an individual designates another person to make health care decisions if the individual is rendered incapable of making his or her wishes known. 2) As a conservative investor, you […]

1) If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is A) $50,000 B) $40,000 […]

1) Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds to the ________. A) right; right B) right; left […]

1) In the Baumol-Tobin analysis of the demand for money, either an increase in ________ or an increase in ________ increases money demand. A) income; interest rates B) brokerage fees; interest rates C) interest rates; the price level D) brokerage […]

1) If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because A) of fluctuations in the demand for reserves B) of fluctuations in the consumption function C) bond values will tend […]

1) A monetary policy strategy that uses a fixed exchange rate regime that ties the value of a currency to the currency of a large, low inflation country is called ________ targeting. A) exchange-rate B) currency C) monetary D) inflation […]

1) The theory of PPP suggests that if one country’s price level falls relative to another’s, its currency should A) depreciate B) appreciate C) float D) do none of the above 2) Suppose that the Federal Reserve conducts an open […]

1) According to the segmented markets theory of the term structure A) bonds of one maturity are close substitutes for bonds of other maturities, therefore, interest rates on bonds of different maturities move together over time B) the interest rate […]

1) Hong Kong chooses to have ________ and ________ and therefore, cannot have an independent monetary policy at the same time. A) capital control, a fixed exchange rate B) free capital mobility, a fixed exchange rate C) free capital mobility, […]

1) The Fed does not tightly control the monetary base because it does not completely control A) open market purchases B) open market sales C) borrowed reserves D) the discount rate 2) Everything else held constant, an increase in the […]

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

1) Which of the following is not a source of borrowings for a bank? A) Federal funds B) Eurodollars C) Transaction deposits D) Discount loans 2) Loss aversion can explain why very little ________ actually takes place in the securities […]

1) Federal funds are A) funds raised by the federal government in the bond market B) loans made by the Federal Reserve System to banks C) loans made by banks to the Federal Reserve System D) loans made by banks […]

1) Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s, with M2 velocity moving ________ with the opportunity cost of holding M2. A) poorly; erratically B) poorly; closely C) well; erratically D) well; […]

1) The First Bank of the United States A) was disbanded in 1811 when its charter was not renewed B) had its charter renewal vetoed in 1832 C) was fundamental in helping the Federal Government finance the War of 1812 […]

1) The interest rate on seasonal credit equals A) the federal funds rate B) the primary credit rate C) the secondary credit rate D) an average of the federal funds rate and rates on certificates of deposits 2) The mound-shaped […]

1) The formula for the M1 money multiplier is A) m = (1 + c)/(rr + e + c) B) M = 1/(rr + e + c) C) M = (1 + c)/(rr + e + c) D) m = […]

1) Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate rises B) the demand curve for bonds shifts to the left and the interest […]

1) A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of A) .6 percent B) 5 percent C) 6 percent D) 10 percent 2) If the amount payable in two years is […]

1) Which of the following are reported as assets on a bank’s balance sheet? A) Borrowings B) Reserves C) Savings deposits D) Bank capital 2) Under exchange-rate targeting, the central bank in the targeting country ________ lose the ability to […]

1) The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance […]

1) The money multiplier is A) negatively related to high-powered money B) positively related to the excess reserves ratio C) negatively related to the required reserve ratio D) positively related to holdings of excess reserves 2) In the late 1990s, […]

1) The spread between interest rates on low quality corporate bonds and U.S. government bonds A) widened significantly during the Great Depression B) narrowed significantly during the Great Depression C) narrowed moderately during the Great Depression D) did not change […]

1) If aggregate output is below the natural rate level, activists of policies would recommend that the government A) do nothing B) try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right C) […]

1) During hyperinflations, A) the value of money rises rapidly B) money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale C) middle-class savers benefit as prices rise […]

1) A smart card is the equivalent of A) cash B) savings bonds C) savings deposits D) certificates of deposit 2) If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple […]

1) If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything else held constant, A) a European vacation becomes less expensive B) a European vacation becomes more expensive C) the cost of a European […]

1) In the figure above, the price of bonds would fall from P1 to P2 when A) inflation is expected to increase in the future B) interest rates are expected to fall in the future C) the expected return on […]

1) Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we […]

1) The monetary base minus reserves equals A) currency in circulation B) the borrowed base C) the nonborrowed base D) discount loans 2) Keynes’s liquidity preference theory indicates that the demand for money is ________ related to ________. A) negatively; […]

1) Before 1970, mutual funds invested almost solely in A) corporate bonds B) corporate common stocks C) United States government bonds D) municipal bonds and money market securities 2) In the model of the money supply process, the Federal Reserve’s […]

1) When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive. A) appreciated; British cars sold in the United States become […]

1) Futures differ from forwards because they are A) used to hedge portfolios B) used to hedge individual securities C) used in both financial and foreign exchange markets D) a standardized contract 2) The theory of purchasing power parity cannot […]

1) Examples of off-balance-sheet activities include A) loan sales B) extending loans to depositors C) borrowing from other banks D) selling negotiable CDs 2) The theory of portfolio choice indicates that factors affecting the demand for money include A) income […]

1) Federal deposit insurance covers deposits up to $250,000, but as part of a doctrine called “too-big-to-fail” the FDIC sometimes ends up covering all deposits to avoid disrupting the financial system. When the FDIC does this, it uses the A) […]

1) An instrument developed to help investors and institutions hedge interest-rate risk is A) a put option B) a call option C) a financial derivative D) a mortgage-backed security 2) When those most likely to produce the outcome insured against […]

1) Policy makers cannot achieve both price stability and economic activity stability when facing A) temporary supply shocks B) permanent supply shocks C) demand shocks D) all of the above 2) A ________ is a subsidiary of a U.S. bank […]

1) The expected return on dollar deposits in terms of foreign currency can be written as the ________ of the interest rate on dollar deposits and the expected appreciation of the dollar. A) product B) ratio C) sum D) difference […]

1) Because the quantity theory of money tells us how much money is held for a given amount of aggregate income, it is also a theory of A) interest-rate determination B) the demand for money C) exchange-rate determination D) the […]

1) In the equation of exchange, the concept that provides the link between M and PY is called A) the velocity of money B) aggregate demand C) aggregate supply D) the money multiplier 2) Banks responded to disintermediation by A) […]

1) An inverted yield curve A) slopes up B) is flat C) slopes down D) has a U shape 2) The principal-agent problem would not occur if ________ of a firm had complete information about actions of the ________. A) […]

1) If a person selling bonds to the Fed cashes the Fed’s check, then reserves ________ and currency in circulation ________, everything else held constant. A) remain unchanged; declines B) remain unchanged; increases C) decline; remains unchanged D) increase; remains […]

1) An expansionary monetary policy raises firms’ cash flows by ________ interest rates. A) lowering real B) lowering nominal C) raising real D) raising nominal 2) Which of the followings is a duty of the Board of Governors of the […]

1) In recent years, bank regulatory authorities have A) encouraged banks to enter the insurance field B) discouraged banks from entering the insurance field C) asked Congress to write new legislation that would make it illegal for banks to enter […]