Archives: Quiz

1) Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback […]

1) The rate on commercial paper is generally higher than the prime rate. A.True B.False 2) Which of the following will not increase a present value? A.Increase the interest rate B.Decrease the number of periods C.Increase the future value D.None […]

1) ________ bonds combine stocks into one fund. A) Hybrid B) Money market C) Municipal D) Equity 2) Members of the Board of Governors are A) chosen by the Federal Reserve Bank presidents B) appointed by the newly elected president […]

1) Bank failure is less likely to occur when a bank A) holds less in U.S. government securities B) suffers large deposit outflows C) holds more excess reserves D) has less bank capital 2) Member commercial banks have purchased stock […]

1) The primary difference between the “payoff” and the “purchase and assumption” methods of handling failed banks is that the FDIC A) guarantees all deposits, not just those under the $250,000 limit, when it uses the “payoff” method B) guarantees […]

1) Which of the following statements is true regarding the Fed’s procedures for operating the discount window? A) The Fed’s operating procedures and paying interest on reserves contains the federal funds rate between the interest rate paid on reserves and […]

1) Financial markets have the basic function of A) bringing together people with funds to lend and people who want to borrow funds B) assuring that the swings in the business cycle are less pronounced C) assuring that governments need […]

1) The efficient market hypothesis suggests that A) investors should not try to outguess the market by constantly buying and selling securities B) investors do better on average if they adopt a “buy and hold” strategy C) buying into a […]

1) The major provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 included A) transferring the regulatory role of the Federal Home Loan Bank Board to the Office of Thrift Supervision, a bureau within the U.S. Treasury […]

1) (I) Banks are financial intermediaries that accept deposits and make loans. (II) The term “banks” includes firms such as commercial banks, savings and loan associations, mutual savings banks, credit unions, insurance companies, and pension funds. A) (I) is true, […]

1) Securities dealers A) sell securities out of their inventories to customers who want to buy B) buy securities, which they add to their inventories, from customers who want to sell C) are largely responsible for the health and growth […]

1) When the Bundesbank lowered German mark interest rates in September 1992, A) there was a massive sell-off of German marks, requiring intervention to support the value of the mark B) there was a massive sell-off of British pounds, requiring […]

1) Advocates of Fed independence fear that subjecting the Fed to direct presidential or congressional control would A) impart an inflationary bias to monetary policy B) force monetary authorities to sacrifice the long-run objective of price stability C) make the […]

1) The main role of investment companies in the money market is to A) trade on behalf of commercial accounts B) mediate the symmetric information problem between server-lender and borrower-spenders C) both A and B of the above D) neither […]

1) If the dollar depreciates relative to the Swiss franc, A) Swiss chocolate will become more expensive in the United States B) American computers will become less expensive in Switzerland C) Swiss chocolate will become cheaper in the United States […]

1) A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base. A) sale; purchase; increase B) sale; sale; decline […]

1) (I) Municipal bonds that are issued to pay for essential public projects are exempt from federal taxation. (II) General obligation bonds do not have specific assets pledged as security or a specific source of revenue allocated for their repayment. […]

1) In a world with few impediments to capital mobility, the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency, a situation known as the A) interest parity condition B) […]

1) The yield to maturity of a one-year, simple loan of $500 that requires an interest payment of $40 is A) 5 percent B) 8 percent C) 12 percent D) 12.5 percent 2) The use of financial derivatives by financial […]

1) The main disadvantage of futures contracts as compared to options on futures contracts is that futures A) remove the possibility of gains B) increase the transactions cost C) are not as effective a hedge D) do not remove the […]

1) An investor gains from short selling by ________ and then later ________. A) buying a stock; selling it at a higher price B) selling a stock; buying it back at a lower price C) buying a stock; selling it […]

1) The term structure of interest rates describes how interest rates move over time. 2) To sell an old bond when rates have risen, the holder will have to discount the bond until the yield to the buyer is the […]

1) The market for U.S. Treasury bills is a shallow market because so few individual investors buy T-bills. 2) Mutual funds are regulated under four federal laws designed to protect investors. Answer: TRUE 3) A bank maintains bank capital to […]

1) Bank failures have been a feature of all U.S. financial crises from 1800 to 1944 . 2) Many common stocks are traded at organized exchanges, although a majority of the largest corporations have their shares traded over the counter. […]

1) A financial guarantee ensures that the lender (bond purchaser) will be paid both principal and interest in the event the issuer defaults. 2) All stocks pay dividends, as that is the only way an investor can profit from holding […]

1) To reduce the interest-rate risk of holding a portfolio of bonds, Treasury bond futures contracts should be bought. 2) An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to a gain in international reserves. […]

1) Demographic trends and changes in retirement patterns suggest that Social Security funding problems will ease over the next few decades. 2) Subprime loans are those made to borrowers who do not qualify for loans at the usual market rate […]

1) Collateralized debt is also called secured debt. 2) The principle underlying Treasury strips is that an investor will earn a higher interest rate when reinvestment risk is eliminated. Answer: TRUE 3) Checkable deposits, a traditional source of low-cost funds […]

1) Most corporate bonds have a face value of $1,000, are sold at a discount, and can only be redeemed at the maturity date. 2) Evidence that stock prices sometimes fall when a firm announces good news contradicts the efficient […]

1) Most municipal bonds are revenue bonds rather than general obligation bonds. 2) A fall in the expected future exchange rate shifts the expected return schedule for domestic deposits to the right and causes the domestic currency to depreciate. Answer: […]

1) In an emerging market economy, a lending boom and crash are inevitable outcomes of financial liberalization and globalization. 2) The share of bank operating income earned from off-balance-sheet activities has increased over the past two decades. Answer: TRUE 3) […]

1) Technical analysis is a popular technique used to predict stock prices by studying past stock price data and searching for patterns such as trends and regular cycles. 2) The FOMC is an element of the Federal Reserve System. Answer: […]

1) Closing for a mortgage loan refers to the moment the loan is paid off. 2) Decreased transparency of the monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers is […]

1) Inflation targeting makes the central bank less accountable. 2) In a fixed exchange rate system, a country whose currency is undervalued will lose international reserves. Answer: FALSE 3) There are two kinds of exchange rate transactions. Answer: TRUE 4) […]

1) Common stock is the riskiest corporate security, followed by preferred stock and then bonds. 2) The current yield on a bond is a good approximation of the bond’s yield to maturity when the bond matures in five years or […]

1) Having performed well in the past indicates that an investment adviser or a mutual fund will perform well in the future. 2) Investors make their choices of which assets to hold by comparing the expected return, liquidity, and risk […]

1) A managed float regime is when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets. 2) Holding everything else constant, as the dollar weakens vacations abroad become less […]

1) The dollar amount invested in mutual funds is about the same as the total assets of all commercial banks at the beginning of 2004. 2) Whether a fund is organized as a closed- or an open-end fund, is will […]

1) A FICO score below 660 is considered good while a score above 720 is likely to cause problems in obtaining a loan. 2) Credit rationing occurs when lenders charge higher interest rates on the loans they make to riskier […]

1) The Dow Jones Industrial Average is the broadest and best indicator of the stock market’s day-to-day performance. 2) The New York Stock Exchange is an example of a primary market. Answer: FALSE 3) Federal legislation allows credit unions representing […]

1) Agency theory focuses on how government agencies regulate financial intermediaries and markets. 2) Issuing marketable securities is the primary way businesses finance their operations. Answer: FALSE 3) Unlike commercial banks, S&Ls can only be chartered by the federal government. […]

1) A point on a mortgage loan refers to one monthly payment of principal and interest. 2) If the dollar depreciates relative to the British pound, British sweaters will become more expensive in the United States. Answer: TRUE 3) Finance […]

1) The federal funds rate is an operating target. 2) In a lease financing arrangement, a finance company will purchase equipment, which it then leases to a company for a set period. Answer: TRUE 3) Debentures are long-term unsecured bonds […]

1) The Securities Acts Amendment of 1975 abolished fixed commissions. 2) Changes in interest rates make investments in long-term bonds risky. Answer: TRUE 3) If Friendly Finance Company has more rate-sensitive assets than rate-sensitive liabilities, it may reduce risk with […]

1) If a bank has more rate-sensitive liabilities than assets, then an increase in interest rates will reduce bank profits. 2) Interest rates on banker’s acceptances are low because the risk of default is very low. Answer: TRUE 3) Holding […]

1) Open market purchases by the Fed increase the supply of nonborrowed reserves. 2) Most private pension plans are insured by the Penny Benny, which pays benefits when a plan’s sponsor goes bankrupt. Answer: TRUE 3) Regulatory forbearance reduces moral […]

1) The Fisher Effect predicts that an increase in expected inflation will lower the interest rate on bonds. 2) All nationally chartered banks are required to be members of the Fed. Answer: TRUE 3) Financial innovation has provided more options […]

1) The secondary market is where new issues of stocks and bonds are introduced. 2) Retirement funds account for about 31% Of all mutual fund assets. Answer: FALSE 3) A monoline insurance company is an insurance company which specialize in […]

1) When yield curves are downward-sloping, long-term interest rates are above short-term interest rates. 2) A financial intermediary’s risk-sharing activities are also referred to as asset transformation. Answer: TRUE 3) Economies of scope come from increasing the size of a […]

1) A project with an IRR that is less than the opportunity cost of capital should be: A.accepted for all project types B.accepted for all lending projects C.accepted for all borrowing projects D.rejected for all projects 2) What is the […]