Archives: Quiz

Who has regulatory responsibility when a bank operates branches in many countries? A) It is not always clear. B) the WTO C) the U.S. Federal Reserve System D) the first country to submit an application Approaches to establishing central bank […]

The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly […]

Everything else held constant, a monetary contraction is characterized by ________ output and ________ interest rates. A) rising; rising B) rising; falling C) falling; rising D) falling; falling ________ in the expected future domestic exchange rate causes the demand for […]

Interest-rate risk is the riskiness of an asset’s returns due to A) interest-rate changes. B) changes in the coupon rate. C) default of the borrower. D) changes in the asset’s maturity. Solutions to the moral hazard in equity contracts include […]

Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called ________. A) investment grade; […]

If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, for Francois the Frenchman the expected rate of return on dollar-denominated […]

The collapse of the subprime mortgage market A) did not affect the corporate bond market. B) increased the perceived riskiness of Treasury securities. C) reduced the Baa-Aaa spread. D) increased the Baa-Aaa spread. Everything else held constant, a decrease in […]

Banks’ asset portfolios include state and local government securities because A) they help to attract business from these government entities. B) banks consider them helpful in attracting accounts of Federal employees. C) the Federal Reserve requires member banks to buy […]

U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. A) premium B) collateral C) default D) discount If American college students […]

Everything else held constant, if disposable income increases by 200 and consumption expenditure increases by 150, the mpc is A) 0. B) 0.15. C) 0.5. D) 0.75. In the Keynesian liquidity preference framework, a rise in the price level causes […]

Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12, and g is 10% or 0.10, then the current stock price is A) $20. B) $50. C) $100. D) $150. ________ within the U.S. can make […]

In emerging market countries, the deterioration in bank’s balance sheets has more ________ effects on lending and economic activity than in advanced countries. A) negative B) positive C) affirming D) advancing In Keynes’s liquidity preference framework, individuals are assumed to […]

Which of the following $1,000 face-value securities has the highest yield to maturity? A) a 5 percent coupon bond selling for $1,000 B) a 10 percent coupon bond selling for $1,000 C) a 12 percent coupon bond selling for $1,000 […]

Small-denomination time deposits refer to certificates of deposit with a denomination of less than A) $1,000. B) $10,000. C) $100,000. D) $1,000,000. At the time of the South Korean financial crisis, the merchant banks were A) almost virtually unregulated. B) […]

Arguments for adopting a policy rule include A) the time-inconsistency problem can lead to poor economic outcomes. B) discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run. […]

All else equal, the ________ the coupon rate on a bond, the ________ the bond’s duration. A) higher; longer B) higher; shorter C) lower; shorter D) greater; longer In the long-run ISLM model and with everything else held constant, as […]

In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the A) Fisher effect is dominated by the liquidity effect and interest rates adjust […]

A bank failure occurs whenever A) a bank cannot satisfy its obligations to pay its depositors and other creditors. B) a bank suffers a large deposit outflow. C) a bank has to call in a large volume of loans. D) […]

Empirical evidence shows that the quantity theory of money is a good theory of inflation A) in the long run, but not in the short run. B) in the short run, but not in the longrun. C) in both the […]

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 the […]

Financial intermediaries’ low transaction costs allow them to provide ________ services that make it easier for customers to conduct transactions. A) liquidity B) conduction C) transcendental D) equitable If nominal GDP in 2001 is $9 trillion, and 2001 real GDP […]

Everything else held constant, when a country’s currency appreciates, the country’s goods abroad become ________ expensive and foreign goods in that country become ________ expensive. A) more; less B) more; more C) less; less D) less; more Duration is A) […]

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the interest rate paid on excess reserves rate from 2% to 1% A) lowers the federal funds rate. B) raises the federal funds […]

Under an exchange-rate targeting rule for monetary policy, a crawling peg A) fixes the value of the domestic currency to a commodity such as gold. B) fixes the value of the domestic currency to that of a large, low-inflation country. […]

If the government finances its spending by selling bonds to the central bank, the monetary base will ________ and the money supply will ________. A) increase; increase B) increase; decrease C) decrease; decrease D) not change; not change Increasing transactions […]

The main center of the Eurodollar market is A) London. B) Basel. C) Paris. D) New York. Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ […]

Because many emerging market countries have not developed the political or monetary institutions that allow the successful use of discretionary monetary policy A) they have little to gain from pegging their exchange rate to an anchor country like the U.S. […]

When stock prices fall A) an individual’s wealth is not affected nor is their willingness to spend. B) a business firm will be more likely to sell stock to finance investment spending. C) an individual’s wealth may decrease but their […]

When the interest rate rises A) planned investment falls. B) planned investment rises. C) planned investment will be unaffected. D) equilibrium income increases. In the liquidity trap, the money demand curve A) is horizontal. B) is vertical. C) is negatively […]

If the required reserve ratio is 25 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 4.0. D) 10.0. The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, […]

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year? A) 5 percent B) 10 percent C) -5 percent D) 25 percent The Fed operating procedures employed between 1979 […]

The speculative demand for money may not exist because A) banks now pay interest on some types of checkable deposits. B) there are alternative riskless assets paying higher returns than the return on money. C) the transactions demand can be […]

One way of describing the solution that high net worth provides to the moral hazard problem is to say that it A) collateralizes the debt contract. B) makes the debt contract incentive compatible. C) state verifies the debt contract. D) […]

When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant. A) demand; decreases; fall B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall The S&L Crisis can […]

State whether the following statement is true or false AND explain why: “A decrease in the discount rate will always cause a decrease in the federal reserve funds rate.” State whether the following statement is true or false AND explain […]

________ are NOT one of the three categories reported for foreign exchange. A) Spot transactions B) Swap transactions C) Strip transactions D) Futures transactions Which of the following were NOT identified by the authors as an alternative instrument to source […]

________ states that nominal interest rates in each country are equal to the required real rate of return plus compensation for expected inflation. A) Absolute PPP B) Relative PPP C) The Law of One Price D) The Fisher Effect Jasper […]

In a typical international trade transaction, the order of activity would be which of the following? A) The foreign buyer places an order; The domestic manufacturer ships to the buyer; The manufacturer’s bank presents a draft and documents to the […]

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime […]

This was an era dominated by industrialized nation economies that were dependent on gold convertibility to maintain confidence in the system. A) The Gold Standard, 1860-1914 B) The Interwar Years , 1914-1945 C) The Bretton Woods Era, 1945-1971 D) The […]

When discussing the structure of corporate governance, the authors distinguish between internal and external factors. ________ is an example of an internal factor, and ________ is an example of an external factor. A) Equity markets; executive management B) Debt markets; […]

A/An ________ subsidiary is one in which the firm operates as an extension of the parent company with cash flows highly interrelated with the parent. A) self-sustaining foreign B) integrated foreign entity C) foreign D) none of the above A […]

The choice of when and how to source capital globally is usually aided early on by the advice of: A) an investment banker. B) your stock broker. C) a commercial banker. D) an underwriter. If the current exchange rate is […]

The person or company initiating the draft or bill of exchange is known as the: A) maker. B) drawer. C) originator. D) any of the above ________ is the ability to exercise effective control over a foreign subsidiary within a […]

If the financial statements of the foreign subsidiary are maintained in the local currency and the U.S. dollar is the functional currency, they are remeasured by the temporal method. Private equity funds are best known for buying control of private […]

In part because of access to global markets, MNEs are better able than their domestic counterparts to maintain their desired debt ratio even when raising new capital. Direct intervention for currency valuation involves limiting the ability to exchange domestic currency […]

The effectiveness of a hedge is determined to what degree the change in spot asset’s value is correlated with the equal change in the hedge asset’s value to a change in the underlying spot exchange rate. From the time of […]

If exchange markets were efficient, the deviation of the actual future quote and today’s forward rate will be zero. Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories. TRUE Business risk […]

Counterparty risk is greater for exchange-traded derivatives than for over-the-counter derivatives. Increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk. TRUE Many MNE s manage foreign exchange exposure centrally, thus gains or […]

Moody’s rates international bonds at the request of the issuer with the stipulation that Moody’s will publish the ratings even if the ratings are unfavorable. TRANSACTION exposure measures gains or losses that arise from the settlement of existing financial obligations […]