MGT411 Money, Banking and Financial Markets Solved MCQs 30

Q#1 A central bank typically:A) has a monopoly in issuing currency.B) use monetary policy in attempts to stabilize economic growth and/or inflation.C) serves as a "bankers' bank" that provides services to other banks.D) All of the above are correct.The Basics: How Central Banks Originated and Their Role Today.Q#2 The primary reason for the existence of central banks today is to:A) help finance wars.B) serve as a bank for the government, accepting deposits and providing the government with checkable deposits.C) control the money supply.D) stabilize the prices of specific commodities.The Basics: How Central Banks Originated and Their Role Today.Q#3 Monetary policy in the countries that are part of the European Monetary Union is controlled by the:A) European Central Bank.B) central banks of each of the member countries.C) Federal Reserve Board.D) Bank ofEngland.The Basics: How Central Banks Originated and Their Role Today.Q#4 Which of the following tasks is NOT performed by a central bank as part of its role as a "bankers' bank?"A) providing loans to banks during periods of financial stressB) managing the payments systemC) controlling stock pricesD) accepting deposits from banksQ#5 Central banks can serve as a lender of last resort because:A) they have the ability to create money.B) they are the only financial institution that is legally allowed to make loans during a financial panic.C) the interest rates they charge are so high that banks are virtually never willing to borrow from the Fed.D) banks are more likely to borrow money from their depositors during a financial panic.The Basics: How Central Banks Originated and Their Role Today.Q#6 Fedwire:A) is a financial news network developed by the Federal Reserve Board.B) is used for interbank transfers.C) was once heavily used by banks, but is rarely used today since there is little need for interbank transfers now that the internet exists.D) is used by the Fed solely to make loans to member banks.The Basics: How Central Banks Originated and Their Role Today.Q#7 Historical evidence indicates that theU.S. financial system is:A) always very stable as long as the government does not imposed any regulations.B) prone to periods of instability that have imposed substantial costs on society.C) somewhat unstable, but this does not matter much since the social cost of the instability is always low.D) as unstable today as it was in the late 1800s.Stability: The Primary Objective of All Central Banks.Q#8 One of the main objectives of a central bank is to:A) reduce idiosyncratic risk in financial markets.B) reduce systematic risk in financial markets.C) encourage a low and stable rate of economic growth.

D) achieve a high and stable inflation rate.Stability: The Primary Objective of All Central Banks.Q#9 Central banks generally place a great deal of emphasis on maintaining a low and stable inflation rate because:A) inflation lowers the information content of prices.B) economic growth tends to decline as inflation rates rise.C) inflation tends to be less predictable when inflation rates rise.D) All of the above are correct.Q#10 Central banks usually establish a positive inflation rate target rather than a zero inflation rate target because:A) economic growth is higher when the inflation rate rises.B) a positive inflation rate makes it possible for firms to reduce real wages without reducing nominal wages, leading to more efficient labor markets.C) the Fed is a more profitable operation for the government when the inflation rate is positive.D) a higher inflation rate results in a higher unemployment rate, and higher unemployment rates are preferred by policymakers.Stability: The Primary Objective of All Central Banks.Q#11 Which of the following is not a primary objective of the Fed?A) low and stable inflationB) high and stable real growthC) financial system stabilityD) maintaining low interest ratesQ#12 Exchange–rate stability is:A) a more important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.B) a less important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.C) equally important as a goal for the Fed as it is for the central banks of smaller and more trade-oriented economies.D) a primary objective of the Fed.Q#13 Which of the following is not generally a characteristic of a successful central bank?A) Central bank policy must be controlled by the same authorities.B) Central bank decisions must be made in private and policy should not be publicly announced.C) Decision making should be made by an individual, not a committee, to ensure consistency of goals.D) The central bank should operate within a framework in which it has clear goals.

Q#14 Central bank independence is:A) not very common in industrialized countries today.B) a practice that was widely adopted by central banks for industrialized countries in the late 1800s.C) a relatively recent historical phenomenon.D) a policy that is practiced by the European Central Bank, but not the Fed.Q#15 Empirical evidence suggests that a higher level of central bank independence results in:A) higher average inflation rates than occur in countries with less independent central banks.B) lower average inflation rates than occur in countries with less independent central banks.C) the same average inflation rates that occur in countries with less independent central banks.D) lower rates of economic growth than occurs in countries with less independent central banks.Q#16 A source of conflict between monetary and fiscal policy decision makers is that:A) fiscal policy decision makers place more emphasis on short-term objectives while monetary policy makers focus on long-term objectives.B) it is easier, from a political standpoint, to pay for increased government spending by a monetary expansion than by

raising taxes.C) Both of the above are correct.D) None of the above is correct.

Q#1 Banks that are more liquid are generally:A) also more profitable than less liquid banks.B) as profitable as less liquid banks.C) less profitable than less liquid banks.D) more likely to fail.

Q#2 The main factor in whether a bank can survive a bank run during a bank panic is the bank's:A) profitability.B) liquidity.C) solvency.D) None of the above is correct.

Q#3 A bank is illiquid if:A) it is insolvent.B) it has insufficient liquid assets to cover deposit outflows.C) its bank capital is less than the required level.D) All of the above are correct.

Q#4 Government officials have generally taken an active role in attempting to prevent widespread bank failures primarily because of concern over:A) the loss of jobs by bank employees when banks fail.B) contagion effects.C) the loss of profits by bank owners.D) the increase in inflation that inevitably results from widespread bank failures.

Q#5 Which of the following has historically been a factor in causing a bank panic?A) an economic recessionB) deflationC) declines in bank capital due to rising loan defaultsD) All of the above are correct.

Q#6 The government regulates and protects the banking system more heavily than most other industries because:A) small investors in the banking industry have imperfect information concerning the soundness of banks.B) mergers of large banks could result in a reduction in competition and harm both depositors and borrowers.C) banks are inherently unstable since poor decisions can result in a very rapid failure of a bank.D) All of the above are correct.

Q#7 Banks face risks that differ from those faced by nondepository institutions in that banks primarily hold:A) liquid assets and liquid liabilities.B) illiquid assets and illiquid liabilities.C) liquid assets and illiquid liabilities.D) illiquid assets and liquid liabilities.

Q#8 The rationale for the "lender of last resort" function of central banks is to:A) provide low-income households with access to mortgage loans.B) increase bank lending to firms that are at risk of bankruptcy.

C) reduce the likelihood of the contagion effect.D) encourage banks to hold more reserves.

Q#9 The FDIC provides insurance that covers:A) only deposits in savings banks.B) only deposits in commercial banks.C) deposits in nationally chartered banks, but not deposits in state-chartered banks.D) deposits up to $100,000 in checking and savings accounts at most U.S. banks.

Q#10 The existence of deposit insurance:A) reduces the moral hazard problem for bank managers.B) increases the moral hazard problem for bank managers.C) has no effect on the moral hazard problem for bank managers.D) increases the moral hazard problem for managers in small banks but reduces it for managers in large banks.

Q#11 If the FDIC uses the payoff method to resolve the insolvency of a bank:A) a merger is arranged with another bank that is "paid off" by the FDIC to take over the failed bank.B) the bank continues operations under FDIC supervision.C) bribes are paid to the appropriate Senators to allow the bank to continue operations.D) depositors will lose any balances over $100,000 on deposit at the bank.

Q#12 Under the too-big-too-fail policy, the nation's largest banks have:A) more incentive to avoid making risky loans than do small banks.B) more incentive to make risky loans than do small banks.C) an incentive to sell off some of their assets to become smaller.D) None of the above is correct.

Q#13 Bank regulations designed to reduce the risk of bank failure include:A) the use of risk-based capital requirements.B) restrictions on asset holdings.C) Both of the above are correct.D) None of the above is correct.

Q#14 Regulatory competition:A) reduces the incentives for regulators to innovate.B) may result in banks choosing to be regulated by the agencies that impose the least stringent requirements on them.C) Both of the above are correct.D) None of the above is correct.

Q#15 Increased competition among banks:A) raises the interest rate that depositors receive on their deposits.B) raises the interest rates that borrowers pay on their loans.C) tends to reduce the quality of the services that banks provide.D) encourages banks to take on less risk

MGT411 Money and Banking Solved MCQs with ref Quiz 1From Lesson 1-7Practice This Quiz on-line and evaluate your performance Start

1. We have different option to invest the money, similarly we may deposit to earn the interest such Interest rate exist owing to -----.A. Opportunity cost

B. Fixed costC. Variable costD. Semi- variable costOpportunity cost.

 

2. If the bond price is less than its face value, what will be the relationship among current yield, coupon rate and YTM?A. Current yield < coupon rate < Yield to Maturity B. Yield to maturity > current yield >coupon rateC. Coupon Rate > Current Yield > Yield to MaturityD. Coupon Rate = Current Yield = Yield to MaturityRef If current price = face value, then yield to maturity = current yield = coupon rate. If current price < face value, then yield to maturity > current yield > coupon rate. If current price > face value, then yield to maturity < current yield < coupon rate.

3. Arbitrageurs in the stock markets and in foreign exchange markets are classified underA. Risk neutralB. Risk averseC. Risk loverD. Value at riskRisk averse.

4. If probability of occurrence is exactly zero then which of the following statement is true?A. Event will occurB. Event will not occurC. Event must occurD. All of the given optionsEvent will not occur.

5. When the bond demand curve shift the leftward what will happen?A. Bond demand increasesB. Bond demand decreasesC. Bond demand constantD. All of aboveBond demand decreasesA shift in the demand curve to the left or right represents a change in consumer preferences. A shift to the right indicates that an item has become more commercially desirable and that a larger number will be sold at a given price. A shift to the left is just the opposite, indicating that a marketplace good is less desirable and that fewer items will be sold at a given price.

6. You deposit money into your bank account, which of the following entry Bank will pass in its books of account?A. Debit cash accountB. Debt your accountC. Reverse the entryD. Debit assets account

Debit cash account.

7. Yield to Maturity (YTM) is combination of -----------.A. Current Yield and market price B. Current Yield and Capital gainC. Current Yield and CapitalD. Current Yield and capital investmentCurrent Yield and Capital gain.

8. Core principles of Money and Banking include each of the following except?A. People act rationallyB. Time has valueC. Information is the basis for decisionsD. Risk requires compensationPeople act rationally.

9. Bonds without maturity dates are which of the followings?A. Zero coupon bondsB. Coupon securitiesC. ConsolsD. Preferred BondsConsols.

10. Which of the following represents the fisher’s equation?A. Nominal interest rate = real interest rate + inflationB. Nominal interest rate + inflation = real interest rateC. Nominal interest rate = real interest rate - inflationD. Nominal interest rate = real interest rate / inflationNominal interest rate = real interest rate + inflation

1. Which of the following correctly states the relationship regarding banks' balance sheets? 

A. Total Bank Liabilities = Total Bank capital + Total Bank Assets.

B. Total Bank Assets = Total Bank Liabilities + Total Bank Capital.

C. Total Bank Assets = Total Bank Liabilities – Total Bank Capital.

D. Total Bank Assets = Total Bank Capital – Total Bank Liabilities. 2. A bank's reserves do not include: 

A. U.S. Treasury bills.

B. Currency in the bank.

C. The bank's deposits at the Federal Reserve.

D. Currency in ATM machines. 3. Eurodollars are: 

A. Dollar-denominated deposits in foreign banks.

B. Euro denominated deposits in U.S. Banks

C. The currency of the European Economic Union.

D. Dollars that are specially printed for use in the European Union countries to minimize counterfeiting. 4. One of the unique problems that banks face is: 

A. They hold illiquid assets to meet liquid liabilities.

B. They hold liquid assets to meet illiquid liabilities.

C. They hold liquid assets to meet liquid liabilities.

D. Both banks' assets and liabilities are illiquid.  5. Central banks perform each of the following EXCEPT: 

A. Issue currency.

B. Operate a payments system.

C. Controls the availability of money and credit.

D. Manages fiscal policy. 6. The specific goals of central banks include each of the following EXCEPT: 

A. High and stable real growth.

B. Low and stable inflation.

C. High levels of imports.

D. Low and stable unemployment rates. 7. Small and medium enterprise (SME) Bank is: 

A. A Finance company

B. A Securities firm

C. A Government sponsored enterprise

D. An insurance company 8. ---------------is classified as a liability for a commercial bank: A.     ReservesB.     Commercial loansC.     Demand depositsD.     Deposits with the Federal Reserve 9. ------------------is a primary policy tool of the Central Bank: A.     Inflation rate

B.     Open market operationsC.     interest rateD.     money supply 10. -----------is a component of the liability side of the commercial bank’s balance sheet: 

A. Deposits

B. Loans

C. Securities

D. All of the given options  1) Instruments that are not directly under the control of the Central Bank are referred to as: 

A.     Operating instrumentsB.     Intermediate targetsC.     Economic instrumentsD.     Social instruments

 2) Every country with high inflation has ____________ money growth: 

A.     HighB.     LowC.     MediumD.     Zero

 3) Which of the following statement is true? 

A.     Nominal GDP = PYB.     Nominal GDP > PYC.     Nominal GDP < PYD.     Nominal GDP ≠ PY

 4) According to Milton Friedman, Central Banks should set money      growth at a __________ rate:                          

A.     Increasing rateB.     Decreasing rateC.     Constant rateD.     Zero rate 

  5) ____________ is one of the financial instruments that we can hold in our   investment portfolios: 

A.     BondsB.     SharesC.     MoneyD.     Term finance certificates (TFC)

 6) Increases in price level will ____________ the purchasing power of money: 

A.     IncreaseB.     DecreaseC.     No changeD.     Balance

 7) At long run real interest rate: 

A.     AD = Potential OutputB.     AD > Potential OutputC.     AD < Potential OutputD.     None of the given options

 8) __________ curve is downward sloping because higher inflation reduces real money balances: 

A.     Aggregate Demand CurveB.     Aggregate Supply CurveC.     IS CurveD.     LM Curve

 9) Increases in government purchases will ________ the aggregate demand: 

A.     IncreaseB.     DecreaseC.     No changeD.     Balance

 10) A change in cost of producing output causes the ________ curve to shift: 

A.     Aggregate Demand CurveB.     Aggregate Supply CurveC.     IS CurveD.     LM Curve

 1. According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects: 

a. Short-term interest rates to rise sharply.

b. Short-term interest rates to stay near their current levels.

c. Short-term interest rates to drop sharply.

d. None of the above. 2. When the yield curve slopes down,

a. The expectations theory suggests that short-term interest rates are expected to fall.

b. The segmented markets theory suggests that short-term interest rates are expected to rise.

c. The expectations theory suggests that short-term interest rates are expected to rise.

d. The liquidity premium theory suggests that short-term interest rates are expected to rise. 3. Which of the following patterns of term structure occur most frequently?

a.       Ascending yield curveb.      Descending yield curvec.       Flat yield curved.      Humped yield curve

 4. Common stocks (or corporate stocks):

a. Represent an IOU on the part of the issuing firm

b. Entitle the holder to contractual payments

c. Were a poor investment over the period 1982-1996

d. Allows the holder to share in the earnings of the firm 5. Financial intermediaries: 

a. Channel funds from savers to borrowers

b. Greatly enhance economic efficiency

c. Have been an source of many financial innovations

d. Have done all of the above 6. Which of the following cannot be described as indirect finance?

a. You take out a mortgage from your bank.

b. An insurance company lends money to General Motors Corporation.

a. You borrow $1000 from your best friend.

c. You buy shares in a mutual fund.7. Which of the following is a depository institution? 

a.       Life insurance Companyb.      Credit unionc.       Pension fundd.      Finance company

 8. Which of the following is traded in a money market? 

a.       U.S. Treasury bondsb.      Mortgagesc.       Common stocksd.      Federal funds

 9. The primary liabilities of a savings and loan association are:

a.       Bonds.b.      Mortgages.

c.       Deposits.d.      Commercial paper.

 10. Financial intermediaries promote efficiency and thereby increase people’s wealth: 

a. By reducing the transaction cost of linking together lender and borrowers.

b. To the extent that they help solve problems created by adverse selection and moral hazard.

c. By providing additional jobs.

d. Because of only (a) and (b) of the above. 11. When an investment bank purchases a new issue of securities in the hopes of making a profits, it is said to ________ the issue. 

a. Pawn

b. Back stock

c. Syndicate

d. Underwrite12. Which of the following is a use for commercial bank funds? 

a. Loans

b. Securities

c. Reserves

d. All of the above   13. On the commercial bank balance sheet, which of the following is an asset? 

a. Capital accounts

b. Deposits with Federal Reserve

c. transactions deposits

d. All of the above  14. If a bank has total assets of $100 million and capital accounts of $8 million, then:

a. Its total liabilities are $92 million

b. Its total liabilities are $108 million

c. It has an equity multiplier of 10

d. None of the above are true 15. A bank can increase its leverage by increasing its ratio of:

a. Earnings/total assets

b. Total assets/equity capital

c. Earnings/equity capital

d. Equity capital/total assets 16. When you deposit a $100 check in your bank account at the First National Bank of Chicago and you withdraw $50 in cash, then: 

a. The liabilities of First National Bank rise by $100.

b. The reserves of First National Bank rise by $100.

c. The assets of the First National Bank rise by $100.

d. The liabilities of the First National Bank rise by $50. 17. Commercial banks obtain funds by:

a. Issuing demand deposits

b. Borrowing from other banks

c. Issuing ownership claims (equity)

d. All of the above 18. A bank failure is more likely to occur when: 

a. A bank holds more U.S. government securities

b. A bank suffers large deposit outflows.

c. A bank holds more excess reserves.

d. A bank has more bank capital. 19. ---------------measures how efficiently a bank uses its assets: 

a. Return on assets

b. Return on equity

c. Bank capital

d. Bank Profitability 20. -----------refers to the risk assessment and loss reimbursement guarantee by the individual risk experts of the relevant field: 

a. Underwriting process

b. Research process

c. Insurance process

d. None of the given options 21. The euro is the name for: 

a. A currency deposited outside its country of origin.

b. A bond sold internationally outside of the country in whose currency the bond is denominated.

c. A common European currency.

d. A type of sandwich. 22. Banks can operate in other countries by: 

a. Offering same services as in home country

b. Opening a foreign branch

c. Creating an international Banking Facility

d. All of the given options. 23. The theory of efficient markets: 

a. Allows for higher than average returns if the investor takes higher than average risk

b. Says insider information makes markets less efficient

c. Rules out high returns due to chance

d. Assumes people have equal luck 24. If information in a financial market is asymmetric, this means: 

a. Borrowers and lenders have perfect information

b. Borrowers would have more information than lenders

c. Borrowers and lenders have the same information

d. Lenders lack any information 25. Khushali Bank is: 

a. A Finance company

b. A Securities firm

c. A Government sponsored enterprise

d. An insurance company 1- Which of the following appears as a liability in the balance sheet of the central bank? 

A.     CurrencyB.     The government’s deposit accountC.     The deposit accounts of the commercial banksD.    All of the given options

  2- The transaction in which central bank buys or sells foreign currency reserves is known as: 

A.     Foreign exchange interventionB.     Open market operationC.     Discount loans

D.     Reserve requirement 3- Which of the following equations depicts equation of exchange? 

A.     MV= VYB.     MV=PYC.     MP=VYD.     V=PY

 4- ---------------is determined by the central bank and the behavior of the banking system: 

A.     Money demandB.     Money supplyC.     Aggregate demandD.     Aggregate supply

  5- If the alternative assets become more risky then the demand for money: 

A.     Goes upB.     Goes downC.     Remains unchangedD.     None of the given options

  6- The interest rate at which aggregate demand equals potential output is known as: 

A.     Discount rateB.     Short run real interest rateC.     Long run real interest rateD.     Inflation rate

 7- An increase in the long run real interest rate shifts the monetary policy reaction curve to the: 

A.     RightB.     LeftC.     No changeD.     None of the given options

 8- An increase in oil prices causes the short run aggregate supply curve to shift: 

A.     UpwardB.     DownwardC.     No changeD.     All of the given options

  9- An increase in potential output shifts the long run aggregate supply curve to the:

 A.     LeftB.     RightC.     No changeD.     None of the given options

  10- --------------policy works slowly and almost impossible to implement effectively: 

A.     Monetary policyB.     Fiscal policyC.     Trade policyD.     Foreign exchange policy

 

Solution is provided by vuZs Solution Team.You are free to distribute and use it. In case you wanted to host or re-distribute it. Please don’t remove the links of group and website1. A decrease in the expected future interest rate makes bonds ______________.a. Less attractiveb. More attractivec. Less expensived. More expensive2. As interest rate falls in recession, the bond prices are likely to___________.a. Decreaseb. Increasec. Be stabled. Fluctuate3. There is no guarantee that a bond issuer will make the promised payments isknown as the:a. Default riskb. Inflation riskc. Interest rate riskd. Systematic risk4. The greater the inflation risk, the __________ will be the compensation for it.a. Smallerb. Largerc. Zerod. None of the given optionshttp://www.vuzs.net/5. ___________ risk arises from the fact that investors don’t know the holdingperiod yield of a long term bond.a. Default riskb. Inflation riskc. Interest rate risk

d. Systematic risk6. The ___________ are an assessment of the creditworthiness of the corporateissuer.a. Bond yieldb. Bond ratingsc. Bond riskd. Bond rate7. The lower a bond’s rating, the __________ will be its price.a. Higherb. Lowerc. Equal tod. No change8. A plot of the term structure with YTM on Y-axis and time to maturity on X-axisis called ___________.a. Demand curveb. Supply curvec. Yield curved. Leffer curve9. Yields on short term bonds are ___________ than the yield on long term bonds.a. Less volatileb. Higherc. Lowerd. More volatile10. The KSE 100 Index contains a representative sample of common stock that tradeon the ________________.a. Lahore Stock Exchangeb. Karachi Stock Exchangec. Islamabad Stock Exchanged. New York Stock Exchange11. The expectations theory of the term structure assumes:a. Buyers of bonds prefer bonds with longer maturities.b. Buyers of bonds consider bonds of different maturities to be perfectsubstitutes.c. Buyers of bonds prefer bonds with shorter maturities.d. Markets for different maturity bonds are completely separate.12. Yield curves show:a. The relationship between liquidity and bond interest rates (yields).b. The relationship between risk and bond interest rates (yields).c. The relationship between bond interest rates (yields) and bond prices.d. The relationship between time to maturity and bond interest rates (yields).13. Municipal bonds generally have lower interest rates than U.S. Governmentbonds because:a. They have less risk.b. They are more liquid.c. They never mature.

d. They are exempt from Federal taxes.14. If the bond is selling above the face value than it is called:a. Discountb. Compoundc. Premiumd. None of the given optionshttp://www.vuzs.net/15. Zero- Coupon bonds are sold at a price:a. Equal t their face valueb. Below their face valuec. Above their face valued. None of the given options16. According to the ________ effect, an increase in the money supply lowers theinterest rate.a. Price-levelb. Liquidityc. Incomed. Expected-inflation17. The real interest rate is:a. The nominal rate plus the expected inflation rateb. The nominal interest rate/the CPIc. The product of the nominal rate and the CPId. The nominal rate minus the expected inflation rate18. For a coupon bond, the current yield is calculated as:a. Coupon Payment/Priceb. The current yield is the same as the coupon rate.c. Coupon Payment/Face Valued. Coupon Payment/((Price + Face Value)/2)19. Which of the following is a use for commercial bank funds?a. Loansb. Securitiesc. Reservesd. All of the given options20. Financial intermediaries:a. Channel funds from savers to borrowersb. Greatly enhance economic efficiencyc. Have been a source of many financial innovationsd. Have done all of the above http://www.vuzs.net/Which of the following ratings denote the lowest expectations of credit risk?·        A·        AA·        AAA·        BBBWhich of the following patterns of term structure occur most frequently?

Ascending yield curve Descending yield curve Flat yield curve Humped yield curve

Common stocks (or corporate stocks): Represent an IOU on the part of the issuing firm Entitle the holder to contractual payments Were poor investments over the period 1982-1996 Allows the holder to share in the earnings of the firm

Financial intermediaries: Channel funds from savers to borrowers Greatly enhance economic efficiency Have been an source of many financial innovations Have done all of the above

Which statement shows the major difference between stocks and bonds?·        Bonds pay their owners dividends while stocks pay interest·        Bonds pay their owners interest while stocks pay dividends·        The interest on a bond depends on the earnings of the corporation and is not guaranteed while dividends on stock are legally required·        Bonds represent ownership while stock represents debt----------------------agencies assess the default risk of different issuers:

Insurance Bond issuing Credit rating None of the given options

The ---------------are an assessment of the creditworthiness of the corporate issuer.·        Bond yield·        Bond ratings·        Bond risk·        Bond rateThe KSE 100 Index contains a representative sample of common stock that trade on the·        Lahore Stock Exchange·        Karachi Stock Exchange·        Islamabad Stock Exchange·        New York Stock ExchangeAccording to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects:·        Short-term interest rates to rise sharply.·        Short-term interest rates to stay near their current levels.·        Short-term interest rates to drop sharply.·        None of the above http://www.vuzs.net/

When the yield curve slopes down, The expectations theory suggests that short-term interest rates are expected

to fall. The segmented markets theory suggests that short-term interest rates are expected to

rise. The expectations theory suggests that short-term interest rates are expected to rise. The liquidity premium theory suggests that short-term interest rates are expected to

rise.1. A lender is promised a $100 payment (including interest) one year from today. If the lender has an 8% opportunity cost of money, he should be willing to accept what amount today?a)      $100.00b)      $108.20c)      $92.59d)      $96.402. Which one of the following is the procedure of finding out the Present Value (PV)?a)      Discountingb)      Compoundingc)      Time value of moneyd)      Bond pricing3. The interest rate used in the present value calculation is often referred to as:a)      Discount rateb)      Inflation ratec)      Nominal rated)      None of the given option4. What will the result of the difference of real and nominal interest rate?a)      The cost of borrowingb)      The effect of inflationc)      The price of bondsd)      None of the given option5. What will be the Future Value (FV) of $1000 in 5 years at 5% interest rate?a)      $1000.00b)      $1276.28c)      $999.99d)      $1500.526. If there is a decrease in the expected future interest rate, what will be its affect on bond?a)      Bond will Less attractiveb)      Bond will More attractivec)      Bond will Less expensived)      Bond will More expensive7. There is no guarantee that a bond issuer will make the promised payments is known as:a)      Default riskb)      Inflation riskc)      Interest rate riskd)      Systematic risk

     8. A plot of the term structure with YTM on Y-axis and time to maturity on        X-axis is called:a)      Demand curveb)      Supply curvec)      Yield curved)      Leffer curve 9. If bond’s rating is lower, what will be its price?a)      Higherb)      Lowerc)      Equal tod)      No change http://www.vuzs.net/10. Bond A is for 1 Year and Bond B is for 5 years maturity period which one of the statements is true for Bond A and Bond B.a)      Yields on A is Less volatile than the yield on Bb)      Yields on A is Higher than the yield on Bc)      Yields on A is Lower than the yield on Bd)      Yields on A is More volatile than the yield on B1- The present value of an asset can be found by __________________ the future value.A.     StrippingB.     DiscountingC.     CompoundingD.     Annualizing2-      The interest rate used in the present value calculation is often referred to as theA.     Internal rate of returnB.     Inflation rateC.     Discount rateD.     Nominal rate3-      When the yearly coupon payments rises thenA.     The value of the coupon bond fallsB.     The value of the coupon bond risesC.     The price of the coupon bond risesD.     The price of the coupon bond falls4-      Bond prices areA.     Equal to the face value of the bondB.     Equal to the real interest rateC.     Equal to the nominal interest rateD.     Inversely related to the interest rate5-      If the inflation rate is expected to be 5 % and nominal interest rate is 9%, then the real interest rate will beA.     14%B.     9%C.     5%D.     4%6-      Riskier investment must haveA.     Lower expected returnsB.     Higher expected returns

C.     No expected returnD.     None of the above7-      If market interest rate is higher than the individual’s personal discount rate then people will       madeA.     Higher savingsB.     Lower savingsC.     DissavingsD.     None of the above option8-      The internal rate of return is the interest rate that equatesA.     The present value of an investment with its future valueB.     The present value of an investment with its costC.     The future value of an investment with its costD.     None of the given options 9- The central bank of Pakistan is theA.     Federal ReserveB.     Securities and Exchange CommissionC.     State BankD.     Department of the Treasury 10- Studying money, banking, and financial markets will help you toB.     Answer basic questions about financial relationships from family membersC.     Better understand financial newspapersD.     Get a job after your graduateE.      All of the above http://www.vuzs.net/1.     “Don’t put all your eggs in one basket” is the famous statement of:A.    Moral hazardB.     Indirect financeC.     Asymmetric informationD.    Diversification2.     According to which principle, people and companies concentrate on such activities for which their opportunity cost is lower?A.    Principle of absolute advantageB.     Principle of comparative advantageC.     Principle of managementD.    None of the given options3.     The problem of “asymmetric information” arises because:A.    Lender knows more than the borrowerB.     Borrower knows more than the lenderC.     Borrower and lender have different goalsD.    Borrower and lender know the future much less than they do the present4.     Nonprofit depository institutions that are owned by people with a common bond are known as:A.    Commercial banks

B.     Central banksC.     Credit unionsD.    Insurance companies5.     Which of the following is true?A.    Total bank assets = Total bank liabilities + Bank capitalB.     Bank capital = Total bank assets – Total bank liabilitiesC.     Total bank liabilities = Total bank assets – Bank capitalD.    All of the above are true http://www.vuzs.net/6.     Securities are highly liquid and can be sold quickly if the bank needs cash, that’s why these are also called:A.    Primary reservesB.     Secondary reservesC.     Excess reservesD.    None of the given options7.     Cash has a high opportunity cost because:A.    It earns no interestB.     It earns less interestC.     It earns more interestD.    Both B & C8.     The net worth of banks is known as the:A.    Bank capitalB.     Bank liabilityC.     Bank assetsD.    Bank profit9.     ____________ is a measure of how efficiently a particular bank uses its assets:A.    Return on assetsB.     Return on equityC.     Return on bondsD.    None of the given options10.If return on equity is higher for larger banks then it shows the existence of: http://www.vuzs.net/A.    Economies of scopeB.     Economies of scaleC.     Diseconomies of scaleD.    All of the given options1. Future value is equal to:a.      PV/ ib.     PV + PV +ic.      PV + id.     None of the given options.

2. In compounding we calculate the future value for:a.      Less than 1 year.b.     Equal to 1 year.c.      More than 1 year.d.     All of the given options.3. ___________ is used in the calculation of present value:a.      Compoundingb.     Discounting.c.      Yield to maturity.d.     None of the given options.4. You receive a check for $100 two years from today. The discounted present value of this $100 is:  a.      $100*(1+i)2b.     $100/ (1+i)c.      $100/(1+i)2d.     $100*(1+i)5. As bond prices increase: http://www.vuzs.net/a.      Yields to maturity increase.b.     Yields to maturity do not change.c.      Yields to maturity decrease.d.     All of the given options.6. For a $1000 one year discount bond with a price of $975, the yield to maturity is:   $1000/$975    ($1000 – $975)/$975    ($1000 – $975)/ ($1000)    $975/$1000 7. For a coupon bond, the current yield is calculated as:a.      Coupon Payment/Priceb.     The current yield is the same as the coupon rate.c.      Coupon Payment/Face Valued.     Coupon Payment/((Price + Face Value)/2)8. For a coupon bond, the yield to maturity is the:a.      Difference between the bond's price and its face value.b.     Annual interest payment divided by the bond's face value.c.      Interest rate that equates the bond's present value with its face value.d.     Interest rate that equates the bond's present value with its price. 9. The real interest rate is:a.      The nominal rate plus the expected inflation rate.b.     The nominal interest rate/the CPI.

c.      The product of the nominal rate and the CPI.d.     The nominal rate minus the expected inflation rate.10. Other things remaining equal, which of the following will increase the demand (shift the demand curve to the right) for bond J?a.      An increase in the risk level of bond J.b.     An increase in the interest rate on bond K.c.      An increase in the level of wealth in the economy.d.     An increase in the interest rate on bond J.11. At a bond price above the equilibrium,a.      There is an excess supply and the price will tend to rise.b.     There is an excess supply and the price will tend to fall.c.      There is an excess demand and the price will tend to rise.d.     There is an excess demand and the price will tend to fall.12. Using money demand and money supply:a.      An increase in prices will increase money demand and decrease the interest rate.b.     An increase in expected inflation will decrease money demand and decrease interest rates.c.      An increase in income will increase money demand and increase the interest rate.d.     An increase in the money supply will increase the interest rate.13. According to the ________ effect, an increase in the money supply lowers the interest rate.a.      Price-levelb.     Liquidityc.      Incomed.     Expected-inflation14. Riskier investment must have:a.      Lower expected returnsb.     Zero expected returnsc.      Higher expected returns.d.     None of the given options.15. _____________ risks affect everyone.a.      Idiosyncraticb.     Systematicc.      Hedgingd.     None of the given options.16. Zero- Coupon bonds are sold at a price:a.      Equal t their face valueb.     Below their face value.c.      Above their face value.d.     None of the given options.17. If the bond is selling above the face value than it is called:

a.      Discountb.     Compoundc.      Premiumd.     None of the given options.18. Municipal bonds generally have lower interest rates than U.S. Government bonds because:a.      They have less risk.b.     They are more liquid.c.      They never mature.d.     They are exempt from Federal taxes. 19. Yield curves show:a.      The relationship between liquidity and bond interest rates (yields).b.     The relationship between risk and bond interest rates (yields).c.      The relationship between bond interest rates (yields) and bond prices.d.     The relationship between time to maturity and bond interest rates (yields).20. The expectations theory of the term structure assumes:a.      Buyers of bonds prefer bonds with longer maturities.b.     Buyers of bonds consider bonds of different maturities to be perfect substitutes.c.      Buyers of bonds prefer bonds with shorter maturities.d.     Markets for different maturity bonds are completely separate.1- A lender is promised a $100 payment (including interest) one year from today. If the lender has an 8% opportunity cost of money, he should be willing to accept what amount today?A.    $100.00B.     $108.20C.     $92.59D.    $96.402- The higher the Future Value (FV) of the payment, the higher will be the: http://www.vuzs.net/A.     Discount rateB.     Present valueC.     LiquidityD.     Cost of borrowing3- The procedure of finding out the Present Value (PV) is known as:A.     DiscountingB.     CompoundingC.     Time value of moneyD.     Bond pricing4 ---------------- tells us after how much time period the amount of money will become double.A.     Real interest rate

B.     Nominal interest rateC.     Rule of 72D.     Time value of money5- The interest rate used in the present value calculation is often referred to as:A.     Discount rateB.     Inflation rateC.     Nominal rateD.     None of the given option6- The procedure of finding out the Future Value (FV) is known as:A.     DiscountingB.     CompoundingC.     Time value of moneyD.     Bond pricing7- The price of a bond is the ---------------- of its payments.A.     Present ValueB.     Future ValueC.     Coupon rateD.     Principal amount8- The ---------------is defined as the probability weighted average of the squared deviations of the possible outcomes from their expected value.A.     Standard deviationB.     VarianceC.     MeanD.     Median9- The difference between real and nominal interest rate isA.     The cost of borrowingB.     The effect of inflationC.     The price of bondsD.     None of the given option10- The Future Value (FV) of $1000 in 5 years at 5% interest rate will be:A.     $1000.00B.     $1276.28C.     $999.99D.     $1500.521.     A decrease in the expected future interest rate makes bonds -------------------A.     Less attractiveB.     More attractiveC.     Less expensiveD.    More expensive2.     As interest rate falls in recession, the bond prices are likely to ------------------A.     DecreaseB.     IncreaseC.     Be stableD.    Fluctuate

3.     There is no guarantee that a bond issuer will make the promised payments is known as the:A.     Default riskB.     Inflation riskC.     Interest rate riskD.    Systematic risk4.     The greater the inflation risk, the ------------ will be the compensation for it.A.     SmallerB.     LargerC.     ZeroD.    None of the given options5.     --------------risk arises from the fact that investors don’t know the holding period yield of a long term bond.A.     Default riskB.     Inflation riskC.     Interest rate riskD.    Systematic risk 6.     The ---------------are an assessment of the creditworthiness of the corporate issuer.A.     Bond yieldB.     Bond ratingsC.     Bond riskD.    Bond rate7.     The lower a bond’s rating, the------------will be its price.A.     HigherB.     LowerC.     Equal toD.    No change8.     A plot of the term structure with YTM on Y-axis and time to maturity on X-axis is calledA.     Demand curveB.     Supply curveC.     Yield curveD.    Leffer curve9.     Yields on short term bonds are -------------- than the yield on long term bonds. http://www.vuzs.net/A.     Less volatileB.     HigherC.     LowerD.    More volatile10.The KSE 100 Index contains a representative sample of common stock that trade on theA.     Lahore Stock ExchangeB.     Karachi Stock Exchange

C.     Islamabad Stock ExchangeD.    New York Stock Exchange1- A lender is promised a $100 payment (including interest) one year from today. If thelender has an 8% opportunity cost of money, he should be willing to accept what amounttoday?A. $100.00B. $108.20C. $92.59D. $96.402- The higher the Future Value (FV) of the payment, the higher will be the:A. Discount rateB. Present valueC. LiquidityD. Cost of borrowing3- The procedure of finding out the Present Value (PV) is known as:A. DiscountingB. CompoundingC. Time value of moneyD. Bond pricing4 ---------------- tells us after how much time period the amount of money will becomedouble.A. Real interest rateB. Nominal interest rateC. Rule of 72D. Time value of money5- The interest rate used in the present value calculation is often referred to as:A. Discount rateB. Inflation rateC. Nominal rateD. None of the given option6- The procedure of finding out the Future Value (FV) is known as:A. DiscountingB. CompoundingC. Time value of moneyD. Bond pricing7- The price of a bond is the ---------------- of its payments.A. Present ValueB. Future ValueC. Coupon rateD. Principal amount8- The ---------------is defined as the probability weighted average of the squareddeviations of the possible outcomes from their expected value.A. Standard deviationB. VarianceC. MeanD. Median9- The difference between real and nominal interest rate is

A. The cost of borrowingB. The effect of inflationC. The price of bondsD. None of the given option10- The Future Value (FV) of $1000 in 5 years at 5% interest rate will be:A. $1000.00B. $1276.28C. $999.99D. $1500.5211- Stock exchange is an example of:A. Financial instrumentB. Financial institutionC. Financial marketD. Bank12- Which of the following is NOT an example of financial institutions?A. BanksB. Securities firmsC. Stock exchangesD. Insurance companies13. Which of the following are used to monitor and stabilize the economy?A. GovernmentsB. Commercial BanksC. Central BanksD. Financial institutions14. Financial instruments are evolved just as much as _____________.A. CurrencyB. StocksC. BondsD. Commodity15. Previously financial markets are located in which of the following?A. Coffee houses or TavernsB. Stock exchangesC. BazaarD. Coffee houses and Stock exchanges16. We need __________ to carry out day to day transactionsA. MoneyB. BondsC. StocksD. Loans17- Among the following which one is less liquid asset?A. Checking accountB. CarC. ShareD. Debit card18- Which of the following is the final mode of payment?A. MoneyB. ATMC. Cheque

D. Yet to discover19- Debit card works in the same way as which one of the following?A. ChequeB. Credit cardC. Store value cardD. Pay order20- Banks use to handle transactions among themselves, through which one of thefollowing?A. Debit cardB. Electronic transfersC. Credit cardD. Store value card

Cash become less desirable when ____________.

 Interest rates rise Riskiness of alternative holdings rises Liquidity falls None of the given optionsLesson 35As interest rates rise cash becomes less desirable, but if the riskiness of alternative holdings rises or liquidity falls, then it becomes more desirable. Banks borrow from the central bank this loan is called_________.  

Discount loan  Collateralized loan Personal loan  Corporate loanLesson 24Banks can also borrow by using a repurchase agreement or repo, which is a short-termcollateralized loan.www.vuzs.net The return on the bond is equal to which of the following?  

Coupon rate + rate of capital gains Current yield + rate of capital gains  Coupon rate - rate of capital gains Current yield - rate of capital gainsLesson 14= Current Yield + Capital Gain (as a %) If the required reserve ratio is equal to 10%, a single bank can increase its loans up to a maximum amount equal to:  

10% of its excess reservesIts excess reserves 

10 times its excess reserves Its total reservesRef:www.vuzs.net One reason given for more central bankers releasing their decisions publicly is:  

To give people time to understand it Most people do not understand monetary policy so it really doesn't do any harm to release the decisions publicly If monetary policy is going to be stabilizing speculation about central bankers decisions should be minimized So that central banks across the world can coordinate their policiesRef: www.vuzs.net The current yield on a $10,000, 5% coupon bond selling for $8,000 is:  

5.00% 6.25% 7.50% 8.00%=100000*5% /8000 =100000*0.05/8000=6.25 The money multiplier is negatively related to:  

High-powered money The excess reserve ratio Discount borrowings from the Fed Both high-powered money and excess reserve ratioRef: www.vuzs.net In the simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in reserves and the:  

Inverse of the excess reserve ratio The simple money multiplier Inverse of the simple money multiplier Discount rateThe reserve requirement is simply the inverse of the simple money multiplier; if the reserve ratio increases, then the money multiplier will decrease. 

A typical bank will offer ______ type/s of checking accounts.

       Only one type       Two types       Four types       Six or more typesLesson 24A typical bank will offer 6 or more types of checking accounts. Which of the following is the true about bank statement?

       Total Bank Assets = Total Bank Liabilities + Bank Capital       Total Bank Liabilities = Bank Capital       Total Bank Assets +Total Bank Liabilities = Bank Capital       Total Bank Assets = Total Bank Liabilities - Bank CapitalLesson 23Combination of term life insurance and a savings account is called as ________.

       Term life insurance       Whole life insurance       Group life insurance       None of the given optionLesson 27Whole life insurance: Combination of term life insurance and a savings account.www.vuzs.net The monetary liabilities of the Federal Reserve include: Government securities and discount loansCurrency in circulation and reservesGovernment securities and reservesCurrency in circulation and reservesRef:    Factors that cause the excess reserve ratio to rise include: 

A rise in expected deposit outflows A decline in market interest rates A rise in market interest rates Both rise in expected deposit outflows and decline in market interest rates of the aboveLesson 34The higher the interest rate, the lower banks’ excess reserves will be; the greater the concern over possible deposit withdrawals, the higher the excess reserves will be. 

The fact that a financial intermediary can use the same contract for many customers is an example of: Economies of ScopeThe Law of Diminishing Marginal ReturnsThe Law of Increasing Opportunity CostEconomies of ScaleLesson 21Much of what financial intermediaries do takes advantage of economies of scale.www.vuzs.net Which of the following financial instruments used primarily as store of value? OptionsStocksHome mortgageBonds A sale of government bonds by the Fed, all else the same: 

Increases the monetary baseIncreases the high-powered moneyIncreases the non-borrowed monetary baseNone of the given optionThe SALE of government bonds by the Fed REDUCES the supply of money by reducing the reserves available to private banks and thereby decreasing the amount of deposit expansion that is possible.

www.vuzs.net If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20%, then the bank has total reserves of: 

$11,000$31,000$26,000$20,00080,000×20%=16,00016,000+15,000=31,000 High-powered money less reserves equals:

Required reservesCurrency in circulationThe monetary baseThe non-borrowed monetary baseLesson 33

Currency in the hands of the public and the reserves of the banking system are the two components of the monetary base, also called high-powered money.

MGT411- QUIZ(lecture08-09)

 

 

1         The future value of $200 at a 5% per year interest rate at the end of one year is:            A)        $195.00            B)        $210.00            C)        $197.50            D)        None of the above. 2          Which of the following expresses 6.5%            A)        0.0065            B)        6.50            C)        0.650            D)        0.06506.5/100=0.065 3          Which of the following best expresses the proceeds a lender receives from a simple loan?            A)        PV(1 + i)            B)        FV/i            C)        PV + i            D)        PV/i 4          Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the interest rate on Mark's loan?"            A)        $600            B)        7.50%            C)        6.0%            D)        None of the above 5          Which of the following best expresses the payment a lender receives for lending their money for four years:            A)        PV(1+i)4            B)        PV/(1 + i)4            C)        4PV            D)        None of the above. 6          A lender is promised a $100 payment (including interest) one year from today. If the lender has a 8% opportunity cost of money, she should be willing to accept what amount today:            A)        $100.00            B)        $108.20            C)        $92.59            D)        $96.40 100/(1+.08) = 92.58 7          Mary deposits funds into a CD at her bank. The CD has an annual interest of 4.0%. If Mary leaves the funds in the CD for entire two years she will have $1081.60. What amount is Mary depositing:            A)        $960.60            B)        $900.00            C)        $1005.00            D)        $1000.00 

FV=PV(1+i)^n1081.60=PV(1+.04)^21081.60=PV(1.0816)PV=1081.60/1.0816PV=1000 8          The future value of $100 left in a savings account earning 4.5% for two and a half years is best expressed by:            A)        $100(1.045)3/2            B)        $100( 0.45)2.5            C)        $100(1.045)2.5            D)        $100 x 2.5 x (1.045) 9          The rule of 72 says that at 12% interest $100 should become $200 in about:            A)        72 months            B)        100 months            C)        12 years            D)        8.2 years 

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 10        The longer the time (n) until the payment:            A)        The lower the present value.            B)        The higher the present value because time is valuable.            C)        The lower must be the interest rate.            D)        None of the above. 11        A change in the interest rate has:            A)       A larger impact on the present value of a payment to be made far into the future than one to be made sooner.            B)        Will not have a difference on the present value of two equal payments to be made at different times.            C)        A smaller impact on the present value of a payment to be made far into the future than one to be made sooner.            D)        None of the above. 12        An investment has grown from $100.00 to $160.00 or 60% over four years. What annual increase gives a 60% increase over four years:            A)        7.50%            B)        12.48%            C)        15.00%              D)               13.24% FV=PV(1+i)^n(1+i)^n=FV/PVMultiply both sides with 1/4 , we will get,(1+i)^4*1/4= (160/100)^1/41+i=(1.6)^1/4i=1.24-1 = 0.1246 * 100  , = 12.468 Ans. 13        People with a high discount rate will require:

            A)        A higher interest rate to entice them to save.            B)        Investment options with longer maturities.            C)        A lower interest rate to entice them to save.            D)        a and b 14        If the internal rate of return from an investment is less than the opportunity cost of funds:            A)        The firm should make the investment.            B)        The firm should not make the investment.            C)        The firm should only make the investment using retained earnings.            D)        None of the above. 15        A mortgage, where the monthly payments are not the same for the duration of the loan, is an example of:            A)        A variable payment loan.            B)        An installment loan.            C)        A fixed payment loan.            D)        An equity security.The variable payment mortgage would be a mortgage on a fixed rate that allows you to vary your payment each month. 

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 16        An investment carrying a current cost of $130,000 is going to generate $70,000 of revenue for each of the next three years. To calculate the internal rate of return we need to:             A)        Calculate the present value of each of the $70,000 payments and multiply these and set this equal to $130,000.            B)        Take the present value of $210,000 for three years from now and set this equal to $130,000.            C)        Set the sum of the present value of $70,000 for each of the next three years equal to $130,000.            D)        Subtract $130,000 from $210,000 and set this difference equal to the interest rate. 17        The price of a bond is determined by:             A)        Taking the present value of the bond's final payment and subtracting the coupon payments.            B)        Taking the present value of the coupon payments and adding this to the face value.            C)        Taking the present value of the bond's final payment.            D)        Taking the sum of the present values of the future payments 18        If a bond has a face value of $1,000 and the bondholder receives coupon payments of $35.00 semi-annually, the bond's coupon rate is:             A)        3.5%            B)        7.0%             C)        7.5%            D)        Cannot be determined from the information provided. 

         35×2=70         70/1000=0.07

         0.07×100=7%  19        Which formula below best expresses the nominal interest rate, (r)?            A)        i = r – πe            B)        r = i + πe            C)        i = r + πe            D)        πe = i + r 20        From the Fisher equation we see the relationship between the nominal interest rate and expected inflation is:            A)        Direct and one-to-one.            B)        Direct but more than one-to-one.            C)        Inverse.            D)        There is no relationship between these two variables

anuary 14, 2010

If bond’s rating is lower, what will be its price?Select correct option:            Higher            Lower            Equal to            No change

 High State Bank purchases some U.S. Treasury bonds. We would view such bonds as being free of:Select correct option:            Credit risk            Interest rate risk            Reinvestment risk            All of the given options Which of the following is a role of a financial institution acting as a financial intermediary?Select correct option:            Pooling the resources of small savers            Formulating oversight regulations            Sending out free calendars at the holidays            Lobbying legislators Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:Select correct option:            The yield curve must have a positive slope            The yield curve must be inverted            The yield curve could be flat            The slope of the yield curve should actually increase 

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___________ include savings and time deposits and account for nearly two-thirds of all commercial bank liabilities.Select correct option:            Non transactions Deposits            Borrowings            Checkable Deposits            Discount loans  Liquidity is the risk that is arises as a result of which one of the following consequences?Select correct option:            It arises when loan is not repaid            It arises because of sudden demands of funds            It arises when two sides of the balance sheet do not match up            It arises when banks make additional profit by using derivativesWhich one of the following is true for financial intermediaries?Select correct option:            Channel funds from savers to borrowers            Greatly enhance economic efficiency            Have been an source of many financial innovations            All of the given options According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%Select correct option:            Doubles            Triples            halves            3/4__________ is the interest rate at which the present value annual reveneu equals the cost of the investment.Select correct option:            Fixed rate of interest            Internal rate of return            Variable rate of interest            Nominal rate of interest Which of the following would be included in a definition of risk?Select correct option:            Risk is a not measure of uncertainty            Risk is unavoidable            Risk doesn't have a time horizon            Risk seldom involves some future payoff _____________ are organized to eliminate the need of costly information gathering.Select correct option:            Central bank            Commercial banks            Stock exchanges            Insurance companies 

You receive a check for $100 two years from today. The discounted present value of this $100 is:Select correct option:            $100/(1+i)            $100*(1+i)^2            $100*(1+i)            $100/(1+i)^2  What is true relationship between return and risk?Select correct option:            Lower the risk greater the return            Greater the risk greater the return            Greater the risk the return will remain constant            No relationship between them A risk-averse investor will:Select correct option:            Always prefer an investment with a lower expected return            Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty            Always require a certain return            Always focus exclusively on the expected return  The fact that common stockholders are residual claimants means: Select correct option:  

The stockholders receive the remains after everyone else is paidThe stockholders are paid any past due dividends before other claims are paidThe common stockholders are responsible for all corporate debts Which one of the following is true for financial intermediaries? Select correct option:  Channel funds from savers to borrowersGreatly enhance economic efficiencyHave been an source of many financial innovationsAll of the given options

 

 

 relationship between the price and the interest rate for a zero coupon bond is best described as: Select correct option:  

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VolatileStableNon-existent Inverse Reference: The price of a bond and the interest rate move in opposite directions                                 Consumer Price Index (CPI) measures the: Select correct option:  Changes in the quantityChanges in the pricesChanges in the costChanges in the profitReference: CPI :Measure of the overall level of prices Core principles of Money and Banking include each of the following except? Select correct option:  People act rationallyTime has valueInformation is the basis for decisionsRisk requires compensation The longer the time (n) until the payment: Select correct option:  The lower the present valueThe higher the present value because time is valuableThe lower must be the interest rateTime has no effect on present value When stock prices reflect fundamental values: Select correct option:  All investors will experience capital gainsAll companies will have an easier task of obtaining financing for investment projectsThe allocation of resources will be more efficientThe overall level of the stock market should move higher continuouslyReference: So long as stock prices accurately reflect fundamental values, this resource allocation mechanism works well What will be the result of the difference of real and nominal interest rate? Select correct option:  The cost of borrowingThe effect of inflation

The price of bondsThe return of bonds  If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: Select correct option:  $94.00$94.33$95.25$96.10 Which of the following would probably NOT earn an A rating from Standard & Poor's: Select correct option:  30 years bond issued by the U.S. TreasuryNew vegetarian fast-food chain90 days T-Bills issued by the U.S. TreasuryBoth 30 years bond and 90 days T-Bills issued by U.S. Treasury There is no guarantee that a bond issuer will make the promised payments is known as which one of the following? Select correct option:  Default riskInflation riskInterest rate riskSystematic risk If a bond sells at a premium, where price exceeds face value, then we would expect to see: Select correct option:  Market interest rate the same as the coupon rateMarket interest rates above the coupon rate Market interest rates below the coupon rate All of the given options Reference: So, When Market Interest Rate < Coupon Interest Rate, Market Value (or Price) of Bond >Par Value. Because when market is offering lower rate of return then the bond then the bond becomesvaluable. This is known as a Premium Bond. Pg no.68 MGT201 H.outs Which of the following is a role of a financial institution acting as a financial intermediary? Select correct option: 

 Pooling the resources of small saversFormulating oversight regulationsSending out free calendars at the holidaysLobbying legislatorsReference: The most straightforward economic function of a financial intermediary is to pool the resources of many small savers Pg no.71 MGT411 H.outsFinancial Systems makes it easier to trade because it: Select correct option:  Facilitate Payments Channels Funds from Savers to Borrowers Enables Risk Sharing All of the given optionsWhich of the following is the measure of likelihood that an event will occur? Select correct option:  RiskProbabilityFrequencyOutcom The concept of limited liability says a stockholder of a corporation: Select correct option:  Is liable for the corporation's liabilities, but nothing moreCannot receive dividends that exceed their investmentCannot own more than fiver percent of any public corporationCannot lose more than their investmentReference: Because of limited liability, investor’s losses cannot exceed the price they paid for thestock Pg no.63 MGT411 H.outs The risk premium for an investment: Select correct option:   Increases with riskIs a fixed amount added to the risk free returnIs negative for U.S. Treasury Securities

www.vuzs.netWhich of the following best expresses the proceeds a lender receives from a simple loan?PV(1 + i)FV/iPV + i

PV/IFV = PV*(1+i)At which money aggregate definitions relation is stronger with inflation and growthM1M2M3 None of aboveWhen the auto manufacturing industry does poorly due to a recession this is an example of:Idiosyncratic riskSystematic riskRisk premiumUnique riskSystematic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system.

www.vuzs.netAccording to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects:Short-term interest rates to rise sharplyShort-term interest rates to stay near their current levelsShort-term interest rates to drop sharplyShort-term interest rates does not changeWhat is true relationship between return and risk?Lower the risk greater the returnGreater the risk greater the returnGreater the risk the return will remain constantNo relationship between them----- example of channel fund from saver to borrower.BankMutual fundFinance companiesAll of above Which of the following NOT true for financial institutions?It reduces the transaction costIt reduce the information costIt reduces the asymmetric informationIt doesn’t make long term loans 

www.vuzs.netCurrent accounts of commercial bank lies in which money aggregate definition?CurrencyM1M2M3

Commercial bank is a bank whose principal functions are to receive demand deposits and to make short-term loans. It is a Bank that makes loans to businesses, consumers, and non business institutions.The price of a coupon bond can best be described as:The present value of the face valueThe future value of the coupon payments and the face valueThe present value of the coupon paymentsBoth The present value of the face value and of the coupon payments The money aggregate M2 includes each of the following EXCEPT:Small denomination time deposits.Retail Money Market Mutual fund sharesU.S. Treasury billsM1M2 is the measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts.According to the rule of 72 for reasonable rates of return, the time it takes to ________ the money will be t =72/i%DoublesTripleshalves3/4

www.vuzs.netThe default premium:Is positive for a U.S. Treasury bondMust always be less than 0 (zero)Is also known as the risk spreadIs assigned by a bond rating agencyWhich of the following is NOT a depository financial institution?Credit UnionSavings and LoanCommercial bankLife Insurance CompanyA credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.A savings and loan association (or S&L), also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans.Commercial bank is an institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit.Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness.

What is primary cause of inflation?Energy crisesGold reserve shortageIssue excessive currencyRising cost of inputA corrupt or pressured government might issue excessive amounts of money, thereby unleashing severe inflation.Which characteristic are common both in money and securitiesTransfer of risk, store of valueUnit of account, mean of paymentMean of payment, transfer of riskStore of value, mean of paymentIf YTM is less than the coupon rate the price of the bond is________.Greater than its face valueLower than its face valueEquals to its face valueAll of the given options

www.vuzs.netThe longer the time (n) until the payment:The lower the present valueThe higher the present value because time is valuableThe lower must be the interest rateTime has no effect on present valueMr A need 1000000 to buy a car for his personal use he contact with bank that give his loan this would be called:Direct financeIndirect financeFacilitate paymentAll of aboveA risk-averse investor will:Always prefer an investment with a lower expected returnAlways prefer an investment with a certain return to one with the same expected return but any amount of uncertaintyAlways require a certain returnAlways focus exclusively on the expected returnGDP deflator is calledRetailer price indexConsumer price indexProducer price indexNone of aboveThe GDP deflator, also called the implicit price deflator for GDP, measures the price of output relative to its price in the base year. It reflects what’s happening to the overall level of prices in the economy.When the price of a bond is above face value:The yield to maturity will be above the coupon rateThe yield to maturity is below the coupon rate

The yield to maturity will equal zeroThe yield to maturity will equal the coupon rateBond Price < Face Value:Coupon Rate < Current Yield < Yield to MaturityBond Price = Face Value:Coupon Rate = Current Yield = Yield to MaturityBond Price > Face Value:Coupon Rate > Current Yield > Yield to Maturity

www.vuzs.netA zero coupon bond:Does not pay any coupon payments because the issuer is in defaultPays coupons only once a year versus the usual twice a yearPromises a single future paymentPays coupons only if the bond price is below face valueA ________ is a promise to make a series of payments on specific future date.StockBondLoanChequeA bond is a promise to make a series of payments on specific future date.Economic development measured byReal GDP/populationReal GDP/ nominal GDPReal GDP/Real GNPNone of above Economic growth is conventionally measured as the percentage increase in gross domestic product (GDP) or gross national product (GNP) during one year.Which one the following is NOT the way to manage liquidity risk?By holding sufficient excess reservesThrough diversificationBy adjusting assetsBy adjusting liabilitiesWhich of the following is the true about bank statement?Total Bank Assets = Total Bank Liabilities + Bank CapitalTotal Bank Liabilities = Bank CapitalTotal Bank Assets +Total Bank Liabilities = Bank CapitalTotal Bank Assets = Total Bank Liabilities - Bank CapitalA typical bank will offer ______ type/s of checking accounts.Only one typeTwo typesFour typesSix or more types

www.vuzs.netIf a bond sells at a premium, where price exceeds face value, then we would expect to see:Market interest rate the same as the coupon rate

Market interest rates above the coupon rateMarket interest rates below the coupon rateAll of the given options

Question # 1 of 20 ( Start time: 08:59:18 PM )  Total M - 1 Which of the following best expresses the payment a lender receives for lending their money for four years? Select correct option:  PV(1+i)4  PV/(1 + i)4  4PV PV/(1 - i)4   Question # 2 of 20 ( Start time: 08:59:55 PM )  Total M - 1 Bonds that are issued by Government are called _________. Select correct option:  Government bond Treasury bond Corporate bond Callable Bonds Question # 3 of 20 ( Start time: 09:00:14 PM )  Total M - 1 __________ is the interest rate at which the present value annual reveneu equals the cost of the investment. Select correct option:  Fixed rate of interest Internal rate of return Variable rate of interest Nominal rate of interest  Question # 4 of 20 ( Start time: 09:00:38 PM )  Total M - 1 In which of the following bonds we may ignore the default risk? Select correct option:  Privately issued bonds Government issued bonds Bonds issued by Corporate  All of the given options    Question # 5 of 20 ( Start time: 09:00:53 PM )  Total M - 1 Most of the people among us are ___________. Select correct option:  Risk lovers

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 Risk enhancers Risk averse Risk tolerating Question # 7 of 20 ( Start time: 09:01:26 PM )  Total M - 1 A risk-averse investor will: Select correct option:  Always prefer an investment with a lower expected return Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty Always require a certain return Always focus exclusively on the expected return Question # 8 of 20 ( Start time: 09:01:51 PM )  Total M - 1 Which of the following is NOT included in the definition of M1? Select correct option:  Traveler’s checks Demand deposits Currency  Gold coins issued by treasury Question # 9 of 20 ( Start time: 09:02:04 PM )  Total M - 1 Which one of the following is true for financial intermediaries? Select correct option:  Channel funds from savers to borrowers Greatly enhance economic efficiency Have been an source of many financial innovations All of the given options  Question # 10 of 20 ( Start time: 09:02:32 PM )  Total M - 1 The lowest rating for an investment grade bond assigned by Moody's is: Select correct option:  BBB ABB Baa Aaa Question # 11 of 20 ( Start time: 09:03:58 PM )  Total M - 1 If YTM is less than the coupon rate the price of the bond is __________. Select correct option:  Greater than its face value Lower than its face value Equals to its face value All of the given options  Question # 12 of 20 ( Start time: 09:05:29 PM )  Total M - 1 

What will be the effect on the present value if we double the future value of the payment? Select correct option:  It will decrease the value by one-half It will increase the value by one-half It will equally increase the value i.e. doubles the value It will have no effect on the value     for more contents visithttp://groups.google.com/group/vuZs

Question # 13 of 20 ( Start time: 09:06:06 PM )  Total M - 1Which one of the following is the narrowest definition of money?Select correct option: C M1 M2 M3

Question # 14 of 20 ( Start time: 09:06:50 PM )  Total M - 1We need __________ to carry out day to day transactions.Select correct option: Money Bonds Stocks Loans

Question # 15 of 20 ( Start time: 09:07:01 PM )  Total M - 1Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other?Select correct option: Spreading the risk Standard deviation Hedging the risk Variance

Question # 16 of 20 ( Start time: 09:08:07 PM )  Total M - 1The Segmented Markets Theory of term structure suggests that:Select correct option: Investors have strong preferences for bonds of a particular maturity (This is correct) Investors have no preference for short-term bonds over long-term bonds, or vice versa Interest rates on long-term bonds strongly influence the demand for short-term bonds Bonds of different maturities are perfect substitutes for each other

Question # 17 of 20 ( Start time: 09:09:36 PM )  Total M - 1The process of financial intermediation:Select correct option: Creates a net cost to an economy but is unavoidable Is used primarily in underdeveloped countries Is always used when a borrower needs to obtain funds Increases the economy's ability to produce

Question # 18 of 20 ( Start time: 09:09:56 PM )  Total M - 1What will the yield curve look like if future short-term interest rates are expected to rise sharply?Select correct option: It will steeply slope upward It will be horizontal It will slightly slope upward It will slope downward

Question # 19 of 20 ( Start time: 09:10:37 PM )  Total M - 1Sum of all the probabilities should be equal to which one of the following?Select correct option: Zero One Two Three

uestion # 1 of 20 ( Start time: 05:44:09 PM )  Total M - 1 ___________ is the strategy of reducing overall risk by making two investments with opposing risks. Select correct option:  Spreading the riskStandard deviationHedging the riskVarianceQuestion # 2 of 20 ( Start time: 05:44:45 PM )  Total M - 1 The lowest rating for an investment grade bond assigned by Moody's is: Select correct option:  BBBABBBaaAaa Which one of the following is the narrowest definition of money? Select correct option:  C

M1M2M3Question # 4 of 20 ( Start time: 05:46:15 PM )  Total M - 1 The price of a coupon bond can best be described as: Select correct option:  The present value of the face valueThe future value of the coupon payments and the face valueThe present value of the coupon paymentsBoth The present value of the face value and of the coupon payments Question # 5 of 20 ( Start time: 05:46:53 PM )  Total M - 1 We need __________ to carry out day to day transactions. Select correct option:  MoneyBondsStocksLoans Question # 6 of 20 ( Start time: 05:47:16 PM )  Total M - 1 The process of financial intermediation: Select correct option:  Creates a net cost to an economy but is unavoidableIs used primarily in underdeveloped countriesIs always used when a borrower needs to obtain fundsIncreases the economy's ability to produce Question # 7 of 20 ( Start time: 05:47:51 PM )  Total M - 1 Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease: Select correct option:  The yield curve must have a positive slopeThe yield curve must be invertedThe yield curve could be flatThe slope of the yield curve should actually increase  Question # 8 of 20 ( Start time: 05:48:41 PM )  Total M - 1 Which one of the following is true for the relationship between the yield of taxable and tax exempt bond? Select correct option:  

Higher the tax rate wider the gap between the yield of taxable and tax exempt bondTaxable bond yield is always greater than tax exempt bondHigher the tax rate shorter the gap between yield of taxable and tax exempt bondLower the tax rate wider the gap between yield of taxable and tax exempt bond Question # 9 of 20 ( Start time: 05:49:13 PM )  Total M - 1 Which of the following expresses 6.5%? Select correct option:  0.0065 6.50 0.650 0.0650  Question # 10 of 20 ( Start time: 05:50:19 PM )  Total M - 1 What will be the result of the difference of real and nominal interest rate? Select correct option:  The cost of borrowingThe effect of inflationThe price of bondsThe return of bonds Question # 11 of 20 ( Start time: 05:50:40 PM )  Total M - 1 Other things remaining equal, the liquidity premium theory is based upon the idea that ____________. Select correct option:  Investors prefer long-term bondsInvestors prefer short-term bondsInvestors are indifferent between short-term and long-term bondsInvestors prefer intermediate-term bonds Question # 12 of 20 ( Start time: 05:51:25 PM )  Total M - 1 The Segmented Markets Theory of term structure suggests that: Select correct option:  Investors have strong preferences for bonds of a particular maturityInvestors have no preference for short-term bonds over long-term bonds, or vice versaInterest rates on long-term bonds strongly influence the demand for short-term bondsBonds of different maturities are perfect substitutes for each other  Question # 13 of 20 ( Start time: 05:52:23 PM )  Total M - 1 

Often a bank will require a loan officer to make personal visits on customers with loans outstanding. This is encouraged because: Select correct option:  The bank worries about competitors trying to steal their customers The bank wants to make sure the business is still thereThe bank likely has excess funds available and hopes to make another loan to the businessThis is an effective monitoring technique and should reduce moral hazard Question # 14 of 20 ( Start time: 05:53:10 PM )  Total M - 1 If the tax rate is higher than gap between yield on taxable and tax exempt bond? Select correct option:  ShorterWiderNo gapAny thing can be possible  Question # 15 of 20 ( Start time: 05:53:46 PM )  Total M - 1 Investors will hold higher compensation for the __________ investment. Select correct option:  More risky Less risky Fixed returnLess dividend Question # 16 of 20 ( Start time: 05:54:14 PM )  Total M - 1 Which of the following are used to monitor and stabilize the economy? Select correct option:  Stock exchangesCommercial BanksCentral BanksFinancial institutions Question # 17 of 20 ( Start time: 05:54:38 PM )  Total M - 1 The theory of efficient market states that prices of financial instruments reflect: Select correct option:  All available informationSome of the informationNo information Imperfect information 

 Question # 18 of 20 ( Start time: 05:55:37 PM )  Total M - 1 With direct finance we mean which of the following? Select correct option:  Individuals (or firms) borrow directly from the saversIndividuals (or firms) borrow directly from banks.Individuals deposit savings directly in banks. Firms deposit savings directly in banks.   Question # 19 of 20 ( Start time: 05:56:08 PM )  Total M - 1 Which of the following best describes the relationship between Bond prices and yields? Select correct option:  Move together inverselyBond yields do not change since the coupon is fixedMove together directlyAre independent of each other Question # 20 of 20 ( Start time: 05:56:35 PM )  Total M - 1 The fact that common stockholders are residual claimants means: Select correct option:  The stockholders receive their dividends before any other residuals are paidThe stockholders receive the remains after everyone else is paidThe stockholders are paid any past due dividends before other claims are paidThe common stockholders are responsible for all corporate debts 

The____________ are an assessment of the creditworthiness of the corporate issuer. Select correct option: 

Bond yieldBond price Bond riskBond ratings 

Which of the following statement is true for the given sentence, "that tax affects the bond return"? Select correct option: 

Because only interest income they receive from bond is taxable Because principal amount and interest income they receive from bond is taxableBecause bond holders are taxpayersBecause all bond is sold with a condition that tax will be deducted from its returnThe second important factor that affects the return on a bond is taxes, Bondholders must pay income tax on the interest income they receive from privately issued

The relationship between the price and the interest rate for a zero coupon bond is best described as: Select correct option: 

VolatileStableNon-existent  IncerseWhen stock prices reflect fundamental values: Select correct option: 

All investors will experience capital gainsAll companies will have an easier task of obtaining financing for investment projectsThe allocation of resources will be more efficient The overall level of the stock market should move higher continuously

Coupon bonds make the annual payments which are called as ___________. Select correct option: 

Annual paymentsFixed paymentsCoupon paymentsMaturity payment  If information in a financial market is asymmetric, this means: Select correct option: 

Borrowers and lenders have perfect informationBorrowers would have more information than lenders Borrowers and lenders have the same informationLenders lack any information

If YTM equals the coupon rate the price of the bond is __________. Select correct option: 

Greater than its face valueLower than its face valueEquals to its face valueInsufficient information

The Financial Systems makes it easier to trade because it: Select correct option: Facilitate Payments Channels Funds from Savers to Borrowers Enables Risk Sharing All of the given options

Debt instruments is categorized on the basis of which one of the following? Select correct option: Loan maturity period Interest ratesMode of payment of interestAmount of the debt taken

The return on holding a bond till its maturity is called: Select correct option: 

Coupon rateYield to maturityCurrent yieldInternal rate of return 

Which of the following are used to monitor and stabilize the economy? Select correct option: 

Stock exchangesCommercial BanksCentral Banks Financial institutions

Previously financial markets are located in which of the following? Select correct option: 

Coffee houses or Taverns .Stock exchangesBazaarCoffee houses and Stock exchangesFinancial MarketsTo buy and sell financial instruments quickly and cheaply. Evolved from coffeehouses to trading places (Stock exchanges) to electronic networksTransactions are much more cheaper now. Markets offer a broader array of financial instruments than were available even 50 years ago

Requiring a large deductible on the part of an insured is one way insurers treat the problem of: Select correct option: 

    Free-riding 

 Moral hazardAdverse selectionThe Lemons market

   

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Which one of the following is the procedure of finding out the Present Value (PV)? Select correct option: 

DiscountingCompoundingTime value of moneyBond pricing

_____________ are organized to eliminate the need of costly information gathering. Select correct option: 

Central bankCommercial banksStock exchangeInsurance companies  With direct finance we mean which of the following? Select correct option: 

Individuals (or firms) borrow directly from the saversIndividuals (or firms) borrow directly from banks.Individuals deposit savings directly in banks. Firms deposit savings directly in banks. 

Yield curves show which of the followings? Select correct option: 

The relationship between bond interest rates (yields) and bond pricesThe relationship between liquidity and bond interest rates (yields)The relationship between risk and bond interest rates (yields)The relationship between time to maturity and bond interest rates (yields)  

In a financial market where information is symmetric: Select correct option: 

The same information would be known by both parties in a transaction One party to a transaction knows information the other party does notThe ability to obtain information is available to only one partyAll of the given options

Other things remaining equal, the liquidity premium theory is based upon the idea that ____________. Select correct option: 

Investors prefer long-term bondsInvestors prefer short-term bonds Investors are indifferent between short-term and long-term bondsInvestors prefer intermediate-term bonds  Spreading involves: Select correct option: 

Finding assets whose returns are perfectly negatively correlatedBuilding a portfolio of assets whose returns move togetherInvesting in bonds and avoiding stocks during bad timesAdding assets to a portfolio that move independently  The Financial Systems makes it easier to trade because it: Select correct option: Facilitate PaymentsChannels Funds from Savers to BorrowersEnables Risk SharingAll of the given options The process of financial intermediation:Select correct option:Creates a net cost to an economy but is unavoidableIs used primarily in underdeveloped countriesIs always used when a borrower needs to obtain fundsIncreases the economy's ability to produce What is true relationship between return and risk?Select correct option:Lower the risk greater the returnGreater the risk greater the returnGreater the risk the return will remain constant Financial instruments are evolved just as ____________.Select correct option:CurrencyStockBondCommodity Beside default risk which one if the following factor affects the return on bond?Select correct option:TaxesMonetary policyJunk bondsDebtThe second important factor that affects the return on a bond is taxes

 Which of the following is the measure of likelihood that an event will occur?Select correct option:RiskProbabilityFrequency According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expectsSelect correct option:Short-term interest rates to rise sharplyShort-term interest rates to stay near their current levelsShort-term interest rates to drop sharplyShort-term interest rates does not change   Home loans and car loans are the example of which one of the following?Select correct option:Mortgage loansPledgeFixed Payment LoansFixed Payment Loans They promise a fixed number of equal payments at regular intervals. Home mortgages and car loans are examples of fixed payment loans. Which one of the following is the procedure of finding out the Present Value (PV)?Select correct option:

DiscountingCompoundingTime value of money Bond pricing  Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:Select correct option:The yield curve must have a positive slopeThe yield curve must be invertedThe yield curve could be flatThe slope of the yield curve should actually increase Most of the people among us are ___________.Select correct option:Risk loversRisk enhancersRisk averse

Risk tolerating A risk-averse investor will:Select correct option:Always prefer an investment with a lower expected returnAlways prefer an investment with a certain return to one with the same expected return but any amount of uncertaintyAlways require a certain returnAlways focus exclusively on the expected return The liquidity premium theory suggests that yield curves should usually be:Select correct option: Up-slopingInvertedFlatUp-sloping through year 1, then flat thereafter Wider the range of outcome wider will be the ___________.Select correct option: 

RiskProfitProbabilityMeasuring Risk Most of us have an intuitive sense for risk and its measurement; The wider the range of outcomes the greater the risk  The return on holding a bond till its maturity is called:Coupon rate Yield to maturity

Current yield

Fixed return                                                       for more contents visit

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  If information in a financial market is asymmetric, this means:Select correct option:Borrowers and lenders have perfect informationBorrowers would have more information than lendersBorrowers and lenders have the same informationLenders lack any information

 According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i% Select correct option: Doubles TriplesHalves3/4 Stock market bubbles can lead to: Select correct option: An inefficient allocation of resourcesStock market crashesPatterns of volatile returns from the stock market All of the given options Which one of the following is true for the relationship between the yield of taxable and tax exempt bond? Select correct option: Higher the tax rate wider the gap between the yield of taxable and tax exempt bondTaxable bond yield is always greater than tax exempt bondHigher the tax rate shorter the gap between yield of taxable and tax exempt bondLower the tax rate wider the gap between yield of taxable and tax exempt bondchange  The Dividend-Discount Model of stock valuation: Select correct option: Takes the annual dividend, adds it to the expected future selling price and divides by the number of years to get the current priceTakes the net present value of expected dividends and add it to the future sale price of the stockTakes the net present value of the expected future price of the stock and add the annual dividendIs an application of the net present value formula  In which of the following bonds we may ignore the default risk? Select correct option: Privately issued bondsGovernment issued bondsBonds issued by Corporate All of the given options  The slope of the yield curve seems to predict the performance of the economy with: Select correct option:

 Usually 3 months lagUsually two years lagUsually within few weeksUsually one year lag The GDP deflator is calculated as___________. Select correct option: Nominal GDP/Real GDP *100Real GDP/Nominal GDPNominal GDP – Real GDPReal GDP – Nominal GDP What is true about the relationship between standard deviation and risk? Select correct option: Greater the standard deviation greater will be the riskGreater the standard deviation lower will be the riskGreater the standard deviation risk remains the sameNo relation between them  The concept of limited liability says a stockholder of a corporation: Select correct option: Is liable for the corporation's liabilities, but nothing moreCannot receive dividends that exceed their investmentCannot own more than fiver percent of any public corporationCannot lose more than their investment Which of the following best describes the relationship between Bond prices and yields? Select correct option: Move together inverselyBond yields do not change since the coupon is fixedMove together directlyAre independent of each other Which of the following best expresses the payment a lender receives for lending their money for four years? Select correct option: PV(1+i)4  PV/(1 + i)4  4PVPV/(1 - i)4 

If YTM is greater than the coupon rate the price of the bond is __________. Select correct option:   Greater than its face valueLower than its face valueEquals to its face valueAll of the given options

When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts to the:Select correct option:

RightLeftNo changeNone of the given options Consumer Price Index (CPI) measures the:Select correct option: Changes in the quantityChanges in the pricesChanges in the costChanges in the profit A risk-averse investor will:Select correct option: Always prefer an investment with a lower expected returnAlways prefer an investment with a certain return to one with the same expected return but any amount of uncertaintyAlways require a certain returnAlways focus exclusively on the expected return Which of the following best represent the true relationships between interest rates and bond prices?Select correct option: Move in the same directionMove in opposite directionSometimes move in the same direction, some times in opposite directionHave no relationship with each other (i.e. they are independent) 

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Which one of the following is a component of wealth that is held in a readily spendable form?Select correct option: MoneyBondsStocksIncome The return on the bond is equal to which of the following?Select correct option: Coupon rate + rate of capital gainsCurrent yield + rate of capital gainsCoupon rate - rate of capital gainsCurrent yield - rate of capital gains Time affects the value of which of the following?Select correct option: Financial InstrumentsFinancial MarketsFinancial InstitutionsCentral Banks Which of the following statement is true about the relation ship between bond ,coupon payment and interest?Select correct option: Coupon payments fall, the interest rate falls, and Bond price will riseCoupon payments rises, the interest rate falls, and Bond price will riseCoupon payments fall, the interest rate falls, and Bond price will fallCoupon payments rise, the interest rate falls, and Bond price will fall The current yield on a $10,000, 5% coupon bond selling for $8,000 is:

 

Select correct option: 5.00%6.25%7.50%8.00% =  coupon payment/price  (so coupon payment 5%of 10,000 = 500)= 500/8000 = .0625 *100 = 6.25% There is no guarantee that a bond issuer will make the promised payments is known as which one of the following?Select correct option:

 Default riskInflation riskInterest rate riskSystematic risk What will be the result of the difference of real and nominal interest rate?Select correct option: The cost of borrowingThe effect of inflationThe price of bondsThe return of bonds

Question # 5 of 20 ( Start time: 08:03:08 PM )Total M - 1The return on holding a bond till its maturity is called:Select correct option: Coupon rateYield to maturityCurrent yieldInternal rate of return Question # 6 of 20 ( Start time: 08:03:27 PM )Total M - 1Wider the range of outcome wider will be the ___________.Select correct option: RiskProfitProbabilityLose  Question # 7 of 20 ( Start time: 08:04:42 PM )Total M - 1The interest rate that is involved in _____________ calculation is referred to as discount rateSelect correct option: Present valueFuture valueIntrinsic valueDiscount value Question # 8 of 20 ( Start time: 08:06:05 PM )Total M - 1Bonds that are issued by Government are called _________.Select correct option:

 Government bondTreasury bondCorporate bondCallable Bonds Question # 13 of 20 ( Start time: 08:13:26 PM )Total M - 1If a bond sells at a premium, where price exceeds face value, then we would expect to see:Select correct option: Market interest rate the same as the coupon rateMarket interest rates above the coupon rateMarket interest rates below the coupon rateAll of the given options Question # 14 of 20 ( Start time: 08:14:49 PM )Total M - 1With direct finance we mean which of the following?Select correct option: Individuals (or firms) borrow directly from the saversIndividuals (or firms) borrow directly from banks.Individuals deposit savings directly in banks.Firms deposit savings directly in banks.  Question # 15 of 20 ( Start time: 08:16:14 PM )Total M - 1Investors will hold higher compensation for the __________ investment.Select correct option: More riskyLess riskyFixed returnLess dividend Question # 16 of 20 ( Start time: 08:17:16 PM )Total M - 1Which of the following best expresses the proceeds a lender receives from a simple loan?Select correct option: PV(1 + i)FV/iPV + iPV/i Question # 17 of 20 ( Start time: 08:18:11 PM )Total M - 1

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A financial instrument in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as ___________.Select correct option: BondBank LoanHome MortgageFutures Contract Question # 18 of 20 ( Start time: 08:19:18 PM )Total M - 1According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%Select correct option: DoublesTripleshalves3/4  Question # 19 of 20 ( Start time: 08:19:37 PM )Total M - 1The return on the bond is equal to which of the following?Select correct option: Coupon rate + rate of capital gainsCurrent yield + rate of capital gainsCoupon rate - rate of capital gainsCurrent yield - rate of capital gains Question # 20 of 20 ( Start time: 08:21:06 PM )Total M - 1A loan that is used to purchase the real estate is known as:Select correct option: Real estate loanHome mortgagesFixed payment loanHome loan  If the annual interest rate is 6% (.06); the price of a one year Treasury bill would be:        $94.00       $94.33

       $95.25       $96.10100/1.06=94.33

MGT411MGT411 Two Quizzes No.2

Lecture 1-18 -2010Solved by vuZs Solution TeamFuad Hasan, Laiba & Komal  

  If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be:  $94.00 $94.33 $95.25 $96.10  When the price of a bond is above face value:  The yield to maturity will be above the coupon rate The yield to maturity is below the coupon rate The yield to maturity will equal zero The yield to maturity will equal the coupon rate www.vuzs.net   What will be the result of the difference of real and nominal interest rate?  The cost of borrowing The effect of inflation The price of bonds The return of bonds  http://groups.google.com/group/vuZs GDP deflator is called Select correct option:  www.vuzs.net Retailer price index Consumer price index Producer price index None of above 

The Financial Systems makes it easier to trade because it:  Facilitate Payments Channels Funds from Savers to Borrowers Enables Risk Sharing All of the given options  According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects:  Short-term interest rates to rise sharply Short-term interest rates to stay near their current levels Short-term interest rates to drop sharply Short-term interest rates does not change www.vuzs.net  According to the rule of 72 for reasonable rates of return, the time it takes to ________ the money will be t =72/i%  Doubles Triples halves 3/4 Which of the following would be considered characteristic of money?  It is store of value It pays a higher return than most assets It is in fixed supply It is legal tender everywhere in the world http://groups.google.com/group/vuZs Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other?  Spreading the risk Standard deviation Hedging the risk Variance Yield curves show which of the followings? The relationship between bond interest rates (yields) and bond prices The relationship between liquidity and bond interest rates (yields) The relationship between risk and bond interest rates (yields) The relationship between time to maturity and bond interest rates (yields)

  http://groups.google.com/group/vuZs  Coupon bonds make the annual payments which are called as _________.  Annual payments Fixed payments Coupon payments Maturity payment  An increase in wealth shifts the demand for bonds to the ________. LeftRightNo change All of the given options  http://groups.google.com/group/vuZs With direct finance we mean which of the following?: Individuals (or firms) borrow directly from the saversIndividuals (or firms) borrow directly from banks. Individuals deposit savings directly in banks. Firms deposit savings directly in banks. You receive a check for $100 two years from today. The discounted present value of this $100 is:  $100/(1+i) $100*(1+i)2 $100*(1+i) $100/(1+i)2  www.vuzs.net The liquidity premium theory suggests that yield curves should usually be:  Up-sloping Inverted Flat Up-sloping through year 1, then flat thereafter  http://groups.google.com/group/vuZs  Financial instruments are evolved just as __________.  Currency

 Stock Bond Commodity Investors will hold higher compensation for the ________ investment.  More riskyLess risky Fixed return Less dividend Spreading involves: Finding assets whose returns are perfectly negatively correlated Building a portfolio of assets whose returns move together Investing in bonds and avoiding stocks during bad times Adding assets to a portfolio that move independently  http://groups.google.com/group/vuZs Which is broadly used as money aggregate?  M1 M2 M3 None of above  What will the yield curve look like if future short-term interest rates are expected to rise sharply?  It will steeply slope upward It will be horizontal It will slightly slope upward It will slope downward   A financial instrumnet in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as _________.  BondBank Loan Home Mortgage Futures Contract The GDP deflator is calculated as_________. Nominal GDP/Real GDP *100

 Real GDP/Nominal GDP Nominal GDP – Real GDP Real GDP – Nominal GDP http://groups.google.com/group/vuZs Which of the following best expresses the proceeds a lender receives from a simple loan?  PV(1 + i) FV/i PV + i PV/i www.vuzs.net Which one of the following is true for financial intermediaries?  Channel funds from savers to borrowers Greatly enhance economic efficiency Have been an source of many financial innovations All of the given options Which one of the following agencies assesses the default risk of different issuers?  Insurance companies Bond issuing Credit rating Recruitment agencies  http://groups.google.com/group/vuZs  The current yield on a $10,000, 5% coupon bond selling for $8,000 is:  5.00%6.25% 7.50% 8.00%  http://groups.google.com/group/vuZs Which is broadly used as money aggregate?  M1M2M3None of Above  The price of a coupon bond can best be described as:

 The present value of the face value The future value of the coupon payments and the face value The present value of the coupon payments Both The present value of the face value and of the coupon payments  If a bond sells at a premium, where price exceeds face value, then we would expect to see:  Market interest rate the same as the coupon rate Market interest rates above the coupon rate Market interest rates below the coupon rate All of the given options  Which of the variable measured in point of time? Flow variable Stock variable Both flow variable and stock variable None of above

MGT411 Money and Banking Online Quiz No. 2 MCQs 

From Lesson 1-18 

The lowest rating for an investment grade bond assigned by Moody's is:BBBABBBaa   Aaa Previously financial markets are located in which of the following?Coffee houses or Taverns    Stock exchangesBazaarCoffee houses and Stock exchanges http://groups.google.com/group/vuZs _________ is the value today of a payment that is promised to be made in the future.Future valuePresent value Agreed valueNone of the given options A ________ is a promise to make a series of payments on specific future date.

StockBond    (Correct)LoanCheque

The bond rating of a security refers to which of the followings?The size of the coupon payment relative to the face valueThe return a holder is likely to receiveThe likelihood the lender/borrower will be repaid by the borrower/issuer   (Correct)The years until the bond matures http://groups.google.com/group/vuZs One of major disadvantage of fiat money isOnly few resources are neededIt may be theft easilyNormally it is obsolete quicklyPressure or corrupt government may print excessive money   (Correct)  A financial instrument in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as _________.BondBank LoanHome Mortgage   (Correct)Futures Contract  The return on the bond is equal to which of the following?Coupon rate + rate of capital gains   (Correct)Current yield + rate of capital gainsCoupon rate - rate of capital gainsCurrent yield - rate of capital gains http://groups.google.com/group/vuZs Which of the following best expresses the payment a lender receives for lending their money for four years?Select correct option:PV(1+i)4   (Correct)PV/(1 + i)44PVPV/(1 - i)4   The__________ are an assessment of the creditworthiness of the corporate issuer. Select correct option:  Bond yield Bond ratings    (Correct)

Bond risk Bond price http://groups.google.com/group/vuZs What is the true relationship that exists between default risk and yield? Higher the default risk, higher the yield    (Correct)Lower the default risk, higher the yield Higher the default risk yield will remain constant Lower the default risk yield will remain constant Which of the following is NOT included in the definition of M1? Traveler’s checks Demand deposits Currency Gold coins issued by treasury   (Correct)  A zero coupon bond: Does not pay any coupon payments because the issuer is in default Pays coupons only once a year versus the usual twice a year Promises a single future payment Pays coupons only if the bond price is below face value   (Correct)

Which of the following institution take direct deposit from customer and give loan to customer directly? Zarai Tarkaytee Bank LTD Soneri Bank Khushali Bank Credit union   (Correct) http://groups.google.com/group/vuZsWhat will be the effect on the present value if we double the future value of the payment? It will decrease the value by one-half It will increase the value by one-half It will equally increase the value i.e. doubles the value    (Correct)It will have no effect on the value Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the amount of interest in this payment? $600    (Correct)$500 $400 $100 If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: $94.00 $94.33    (Correct)$95.25 $96.10

  Bonds without maturity dates are which of the followings? Zero coupon bonds Coupon securities Consols    (Correct)Preferred Bonds Current accounts of commercial bank lies in which money aggregate definition? Currency M1 M2(Correct)M3 Which of the following would probably NOT earn an A rating from Standard & Poor's: 30 years bond issued by the U.S. Treasury New vegetarian fast-food chain    (Correct)90 days T-Bills issued by the U.S. Treasury Both 30 years bond and 90 days T-Bills issued by U.S. Treasury http://groups.google.com/group/vuZs The risk premium for an investment: Increases with risk    (Correct)Is a fixed amount added to the risk free return Is negative for U.S. Treasury Securities Is negative for risk averse investors The lowest rating for an investment grade bond assigned by Moody's is: BBB ABB Baa (Correct)Aaa Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease: The yield curve must have a positive slope The yield curve must be inverted The yield curve could be flat The slope of the yield curve should actually increase   (Correct) Question # 5 of 15 ( Start time: 08:31:17 PM ) Total M - 1 ___________ are organized to eliminate the need of costly information gathering. Central bank Commercial banks Stock exchanges    (Correct)Insurance companies Sum of all the probabilities should be equal to which one of the following? Zero One    (Correct)

Two Three 

MGT411 Online Quizzes No.2111 MCQs covering lectures 1-18. 

Solved by vuZs Solution TeamParticipators were : Hafiz Salman Majeed & Maha Shah

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Question # 1Wider the range of outcome wider will be the _________.Select correct option: RiskProfitProbabilityLose Question # 2The interest rate that is involved in ___________ calculation is referred to as discount rateSelect correct option: Present valueFuture valueIntrinsic valueDiscount value Question # 3The return on holding a bond till its maturity is called:Select correct option: Coupon rateYield to maturityCurrent yieldInternal rate of return Question # 4following represents the fisher’s equation?Select correct option: Nominal interest rate = real interest rate + inflationNominal interest rate + inflation = real interest rateNominal interest rate = real interest rate - inflationNominal interest rate = real interest rate / inflation http://groups.google.com/group/vuZsQuestion # 5Bonds without maturity dates are which of the followings?

Select correct option: Zero coupon bondsCoupon securitiesConsolsPreferred Bonds  Question # 6A risk-averse investor will:Select correct option: Always prefer an investment with a lower expected returnAlways prefer an investment with a certain return to one with the same expected return but any amount of uncertaintyAlways require a certain returnAlways focus exclusively on the expected return http://groups.google.com/group/vuZsQuestion # 7GDP deflator is called Select correct option:  Retailer price index Consumer price indexProducer price index None of above Question # 8What will be the effect on the present value if we double the future value of the payment?Select correct option:       It will decrease the value by one-half       It will increase the value by one-half       It will equally increase the value i.e. doubles the value       It will have no effect on the value Question # 9Government bonds called …….. Where as corporate bonds are called ……Select correct option:       Zero coupon bond, coupon bond       Risky bond. Risk free bond       T bill, corporate bond       Console bond, junk bonds Question # 10Beside default risk which one if the following factor affects the return on bond?Select correct option:       Taxes       Monetary policy       Junk bonds

       Debt http://groups.google.com/group/vuZsQuestion # 11Which of the following are used to monitor and stabilize the economy?Select correct option:       Stock exchanges       Commercial Banks       Central Banks       Financial institutions Question # 12What will be the result of the difference of real and nominal interest rate?Select correct option:       The cost of borrowing       The effect of inflation       The price of bonds       The return of bonds Question # 13Which of the following expresses 6.5%?Select correct option:       0.0065       6.50       0.650       0.0650 Question # 14Diversification is the principle of:Select correct option:       Holding more than one risk at a time       Reducing the risks we carry to just two       Creating risk to increase returns       Eliminating investments from our portfolio that have idiosyncratic risk http://groups.google.com/group/vuZsQuestion # 15Current accounts of commercial bank lies in which money aggregate definition?Select correct option:       Currency       M1       M2       M3 Question # 16Which of the following would be considered characteristic of money?Select correct option:       It is store of value       It pays a higher return than most assets       It is in fixed supply

       It is legal tender everywhere in the world Question # 17When the price of a bond is above face value:Select correct option:       The yield to maturity will be above the coupon rate       The yield to maturity is below the coupon rate       The yield to maturity will equal zero       The yield to maturity will equal the coupon rate  http://groups.google.com/group/vuZsQuestion # 19___________ is the value today of a payment that is promised to be made in the future.Select correct option:            Future value            Present value            Agreed value            None of the given options Question # 20Which of the following best describes default risk?Select correct option:            The chance the issuer will be unable to make interest payments or repay principal            The chance the issuer will retire the debt early            The chance the issuing firm will be sold to another firm            The chance the issuer will sell more debt            Question # 21Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:Select correct option:            The yield curve must have a positive slope            The yield curve must be inverted            The yield curve could be flat            The slope of the yield curve should actually increase  Question # 23Which of the following would probably NOT earn an A rating from Standard & Poor's:Select correct option:            30 years bond issued by the U.S. Treasury            New vegetarian fast-food chain            90 days T-Bills issued by the U.S. Treasury            Both 30 years bond and 90 days T-Bills issued by U.S. Treasury http://groups.google.com/group/vuZsQuestion # 24If YTM is greater than the coupon rate the price of the bond is __________.Select correct option:

            Greater than its face value            Lower than its face value            Equals to its face value            All of the given options Question # 25If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be:Select correct option:            $94.00            $94.33            $95.25            $96.10 Question # 26Time affects the value of which of the following?Select correct option:            Financial Instruments            Financial Markets            Financial Institutions            Central Banks Question # 27A risk-averse investor will:Select correct option:            Always prefer an investment with a lower expected return            Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty            Always require a certain return            Always focus exclusively on the expected return http://groups.google.com/group/vuZsQuestion # 28Investors will hold higher compensation for the __________ investment.Select correct option:            More risky            Less risky            Fixed return            Less dividend           Question # 29An increase in the expected inflation shifts the bond demand to the _________.Select correct option:            Right            Left            No change            All of the given options Question # 30You receive a check for $100 two years from today. The discounted present value of this $100 is:

Select correct option:            $100/(1+i)            $100*(1+i)2            $100*(1+i)            $100/(1+i)2  http://groups.google.com/group/vuZsQuestion # 31Which of the following is NOT an example of financial institutions?Select correct option:            Banks            Securities firms            Stock exchanges            Insurance companies Question # 32The bond rating of a security refers to which of the followings?Select correct option:            The size of the coupon payment relative to the face value            The return a holder is likely to receive            The likelihood the lender/borrower will be repaid by the borrower/issuer            The years until the bond matures  Question # 33Yield curves show which of the followings?Select correct option:            The relationship between bond interest rates (yields) and bond prices            The relationship between liquidity and bond interest rates (yields)            The relationship between risk and bond interest rates (yields)            The relationship between time to maturity and bond interest rates (yields)  http://groups.google.com/group/vuZsQuestion # 34Which of the following best expresses the proceeds a lender receives from a simple loan?Select correct option:            PV(1 + i)            FV/i            PV + i            PV/i Question # 35When the price of a bond is above face value:Select correct option:            The yield to maturity will be above the coupon rate            The yield to maturity is below the coupon rate            The yield to maturity will equal zero            The yield to maturity will equal the coupon rate

 Question # 36What will the yield curve look like if future short-term interest rates are expected to rise sharply?Select correct option:            It will steeply slope upward            It will be horizontal            It will slightly slope upward            It will slope downward Question # 37When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts to the:Select correct option:            Right            Left            No change            None of the given options http://groups.google.com/group/vuZsQuestion # 38Debt instruments is categorized on the basis of which one of the following?Select correct option:            Loan maturity period            Interest rates            Mode of payment of interest            Amount of the debt taken Question # 39Expectation hypothesis focuses on which one of the following?  Select correct option:  

Risk premium Risk free interest rate Yield to maturity None of the given options Reference:Expectations HypothesisThe risk-free interest rate can be computed, assuming that there is no uncertainty about the future  Question # 40What characteristic of money is not included in securities characteristicsSelect correct option:            Mean of payment            Unit of account            Store of value            Transfer of risk http://groups.google.com/group/vuZsQuestion # 41

Which one of the following is the narrowest definition of money?Select correct option:            C            M1            M2            M3 Question # 42Which one of the following is a component of wealth that is held in a readily spendable form?Select correct option:            Money            Bonds            Stocks            Income  Question # 43A loan that is used to purchase the real estate is known as:Select correct option:            Real estate loan            Home mortgages            Fixed payment loan            Home loan Question # 44The default premium:Select correct option:            Is positive for a U.S. Treasury bond            Must always be less than 0 (zero)            Is also known as the risk spread            Is assigned by a bond rating agency http://groups.google.com/group/vuZs Question # 45  A graph of the term structure with YTM on Y-axis and time to maturity on X-axis is called:  Select correct option:  

Demand curve Supply curve Yield curve Leffer curve  Question # 46  Which of the following best describes checks?  Select correct option:  

A means of payment Money 

Not a promise of any kind Not acceptable by the U.S. Government for payment of taxes.   Question # 47  With direct finance we mean which of the following?  Select correct option:  

Individuals (or firms) borrow directly from the savers Individuals (or firms) borrow directly from banks. Individuals deposit savings directly in banks.  Firms deposit savings directly in banks.  http://groups.google.com/group/vuZsQuestion # 48  Which of the following best expresses the payment a lender receives for lending their money for four years?  Select correct option:  

PV(1+i)4  PV/(1 + i)4  4PV PV/(1 - i)4   Question # 49  Which one of the following is true for the relationship between the yield of taxable and tax exempt bond?  Select correct option:  

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond Taxable bond yield is always greater than tax exempt bond Higher the tax rate shorter the gap between yield of taxable and tax exempt bond Lower the tax rate wider the gap between yield of taxable and tax exempt bond  Question # 50  In which of the following bonds we may ignore the default risk?  Select correct option:  

Privately issued bonds Government issued bonds Bonds issued by Corporate  All of the given options http://groups.google.com/group/vuZsQuestion # 51  Which of the following is the least liquid of all?  Select correct option:  

Money Bonds & stocks Lands & buildings None of the given options   

Question # 52What is primary cause of inflation?Select correct option:       Energy crises       Gold reserve shortage       Issue excessive currency       Rising cost of input Question # 53The risk premium for an investment:Select correct option:       Increases with risk       Is a fixed amount added to the risk free return       Is negative for U.S. Treasury Securities       Is negative for risk averse investorsReference:Page 35 Question # 54Which of the following is the measure of likelihood that an event will occur?Select correct option:       Risk       Probability       Frequency       Outcom http://groups.google.com/group/vuZsQuestion # 55Which of the following is NOT included in the definition of M1?Select correct option:       Traveler’s checks       Demand deposits       Currency       Gold coins issued by treasury Question # 56The liquidity premium theory suggests that yield curves should usually be:Select correct option:       Up-sloping       Inverted       Flat       Up-sloping through year 1, then flat thereafter Question # 57If the tax rate is higher than gap between yield on taxable and tax exempt bond?Select correct option:       Shorter       Wider

       No gap       Any thing can be possible Question # 58The reason for the government to get involved in the financial system is to:Select correct option:       Protect investors       Ensure the stability of the financial system       Protect bank customers from monopolistic exploitation       All of the given optionsReference:Page92 http://groups.google.com/group/vuZsQuestion # 59Financial instruments are evolved just as __________.Select correct option:       Currency       Stock       Bond       Commodity Question # 60The longer the time (n) until the payment:Select correct option:       The lower the present value       The higher the present value because time is valuable       The lower must be the interest rate       Time has no effect on present value Question # 61Core principles of Money and Banking include each of the following except?Select correct option:       People act rationally       Time has value       Information is the basis for decisions       Risk requires compensation Question # 62Which of the following would be included in a definition of risk?Select correct option:       Risk is a not measure of uncertainty       Risk is unavoidable       Risk doesn't have a time horizon       Risk seldom involves some future payoff Question # 63The lowest rating for an investment grade bond assigned by Moody's is:Select correct option:

       BBB       ABB       Baa       Aaa http://groups.google.com/group/vuZsQuestion # 64The concept of limited liability says a stockholder of a corporation:Select correct option:       Is liable for the corporation's liabilities, but nothing more       Cannot receive dividends that exceed their investment       Cannot own more than fiver percent of any public corporation       Cannot lose more than their investment Question # 65Coupon bonds make the annual payments which are called as _________.Select correct option:       Annual payments       Fixed payments       Coupon payments       Maturity payment Question # 66The current yield on a $10,000, 5% coupon bond selling for $8,000 is:Select correct option:       5.00%       6.25%       7.50%       8.00% Question # 67Home loans and car loans are the example of which one of the following?Select correct option:       Mortgage loans       Pledge       Fixed Payment Loans       Ordinary loanhttp://groups.google.com/group/vuZsQuestion # 68What is difference between warrant and check?Select correct option:       Check is cleared from bank but warrant is not cleared by bank       Check is not necessarily pay able on demand but warrant is payable on demand       Warrant is not necessarily pay able on demand but check is payable on demand       None of above Question # 69The slope of the yield curve seems to predict the performance of the economy with:Select correct option:

       Usually 3 months lag       Usually two years lag       Usually within few weeks       Usually one year lag Question # 70What is true about the relationship between standard deviation and risk?  Select correct option:  

Greater the standard deviation greater will be the risk Greater the standard deviation lower will be the risk Greater the standard deviation risk remains the same No relation between them Question # 71If YTM equals the coupon rate the price of the bond is ________.  Select correct option:  

Greater than its face value Lower than its face value Equals to its face value Insufficient information http://groups.google.com/group/vuZsQuestion # 72The Financial Systems makes it easier to trade because it:  Select correct option:  

Facilitate Payments  Channels Funds from Savers to Borrowers  Enables Risk Sharing  All of the given options Question # 73Spreading involves:  Select correct option:  

Finding assets whose returns are perfectly negatively correlated Building a portfolio of assets whose returns move together Investing in bonds and avoiding stocks during bad times Adding assets to a portfolio that move independently Question # 74________ is the interest rate at which the present value annual reveneu equals the cost of the investment.  Select correct option:  

Fixed rate of interest Internal rate of return 

Variable rate of interest Nominal rate of interest Question # 75The GDP deflator is calculated as_________.  Select correct option:  

Nominal GDP/Real GDP *100 Real GDP/Nominal GDP  Nominal GDP – Real GDP  Real GDP – Nominal GDP http://groups.google.com/group/vuZsQuestion # 76_________ is the strategy of reducing overall risk by making two investments with opposing risks.  Select correct option:  

Spreading the risk Standard deviation Hedging the risk Variance Question # 77A ________ is a promise to make a series of payments on specific future date.  Select correct option:  

Stock Bond Loan Cheque Question # 78Which one of the following is true for financial intermediaries?  Select correct option:  

Channel funds from savers to borrowers Greatly enhance economic efficiency Have been an source of many financial innovations All of the given options Question # 79There is no guarantee that a bond issuer will make the promised payments is known as which one of the following?  Select correct option:  

Default risk Inflation risk Interest rate risk Systematic risk 

Question # 80If a bond sells at a premium, where price exceeds face value, then we would expect to see:  Select correct option:  

Market interest rate the same as the coupon rate Market interest rates above the coupon rate  Market interest rates below the coupon rate  All of the given options http://groups.google.com/group/vuZsQuestion # 81One of major disadvantage of fiat money is  Select correct option:  

Only few resources are needed  It may be theft easily  Normally it is obsolete quickly  Pressure or corrupt government may print excessive money Question # 82The price of a coupon bond can best be described as:Select correct option: The present value of the face valueThe future value of the coupon payments and the face valueThe present value of the coupon paymentsBoth The present value of the face value and of the coupon payments Question # 83The Segmented Markets Theory of term structure suggests that:Select correct option: Investors have strong preferences for bonds of a particular maturityInvestors have no preference for short-term bonds over long-term bonds, or vice versaInterest rates on long-term bonds strongly influence the demand for short-term bondsBonds of different maturities are perfect substitutes for each other Question # 84Which of the following patterns of term structure occur most frequently?Select correct option: Ascending yield curveDescending yield curveFlat yield curveHumped yield curve http://groups.google.com/group/vuZsQuestion # 85Economic development measured bySelect correct option:

 Real GDP/populationReal GDP/ nominal GDPReal GDP/Real GNPNone of above Reference:Financial Development is measured by the commonly used ratio of broadly defined money to GDP. Economic development is measured by the real GDP per capita. Question # 86Sum of all the probabilities should be equal to which one of the following?Select correct option: ZeroOneTwoThree Question # 87A financial instrumnet in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as _________.Select correct option: BondBank LoanHome MortgageFutures Contract Question # 88A brilliant example of risk require compensationSelect correct option:Taking a safe debtInsurance policyA person work in officeNone of above Question # 89An increase in wealth shifts the demand for bonds to the ________.Select correct option:LeftRightNo changeAll of the given options http://groups.google.com/group/vuZsQuestion # 90Internal Rate of Return is _______.Select correct option:

Present value of investmentFuture value of its investment +Cost of investmentCost of investmentPresent value of investment + cost of investment Question # 91Previously financial markets are located in which of the following?Select correct option:Coffee houses or TavernsStock exchangesBazaarCoffee houses and Stock exchanges Question # 92At which money aggregate definitions relation is stronger with inflation and growthSelect correct option:M1M2M3None of above Question # 93The shape of the yield curve is usually:Select correct option:Upward slopingDownward slopingUpward sloping for shorter maturities and downward sloping for longer maturitiesFlat Question # 94When the auto manufacturing industry does poorly due to a recession this is an example of:Select correct option:Idiosyncratic riskSystematic riskRisk premiumUnique risk http://groups.google.com/group/vuZsQuestion # 95Mr A need 1000000 to buy a car for his personal use he contact with bank that give his loan this would be calledSelect correct option: Direct financeIndirect financeFacilitate paymentAll of above Question # 96Which one of the following is NOT true for the expectation hypothesis?

Select correct option: Risk free interest rate can be computedThere is uncertainty in the futureIdentifying yield of bond today that will be available next yearIt focuses on risk free interest rate and the risk premium Question # 97Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the amount of interest in this payment?Select correct option: $600$500$400$100 Question # 98In the long run, the yield curve tends to be which of the following?Select correct option: Upward slopingDownward slopingNearly verticalNearly horizontal http://groups.google.com/group/vuZsQuestion # 99Which of the following is NOT a depository financial institution? Select correct option: 

Credit Union Savings and Loan Commercial bank Life Insurance Company Question # 100Which of the following best describes the relationship between Bond prices and yields? Select correct option: 

Move together inversely Bond yields do not change since the coupon is fixed Move together directly Are independent of each other Question # 101According to the rule of 72 for reasonable rates of return, the time it takes to ________ the money will be t =72/i%Select correct option:DoublesTriples

halves¾ Question # 102Which one of the following agencies assesses the default risk of different issuers?Select correct option:Insurance companiesBond issuingCredit ratingRecruitment agencies Question # 103The risk premium of a bond will:Select correct option:Higher for investment-grade bonds than for high-yield bondsPositive but small if the risk of default is zeroDecrease when the default risk risesIncrease when the risk of default rises http://groups.google.com/group/vuZsQuestion # 104The relationship between the price and the interest rate for a zero coupon bond is best described as:Select correct option:VolatileStableNon-existentInverse Question # 105Which is broadly used as money aggregate?Select correct option:M1M2M3None of above Question # 106Which characteristic are common both in money and securitiesSelect correct option:Transfer of risk, store of valueUnit of account, mean of paymentMean of payment, transfer of riskStore of value, mean of payment Question # 107According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expectsSelect correct option:Short-term interest rates to rise sharply

Short-term interest rates to stay near their current levelsShort-term interest rates to drop sharplyShort-term interest rates does not change Question # 108What is the true relationship that exists between default risk and yield?Select correct option:Higher the default risk, higher the yieldLower the default risk, higher the yieldHigher the default risk yield will remain constantLower the default risk yield will remain constant Question # 109Which of the following financial instruments NOT used primarily as store of value?Select correct option:OptionsStocksHome mortgageBonds http://groups.google.com/group/vuZsQuestion # 110Which of the variable measured in point of time?Select correct option:Flow variableStock variableBoth flow variable and stock variableNone of above Question # 111A business cycle downturn shifts the bond supply to the:Select correct option:RightLeftNo changeNone of the given options 

nd the Money Supply Multiple Choice Questions

 

51. Mary decides to withdraw $500 out of her checking account. The impact of this transaction on the Banking System's balance sheet will be:

            A)   To only reduce checkable deposits by $500.            B)   To increase reserves and reduce checkable deposits by $500 respectively.            C)   To decrease reserves and checkable deposits by $500 respectively.            D)   To only reduce reserves by the required reserve rate times $500. 

Answer: C   LOD: 2   Page: 437              A-Head: Changing the Size and the Composition of the Balance Sheet.     52.   Tom decides to withdraw $300 out of his checking account. The impact of this transaction on

the Fed's balance sheet will be:            A)   No change in total assets or total liabilities, but an increase in the liability of currency and decrease in the

liability of reserves by $300 respectively.            B)   No change in total assets but the liability of currency increase by $300.            C)   Total assets decrease by $300 and the liability of currency increase by $300.            D)   None of the above. 

Answer: A   LOD: 2   Page: 437              A-Head: Changing the Size and the Composition of the Balance Sheet.

    53.   When an individual withdraws funds from their checking account, this increases the Fed's liability of currency because:

            A)   Non-bank currency is a liability of the Fed.            B)   If currency is in the bank it falls under the liability category of reserves.            C)   Currency is an asset of the Fed as long as it is in a bank.            D)   a and b            E)   a and c 

Answer: D   LOD: 2   Page: 438              A-Head: Changing the Size and the Composition of the Balance Sheet.     54.   Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds

into his checking account. Considering Harry's personal balance sheet:            A)   His assets increased by $1000 when he deposited the $1000 into his checking account.            B)   His assets increased when he received the $1000 in currency from his grandfather.            C)   His assets and liabilities increased by $1000 when he deposited the funds into his checking account.            D)   None of the above. 

Answer: B   LOD: 2   Page: 437              A-Head: Changing the Size and the Composition of the Balance Sheet.     55.   Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds

into his checking account. What is the impact on the monetary base of Harry's deposit?            A)   The monetary base did not change.            B)   The monetary base increased by $1000.            C)   The monetary base decreased by $1000.            D)   The monetary base increases by more than a $1000. 

Answer: A   LOD: 2   Page: 438              A-Head: Changing the Size and the Composition of the Balance Sheet.

    56.   The term for turning reserves into bank deposits is called:            A)   Discounting.            B)   The money multiplier.            C)   Multiple deposit creation.            D)   Spreading. 

Answer: C   LOD: 1   Page: 440              A-Head: The Deposit Expansion Multiplier.     57.   If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's required reserves will:            A)   Not change.            B)   Increase by $100,000.            C)   Decrease.            D)   Increase but by less than $100,000. 

Answer: A   LOD: 2   Page: 440              A-Head: The Deposit Expansion Multiplier.     58.   If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's reserves will:            A)   Increase by $100,000.            B)   Increase by less than $100,000.            C)   Not change.            D)   Decrease. 

Answer: A   LOD: 2   Page: 440              A-Head: The Deposit Expansion Multiplier.     59.   If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's excess reserves will:            A)   Increase by less than $100,000.            B)   Not change.            C)   Decrease by less than $100,000.            D)   Increase by $100,000. 

Answer: D   LOD: 2   Page: 440              A-Head: The Deposit Expansion Multiplier.

    60.   The most a bank could lend at any time without altering its assets is an amount equal to its:            A)   Checkable deposits.            B)   Reserves.            C)   Excess reserves.            D)   Net worth. 

Answer: C   LOD: 2   Page: 440              A-Head: The Deposit Expansion Multiplier.     61.   Bank A has checkable deposits of $100 million, vault cash equaling $1 million and deposits at the Fed

equaling $14 million. If the required reserve rate is ten percent what is the maximum amount Bank A could lend:

            A)   $85 million.            B)   $15 million.            C)   $14 million.            D)   $5 million. 

Answer: D   LOD: 3   Page: 440              A-Head: The Deposit Expansion Multiplier.     62.   Bank A has checkable deposits of $140 million, vault cash equaling $1 million and deposits at the Fed

equaling $14 million. If the required reserve rate is ten percent what is the amount of excess reserves Bank A is holding:

            A)   They do not have any excess reserves.            B)   $15 million.            C)   $2 million.            D)   None of the above. 

Answer: D   LOD: 3   Page: 440              A-Head: The Deposit Expansion Multiplier.

    63.   A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B. Which of the following statements pertaining to this transaction is most true?

            A)   Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1- required reserve rate) times $20,000.

            B)   Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000.            C)   Neither Bank A's or B's reserves will change.            D)   Bank B's reserves will decrease and Bank A's reserves will increase by $20,000. 

Answer: B   LOD: 3   Page: 442              A-Head: The Deposit Expansion Multiplier.     64.   If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no

changes in currency holdings, a $1 million open market purchase by the Fed will result in deposit creation of:            A)   $9 million            B)   $90 million.            C)   $10 million.            D)   $900,000. 

Answer: C   LOD: 3   Page: 444              A-Head: The Deposit Expansion Multiplier.     65.   The formula for required reserves is:            A)   (1/rD ) D            B)   1/rD            C)   rDD            D)   D/rD 

Answer: C   LOD: 2   Page: 444              A-Head: The Deposit Expansion Multiplier.

    66.   If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as:

            A)   rDD            B)   (1/rD ) D            C)   rD            D)   1/rD 

Answer: D   LOD: 2   Page: 444              A-Head: The Deposit Expansion Multiplier.     67.   If the Fed were to increase the required reserve rate from ten percent to twenty percent, the simple deposit

expansion multiplier would:            A)   Double.            B)   Increase by 10 percent.            C)   Decrease by a factor of ten.            D)   Be half as large as it was before the increase. 

Answer: D   LOD: 3   Page: 444              A-Head: The Deposit Expansion Multiplier.     68.   If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit

expansion multiplier would:            A)   Double.            B)   Decrease by 5 percent.            C)   Increase by a factor of five.            D)   Be half as large as it was before the reduction. 

Answer: A   LOD: 3   Page: 444              A-Head: The Deposit Expansion Multiplier.     69.   If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no

changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans:

            A)   No change.            B)   A decrease of $1 million.            C)   An increase of $10 million            D)   An increase of $1 million. 

Answer: C   LOD: 3   Page: 444              A-Head: The Deposit Expansion Multiplier.

    70.   If we focus on the banking system and assume no change in the public's currency holdings, a loss of reserves by any one bank must:

            A)   Equal the loss of reserves by the entire system.            B)   Be equal to the net loss of reserves for the banking system.            C)   Will result in no change in reserves for the banking system.            D)   None of the above. 

Answer: C   LOD: 2   Page: 445              A-Head: The Deposit Expansion Multiplier.     71.   If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change

in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits:

            A)   Decreasing by $50 million.            B)   Increasing by $5 million.            C)   Increasing by $50 million            D)   Not changing. 

Answer: A   LOD: 3   Page: 444              A-Head: The Deposit Expansion Multiplier.     72.   The simple deposit expansion multiplier is really too simple for understanding the link between changes in a

central bank's balance sheet and the quantity of money in the economy because:            A)   It ignores how central banks could change their balance sheet.            B)   It assumes banks loan out all excess reserves.            C)   It ignores people might change their currency holdings.            D)   a and b            E)   b and c 

Answer: E   LOD: 2   Page: 445              A-Head: The Monetary Base and the Money Supply.

    73.   Assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits, and the public withdraws ten percent of every deposit in cash. An open market purchase of $1million by the Fed will see banking system deposits increase by:

            A)   More than $1 million but less than $10 million.            B)   Exactly $1 million.            C)   Less than $1 million.            D)   More than $10 million but less than $20 million. 

Answer: A   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply.     74.   Which of the following best completes the statement? If people increase their currency holdings, all else the

same, the monetary base            A)   Does not change but the quantity of M2 will decrease.            B)   The monetary base increases as does the quantity of M2.            C)   The monetary base decreases as does the quantity of M2.            D)   There is no change to either the monetary base or M2. 

Answer: A   LOD: 3   Page: 449              A-Head: The Monetary Base and the Money Supply.     75.   If there were an increase in the number of bank failures, we should expect the amount of excess reserves in

the banking system to:            A)   Decrease.            B)   Increase.            C)   Not change.            D)   Decrease since failing banks lost theirs. 

Answer: B   LOD: 2   Page: 447              A-Head: The Monetary Base and the Money Supply. 

    76.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, and ER = Excess reserves, then C + R would equal:

            A)   M            B)   R            C)   MB            D)   ER 

Answer: C   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply.     77.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R =

Reserves, RR equals required reserves, and ER = Excess reserves, then RR would equal:            A)   MB            B)   D – C            C)   M/MB            D)   R - ER 

Answer: D   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply.     78.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R =

Reserves, RR equals required reserves, and ER = excess reserves, then m would equal:            A)   R/ER            B)   M/MB            C)   C + D            D)   None of the above. 

Answer: B   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply. 

    79.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then RR would equal:

            A)   R – ER            B)   rD D            C)   (MB –C) - ER            D)   All of the above            E)   None of the above. 

Answer: D   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply.     80.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R =

Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then C + D would equal:

            A)   M            B)   m            C)   MB            D)   ER/RR 

Answer: A   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply.     81.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R =

Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then C + D would equal:

            A)   MB times m            B)   R/ER            C)   D rD            D)   None of the above. 

Answer: A   LOD: 3   Page: 448              A-Head: The Monetary Base and the Money Supply. 

    82.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then ER/D would equal:

            A)   The amount in excess reserves.            B)   The amount in reserves.            C)   The excess reserve rate.            D)   The money multiplier. 

Answer: C   LOD: 2   Page: 448              A-Head: The Monetary Base and the Money Supply.     83.   If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R =

Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then RR/D would equal:

            A)   The amount in Required Reserves.            B)   The required reserve rate.            C)   The amount in Excess Reserves.            D)   The monetary base. 

Answer: B   LOD: 2   Page: 448              A-Head: The Monetary Base and the Money Supply.     84.   The money multiplier is much lower today than it was twenty-five years ago because:            A)   People are holding less currency today.            B)   The currency to deposit ratio is much higher today.            C)   There is less currency available today.            D)   None of the above. 

Answer: B   LOD: 2   Page: 450              A-Head: The Monetary Base and the Money Supply.     85.   During the Great Depression, the monetary base in the U.S.:            A)   Decreased significantly.            B)   Increased.            C)   Remained constant.            D)   Was highly erratic, 

Answer: B   LOD: 2   Page: 452              A-Head: The Monetary Base and the Money Supply. 

    86.   During the early years of the Great Depression, the monetary base and M2:            A)   Both increased significantly.            B)   Both decreased significantly.            C)   M2 increased while the monetary base decreased.            D)   The monetary base increased but M2 decreased. 

Answer: D   LOD: 2   Page: 452              A-Head: The Monetary Base and the Money Supply.     87.   During the early years of the Great Depression, a study of the money aggregates reveals that:            A)   The money multiplier was at an all-time high.            B)   The money multiplier increased from 1929 right through the 1936.            C)   The money multiplier actually decreased.            D)   The money multiplier was constant from 1929 through 1936. 

Answer: C   LOD: 2   Page: 452              A-Head: The Monetary Base and the Money Supply.     88.   One thing the Fed has learned over the past twenty-five years is:            A)   The money multiplier is fairly constant no matter what changes are made to the monetary base.            B)   The theory of the money multiplier isn't very useful.            C)   The money multiplier has a trend rate of growth that is fairly constant.            D)   They should focus their attention on targeting M2. 

Answer: B   LOD: 2   Page: 450              A-Head: The Monetary Base and the Money Supply.     89.   During the 1990s, the money multipliers for M1 and M2:            A)   Decreased.            B)   Remained fairly constant even though the economy grew.            C)   The M1 multiplier decreased while the M2 multiplier increased dramatically.            D)   Increased dramatically as the economy grew. 

Answer: A   LOD: 2   Page: 456              A-Head: The Monetary Base and the Money Supply.

       1.   The collapse of the Thai currency, the baht, was partially due to:

 

            A)   Inaction by the Federal Reserve.            B)   The European Central Bank.            C)   Information provided by the central bank of Thailand.            D)   Information not provided by the central bank of Thailand. 

Answer: D   LOD: 1   Page: 427  

 

            A-Head: The Central Bank's Balance Sheet.       2.   Each of the following items would appear as assets on the central bank's balance sheet, EXCEPT:

 

            A)   Loans            B)   Securities            C)   Currency            D)   Foreign Exchange Reserves. 

Answer: C   LOD: 1   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.       3.   A central Bank's balance sheet will categorize the following as liabilities:

 

            A)   Currency            B)   Loans            C)   Securities            D)   Foreign Exchange Reserves            E)   a and c 

Answer: A   LOD: 1   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.       4.   A central bank's balance sheet would categorize each of the following as liabilities, EXCEPT:

 

            A)   Currency            B)   Loans            C)   Securities            D)   Accounts of the Commercial Banks 

Answer: B   LOD: 1   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.

      5.   The main asset held by a central bank in its role as the Banker's Bank is:            A)   Foreign Exchange Reserves            B)   Currency            C)   Loans            D)   Securities 

Answer: C   LOD: 1   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.       6.   A liability of the central bank in functioning as the Banker' Bank is:

 

            A)   Accounts of commercial banks            B)   Securities            C)   Loans            D)   Currency 

Answer: A   LOD: 1   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.       7.   For the Federal Reserve's balance sheet, the asset listed Securities would include:

 

            A)   Private and public debt.            B)   Mainly U.S. Treasury and municipal bonds.            C)   Bonds issued by commercial banks.            D)   Only U.S. Treasury securities and small quantities of Federal Agency Obligations. 

Answer: D   LOD: 2   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.       8.   If the Federal Reserve is to be independent, the quantity of securities it purchases is determined by:

 

            A)   The Federal Reserve itself.            B)   Congress.            C)   The amount the public does not want to purchase at the going price.            D)   The Treasury.

 Answer: A   LOD: 2   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.

      9.   A central bank holds foreign exchange reserves primarily for:            A)   Diversification purposes.            B)   Foreign exchange market interventions.            C)   Safekeeping.            D)   All of the above. 

Answer: B   LOD: 2   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.     10.   The quantity of securities held by the Federal Reserve is controlled by:

 

            A)   The U.S. Treasury.            B)   The Fed's annual budget.            C)   Open market operations.            D)   The purchases made by the regional Reserve banks. 

Answer: C   LOD: 2   Page: 428  

 

            A-Head: The Central Bank's Balance Sheet.     11.   In the

 

U.S., loans made by Federal Reserve to banks fall in the categories of:            A)   Discount loans            B)   Reserves.            C)   Float.            D)   a and c            E)   a and b 

Answer: D   LOD: 1   Page: 429  

 

            A-Head: The Central Bank's Balance Sheet.     12.   Which of the following statements is most correct?

 

            A)   Discount loans are initiated by the Federal Reserve.            B)   Discount loans are made when banks need small amounts of cash for the long term.

            C)   Float is a byproduct of the Fed's check clearing business.            D)   Float loans are initiated by the commercial banks. 

Answer: C   LOD: 2   Page: 429  

 

            A-Head: The Central Bank's Balance Sheet.

    13.   Immediately following the terrorists attacks of September 11, 2001, the float in the banking system in the U.S.:            A)   Fell dramatically.            B)   Because of quick action by the Fed it stayed fairly constant.            C)   Increased dramatically.            D)   Increased but only by about ten percent. 

Answer: C   LOD: 1   Page: 439  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     14.   A change that increases the Fed's speed at clearing checks would cause the amount of float to:

 

            A)   Decrease            B)   Increase            C)   Stay the same, since the speed of clearing checks doesn't impact the float.            D)   Increase, but only until the system adjust. 

Answer: A   LOD: 2   Page: 429  

 

            A-Head: The Central Bank's Balance Sheet.     15.   If the

 

U.S. evolves into a checkless society, where funds are transferred electronically, the amount of float should:            A)   Increase            B)   Decrease a little.            C)   Not change.            D)   Almost disappear. 

Answer: D   LOD: 2   Page: 429  

 

            A-Head: The Central Bank's Balance Sheet.     16.   Gold is:

 

            A)   The most important asset on the Fed's balance sheet.            B)   Extremely important as an asset for the Fed.            C)   Almost irrelevant for the Fed.

            D)   Very important for monetary policy in the U.S. 

Answer: C   LOD: 2   Page: 429  

 

            A-Head: The Central Bank's Balance Sheet.

    17.   For the Federal Reserve, the largest liability on their balance sheet is:            A)   Reserves.            B)   Non-bank currency.            C)   Government accounts.            D)   Treasury certificates. 

Answer: B   LOD: 1   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     18.   Over ninety percent of the Fed's liabilities is in:

 

            A)   Government accounts.            B)   Treasury certificates.            C)   Reserves.            D)   Non-bank currency. 

Answer: D   LOD: 1   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     19.   Compared to the Federal Reserve, the European Central Bank (ECB):

 

            A)   Has a smaller percentage of their liabilities in currency            B)   Has a larger percentage of their liabilities in currency.            C)   Has about the same percentage of their liabilities in currency.            D)   The ECB does not issue currency. 

Answer: A   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     20.   Which of the following statements is most correct?

 

            A)   Reserves are assets of the central bank and liabilities of the U.S. Treasury.            B)   Reserves are assets of the central banks and liabilities of the commercial banks.            C)   Reserves are liabilities of the commercial banks and assets of the U.S. Treasury.            D)   None of the above.

 Answer: D   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

    21.   Reserves are:            A)   Assets of the central bank and liabilities of the commercial bank.            B)   Assets of the commercial banks and liabilities of the central bank.            C)   Liabilities of the commercial and central banks.            D)   None of the above. 

Answer: B   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     22.   Vault cash is:

 

            A)   Reserves but an asset of the central bank.            B)   Not reserves but is a liability of the central bank.            C)   A part of reserves and an asset of commercial banks.            D)   Not reserves but is an asset of central banks. 

Answer: C   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     23.   Vault cash is not included in the central bank's liability category of currency because:

 

            A)   Only non-bank currency is in the liability category of currency.            B)   Vault cash really is only electronic funds.            C)   Vault cash is in the liability category of reserves.            D)   a and c            E)   b and c 

Answer: D   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     24.   The reserves of the commercial banks in the euro area far exceed the reserves of

 

U.S. commercial banks. This is primarily due to the fact that:            A)   The banks in the euro area can count more assets as reserves.            B)   The European Central Bank pays interest on reserves, the Fed does not.

            C)   The European Central Bank has a much higher required reserve rate.            D)   All of the above. 

Answer: B   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.

    25.   Monetary policy operations for central banks are run through changes in the liability category of:            A)   Government's Accounts.            B)   Currency.            C)   Reserves.            D)   Gold. 

Answer: C   LOD: 2   Page: 430  

 

            A-Head: The Central Bank's Balance Sheet.     26.   Which of the following statements is most correct?

 

            A)   During the 1990s Americans held more cash than Europeans but the amount of cash Americans held per resident decreased.

            B)   During the 1990s the amount of cash held by Americans increased and we hold more cash per resident than Europeans.

            C)   Americans hold less cash per resident than Europeans and the amount of cash held by American increased during the 1990s.

            D)   Americans hold less cash than Europeans and the amount of cash held by American per resident decreased during the 1990s.

 Answer: C   LOD: 2   Page: 431  

 

            A-Head: The Central Bank's Balance Sheet.     27.   Most responsible central banks publish their balance sheet:

 

            A)   At least once a year.            B)   Quarterly.            C)   Weekly            D)   Semi-annually. 

Answer: C   LOD: 1   Page: 431  

 

            A-Head: The Central Bank's Balance Sheet.     28.   The experience of the Marcos Presidency in the

 

Philippines in 1986 showed:            A)   The importance of keeping the central bank independent from political pressure.            B)   Central bank balance sheets do not always project reality.            C)   Transparency is critical if people are going to trust a central bank.            D)   All of the above. 

Answer: D   LOD: 2   Page: 431  

 

            A-Head: The Central Bank's Balance Sheet.

    29.   The monetary base is the sum of:            A)   Reserves and M2.            B)   M1 and reserves.            C)   Non-bank currency, reserves and M1            D)   None of the above. 

Answer: D   LOD: 1   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.     30.   The monetary base is the sum of:

 

            A)   Reserves and non-bank currency            B)   Reserves and M2            C)   Non bank currency and M2            D)   None of the above. 

Answer: A   LOD: 1   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.     31.   The monetary base is also known as:

 

            A)   M1            B)   M2            C)   High powered money.            D)   Free reserves. 

Answer: C   LOD: 1   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.     32.   In dollar amounts:

 

            A)   The monetary base is larger than M2 and M1 is less than M2.            B)   M1 is smaller than the monetary base and M2 is larger than both.            C)   The monetary base is larger than M1 and M2.            D)   The monetary base is smaller than M1 and M2 is larger than M1.

            E)   None of the above. 

Answer: D   LOD: 2   Page: 432  

 

            A-Head: The Central Bank's Balance Sheet.

    33.   One trait a central bank has over other businesses including banks is:            A)   It receives all of its funding from the government.            B)   It can control its balance sheet at will.            C)   It doesn't have stockholders.            D)   It doesn't have a board of directors. 

Answer: B   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     34.   When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check

returns, the Fed's balance sheet will show:

 

            A)   An increase in assets and a decrease in liabilities of $1 million.            B)   Only an increase in assets of $1 million.            C)   Only an increase in liabilities of $1million.            D)   An increase in assets and liabilities of $1 million. 

Answer: D   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     35.   When a business purchases a $25,000 computer system by writing a check, the business's balance sheet

will:

 

            A)   Show an increase in assets and liabilities of $25,000.            B)   Only show an increase in assets of $25,000.            C)   Only show an increase in liabilities of $25,000.            D)   None of the above. 

Answer: D   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     36.   When a business purchases a $50,000 computer system by writing a check, the business's balance sheet

will:

 

            A)   Only show an increase in liabilities of $50,000.

            B)   Show an increase in assets and liabilities for $50,000.            C)   Not reflect any increase in assets or liabilities, only a change in the composition of assets.            D)   Only show an increase in assets of $50,000.            E)   None of the above. 

Answer: C   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

    37.   A central bank's purchase of securities made by writing checks on itself will:            A)   Decrease the size of its balance sheet.            B)   Have no impact at all on the balance sheet.            C)   Increase the size of their balance sheet.            D)   Only change the composition of its assets. 

Answer: C   LOD: 2   Page: 432  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     38.   A central bank's sale of securities from their portfolio will:

 

            A)   Decrease the size of its balance sheet.            B)   Have no impact at all on the balance sheet.            C)   Only change the composition of its liabilities.            D)   Only change the composition of its assets. 

Answer: A   LOD: 2   Page: 433  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     39.   Considering a central bank's balance sheet, when the value of an asset increases:

 

            A)   Nothing happens to its balance sheet.            B)   A liability must increase.            C)   The value of another asset must decrease.            D)   Either the value of another asset decreases or a liability must increase.            E)   None of the above. 

Answer: D   LOD: 2   Page: 433  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     40.   Considering a central bank's balance sheet, when the value of a liability decreases:

 

            A)   Nothing happens to its balance sheet.            B)   Either the value of another liability increases or an asset must decrease.            C)   The value of another liability must increase.

            D)   An asset must decrease.            E)   None of the above. 

Answer: B   LOD: 2   Page: 433  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

    41.   Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Fed's balance sheet will specifically show:

            A)   Only an increase in the asset of securities of $2 billion.            B)   Only show an increase in the liability of reserves of $2 billion.            C)   Show no change in the size of the balance sheet, just the composition of assets will change from cash to

securities.            D)   Show an increase in the asset category of securities and the liability category of reserves by $2 billion. 

Answer: D   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     42.   Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Banking

System's balance sheet will specifically show:

 

            A)   Only an increase in liabilities of $2 billion.            B)   Only a decrease in assets of $2 billion.            C)   No net change in assets or liabilities, only a change in the composition of assets with securities

decreasing and reserves increasing by $2 billion respectively.            D)   No net change in assets or liabilities, only a change in the composition of assets with securities increasing

and reserves decreasing by $2 billion respectively. 

Answer: C   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     43.   An open market sale of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show:

 

            A)   A decrease in the asset of securities and a decrease in the liability of reserves.            B)   An increase in the liability of reserves.            C)   No change in the size of the balance sheet, just the composition of assets will change from securities to

cash.            D)   An increase in the asset category of securities and the liability category of reserves. 

Answer: A   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

    44.   An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show:

            A)   Only an increase in liabilities.            B)   Only a decrease in assets.            C)   No net change in assets or liabilities, only a change in the composition of assets with securities

decreasing and reserves increasing.            D)   No net change in assets or liabilities, only a change in the composition of assets with securities increasing

and reserves decreasing. 

Answer: D   LOD: 2   Page: 434  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     45.   The Fed purchases German bonds from commercial banks. Which of the following best describes the impact

on the Fed's and the Banking System's balance sheets resulting from the purchase?

 

            A)   The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.            B)   The Fed's assets increase and their liabilities increase, for the banking system, the value of assets and

liabilities do not change, only the composition of assets changes.            C)   The Fed's assets and liabilities do not change, only the compositions of the assets change. For the

banking system, assets and liabilities increase.            D)   The Fed's assets increase and their liabilities decrease, for the banking system, the value of assets and

liabilities do not change, only the composition of assets changes. 

Answer: B   LOD: 3   Page: 435  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

    46.   The Fed sells German bonds to commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from the purchase?

            A)   The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.            B)   The Fed's assets increase and their liabilities increase, for the banking system, the value of assets and

liabilities do not change, only the composition of assets changes.            C)   The Fed's assets and liabilities do not change, only the compositions of the assets change. For the

banking system, assets and liabilities increase.            D)   The Fed's assets decrease and their liabilities increase, for the banking system, the value of assets and

liabilities do not change, only the composition of assets changes. 

Answer: D   LOD: 3   Page: 435  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     47.   To obtain a discount loan from the Fed, a commercial bank must:

 

            A)   Prove that it will fail if it does not obtain the loan.            B)   Prove that the loan will be used to make loans.            C)   Provide collateral.            D)   All of the above. 

Answer: C   LOD: 2   Page: 436  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     48.   When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect:

 

            A)   No change in liabilities but an increase in assets.            B)   A decrease in assets and liabilities.            C)   An increase in assets and liabilities.            D)   An increase in assets and a decrease in liabilities. 

Answer: C   LOD: 2   Page: 436  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.

    49.   When the Fed makes a discount loan, the impact on the Banking System's balance sheet will reflect:            A)   An increase in liabilities with no change in assets.            B)   An increase in assets and a decrease in liabilities.            C)   A decrease in assets and an increase in liabilities.            D)   None of the above. 

Answer: D   LOD: 2   Page: 436  

 

            A-Head: Changing the Size and the Composition of the Balance Sheet.     50.   When the Fed makes a discount loan, the impact on the Banking System's balance sheet will reflect:

 

            A)   An increase in liabilities with no change in assets.            B)   An increase in assets and a decrease in liabilities.            C)   A decrease in assets and an increase in liabilities.            D)   An increase in assets and liabilities. 

Answer: D   LOD: 2   Page: 436  

 

Question # 1 of 15 ( Start time: 05:22:40 PM ) Total M - 1 Which of the following is NOT a true for banks? Select correct option:  Serving consumers Give commercial and industrial loans Bank is non profit organization  (Correct)Accept deposit  Question # 2 of 15 ( Start time: 05:29:15 PM ) Total M - 1 There is no guarantee that a bond issuer will make the promised payments is known as which one of the following? Select correct option:  Default risk (Correct)Inflation risk Interest rate risk Systematic risk Question # 3 of 15 ( Start time: 05:29:59 PM ) Total M - 1 The interest rate that is involved in ___________ calculation is referred to as discount rate Select correct option:  Present value (Correct)

Future value Intrinsic value Discount value  Question # 4 of 15 ( Start time: 05:30:58 PM ) Total M - 1 The bond rating of a security refers to which of the followings? Select correct option:  The size of the coupon payment relative to the face value The return a holder is likely to receive The likelihood the lender/borrower will be repaid by the borrower/issuer (Correct)The years until the bond matures   Question # 5 of 15 ( Start time: 05:32:07 PM ) Total M - 1 Which of the following is NOT included in the assets of commercial banks? Select correct option:  Cash Items Reserves Securities Bills payable   (Correct)  Question # 6 of 15 ( Start time: 05:33:09 PM ) Total M - 1 What is difference between warrant and check? Select correct option:  Check is cleared from bank but warrant is not cleared by bank Check is not necessarily pay able on demand but warrant is payable on demand    (Correct)Warrant is not necessarily pay able on demand but check is payable on demand None of above   Question # 7 of 15 ( Start time: 05:34:28 PM ) Total M - 1 The fact that a financial intermediary can use the same contract for many customers is an example of: Select correct option:  Economies of Scope The Law of Diminishing Marginal Returns The Law of Increasing Opportunity Cost Economies of Scale   (Correct)  Question # 8 of 15 ( Start time: 05:35:20 PM ) Total M - 1 Which of the following would be considered characteristic of money? Select correct option: 

 It is store of value    (Correct)It pays a higher return than most assets It is in fixed supply It is legal tender everywhere in the world  Question # 9 of 15 ( Start time: 05:36:22 PM ) Total M - 1 Which of the following is NOT included in the definition of M1? Select correct option:  Traveler’s checks Demand deposits Currency Gold coins issued by treasury   (Correct)   Question # 10 of 15 ( Start time: 05:37:09 PM ) Total M - 1 Which of the following represents the fisher’s equation? Select correct option:  Nominal interest rate = real interest rate + inflation    (Correct)Nominal interest rate + inflation = real interest rate Nominal interest rate = real interest rate - inflation Nominal interest rate = real interest rate / inflation  Question # 11 of 15 ( Start time: 05:38:14 PM ) Total M - 1 According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects Select correct option:  Short-term interest rates to rise sharply Short-term interest rates to stay near their current levels    (Correct)Short-term interest rates to drop sharply Short-term interest rates does not change   Question # 12 of 15 ( Start time: 05:39:31 PM ) Total M - 1 If bond’s rating is lower, what will be its price? Select correct option:  Higher Lower    (Correct)Equal to No change  

Question # 13 of 15 ( Start time: 05:40:15 PM ) Total M - 1 Which one of the following is the procedure of finding out the Present Value (PV)? Select correct option:  Discounting    (Correct)Compounding Time value of money Bond pricing  Question # 14 of 15 ( Start time: 05:41:14 PM ) Total M - 1 Most of the people among us are _________. Select correct option:  Risk lovers Risk enhancers Risk averse    (Correct)Risk tolerating  Question # 15 of 15 ( Start time: 05:42:01 PM ) Total M - 1 If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: Select correct option:  $94.00 $94.33    (Correct)$95.25 $96.10  Question # 2 of 15 ( Start time: 05:44:39 PM ) Total M - 1 A loan that is used to purchase the real estate is known as: Select correct option:  Real estate loan Home mortgages    (Correct)Fixed payment loan Home loan  Question # 3 of 15 ( Start time: 05:45:32 PM ) Total M - 1 Which one of the following is a component of wealth that is held in a readily spendable form? Select correct option:  Money   (Correct) Bonds Stocks Income

  Question # 4 of 15 ( Start time: 05:46:40 PM ) Total M - 1 An increase in the expected inflation shifts the bond supply to the _______. Select correct option:  Right    (Correct)Left No change All of the given options  Question # 5 of 15 ( Start time: 05:47:33 PM ) Total M - 1 Banks borrow from the central bank this loan is called _________. Select correct option:  Discount loan Collateralized loan   (Correct) Personal loan Corporate loan  Question # 6 of 15 ( Start time: 05:48:49 PM ) Total M - 1 What is primary cause of inflation? Select correct option:  Energy crises Gold reserve shortage Issue excessive currency   (Correct) Rising cost of input  Question # 7 of 15 ( Start time: 05:49:51 PM ) Total M - 1 Economic development measured by Select correct option:  Real GDP/population Real GDP/ nominal GDP Real GDP/Real GNP None of above   (Correct)  Question # 8 of 15 ( Start time: 05:50:50 PM ) Total M - 1 According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects Select correct option:  Short-term interest rates to rise sharply 

Short-term interest rates to stay near their current levels   (Correct) Short-term interest rates to drop sharply Short-term interest rates does not change  Question # 9 of 15 ( Start time: 05:51:33 PM ) Total M - 1 The Segmented Markets Theory of term structure suggests that: Select correct option:  Investors have strong preferences for bonds of a particular maturity Investors have no preference for short-term bonds over long-term bonds, or vice versa   (Correct) Interest rates on long-term bonds strongly influence the demand for short-term bonds Bonds of different maturities are perfect substitutes for each other    Question # 2 of 15 ( Start time: 05:55:42 PM ) Total M - 1Internal Rate of Return is _______.Select correct option:Present value of investment   (Correct)Future value of its investment +Cost of investmentCost of investmentPresent value of investment + cost of investment  Question # 3 of 15 ( Start time: 05:56:32 PM ) Total M - 1At which money aggregate definitions relation is stronger with inflation and growthSelect correct option:M1M2   (Correct)M3None of above   Question # 4 of 15 ( Start time: 05:57:02 PM ) Total M - 1An increase in wealth shifts the demand for bonds to the ________.Select correct option:LeftRight   (Correct)No changeAll of the given options  emanadan83: Question # 5 of 15 ( Start time: 05:57:37 PM ) Total M - 1Stock exchange is an example of:Select correct option:

Financial companyFinancial institutionFinancial market   (Correct)Bank   Financial development measured by Select correct option:  M1/GDPM2/GDP   (Correct)M3/DGPAll of above  If YTM equals the coupon rate the price of the bond is ________. Select correct option:  Greater than its face valueLower than its face valueEquals to its face value   (Correct)Insufficient information  If information in a financial market is asymmetric, this means: Select correct option:  Borrowers and lenders have perfect informationBorrowers would have more information than lenders   (Correct)Borrowers and lenders have the same informationLenders lack any information  Which one of the following is the procedure of finding out the Present Value (PV)? Select correct option:  Discounting   (Correct)CompoundingTime value of moneyBond pricing  A zero coupon bond: Select correct option:  Does not pay any coupon payments because the issuer is in defaultPays coupons only once a year versus the usual twice a year

Promises a single future payment   (Correct)Pays coupons only if the bond price is below face value  The shape of the yield curve is usually: Select correct option:  Upward sloping   (Correct)Downward slopingUpward sloping for shorter maturities and downward sloping for longer maturitiesFlat   Yield curves show which of the followings? Select correct option:  The relationship between bond interest rates (yields) and bond pricesThe relationship between liquidity and bond interest rates (yields)The relationship between risk and bond interest rates (yields)The relationship between time to maturity and bond interest rates (yields)   (Correct)   What will be the effect on the present value if we double the future value of the payment? Select correct option:  It will decrease the value by one-halfIt will increase the value by one-halfIt will equally increase the value i.e. doubles the value   (Correct)It will have no effect on the value   Investors will hold higher compensation for the ________ investment. Select correct option:  More risky   (Correct) Less risky Fixed returnLess dividend  The risk premium of a bond will: Select correct option:  Higher for investment-grade bonds than for high-yield bondsPositive but small if the risk of default is zero

Decrease when the default risk risesIncrease when the risk of default rises   (Correct)   Internal Rate of Return is _______. Select correct option:  Present value of investment   (Correct) Future value of its investment +Cost of investmentCost of investmentPresent value of investment + cost of investment  Which of the following would be considered characteristic of money? Select correct option:  It is store of value   (Correct)It pays a higher return than most assetsIt is in fixed supplyIt is legal tender everywhere in the world  The liquidity premium theory suggests that yield curves should usually be: Select correct option:  Up-sloping   (Correct)InvertedFlatUp-sloping through year 1, then flat thereafter  Which of the following is NOT a true for banks? Select correct option:  Serving consumersGive commercial and industrial loans Bank is non profit organizationAccept deposit   (Correct)   Question # 1 of 15 ( Start time: 06:19:04 PM ) Total M - 1 Which of the variable measured in point of time? Select correct option:  Flow variable Stock variable Both flow variable and stock variable   (Correct) 

None of above  Question # 2 of 15 ( Start time: 06:20:12 PM ) Total M - 1 Wider the range of outcome wider will be the _________. Select correct option:  Risk   (Correct) Profit Probability Lose  Question # 3 of 15 ( Start time: 06:20:39 PM ) Total M - 1 A loan that is used to purchase the real estate is known as: Select correct option:  Real estate loan Home mortgages    (Correct)Fixed payment loan Home loan  Question # 4 of 15 ( Start time: 06:20:57 PM ) Total M - 1 In a financial market where information is symmetric: Select correct option:  The same information would be known by both parties in a transaction   (Correct) One party to a transaction knows information the other party does not The ability to obtain information is available to only one party All of the given options  Question # 5 of 15 ( Start time: 06:21:40 PM ) Total M - 1 What will be the result of the difference of real and nominal interest rate? Select correct option:  The cost of borrowing The effect of inflation    (Correct)The price of bonds The return of bonds  Question # 6 of 15 ( Start time: 06:22:06 PM ) Total M - 1 If the tax rate is higher than gap between yield on taxable and tax exempt bond? Select correct option:  Shorter 

Wider    (Correct)No gap Any thing can be possible   Question # 7 of 15 ( Start time: 06:22:41 PM ) Total M - 1 If YTM is less than the coupon rate the price of the bond is ________. Select correct option:  Greater than its face value    (Correct)Lower than its face value Equals to its face value All of the given options   Question # 8 of 15 ( Start time: 06:23:52 PM ) Total M - 1 Which of the following is a role of a financial institution acting as a financial intermediary? Select correct option:  Pooling the resources of small savers   (Correct) Formulating oversight regulations Sending out free calendars at the holidays Lobbying legislators  Question # 9 of 15 ( Start time: 06:24:26 PM ) Total M - 1 Investors will hold higher compensation for the ________ investment. Select correct option:  More risky    (Correct)Less risky Fixed return Less dividend   Question # 10 of 15 ( Start time: 06:24:45 PM ) Total M - 1 _________ is the strategy of reducing overall risk by making two investments with opposing risks. Select correct option:  Spreading the risk Standard deviation Hedging the risk   (Correct) Variance  

  Question # 11 of 15 ( Start time: 06:25:20 PM ) Total M - 1 Which of the following is NOT a depository institution? Select correct option:  Commercial banks Savings institutions Credit unions Brokerage house   (Correct) Question # 12 of 15 ( Start time: 06:25:56 PM ) Total M - 1 Which one of the following is the narrowest definition of money? Select correct option:  C M1   (Correct) M2 M3 Question # 13 of 15 ( Start time: 06:26:44 PM ) Total M - 1 Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other? Select correct option:  Spreading the risk   (Correct) Standard deviation Hedging the risk Variance 

Question # 14 of 15 ( Start time: 06:28:14 PM ) Total M - 1 The relationship between the price and the interest rate for a zero coupon bond is best described as: Select correct option:  Volatile Stable Non-existent Inverse   (Correct)  Question # 15 of 15 ( Start time: 06:29:23 PM ) Total M - 1 The risk premium of a bond will: Select correct option:  Higher for investment-grade bonds than for high-yield bonds Positive but small if the risk of default is zero Decrease when the default risk rises Increase when the risk of default rises   (Correct)

   mc090401219: Question # 1 of 15 ( Start time: 06:33:05 PM ) Total M - 1 Which of the following best describes default risk? Select correct option:  The chance the issuer will be unable to make interest payments or repay principal   (Correct) The chance the issuer will retire the debt early The chance the issuing firm will be sold to another firm The chance the issuer will sell more debt  Question # 2 of 15 ( Start time: 06:34:11 PM ) Total M - 1 There is no guarantee that a bond issuer will make the promised payments is known as which one of the following? Select correct option:  Default risk   (Correct) Inflation risk Interest rate risk Systematic risk   Question # 3 of 15 ( Start time: 06:35:32 PM ) Total M - 1 The default premium: Select correct option:  Is positive for a U.S. Treasury bond Must always be less than 0 (zero) Is also known as the risk spread   (Correct) Is assigned by a bond rating agency   Question # 4 of 15 ( Start time: 06:36:28 PM ) Total M - 1 Time affects the value of which of the following? Select correct option:  Financial Instruments Financial Markets   (Correct) Financial Institutions Central Banks    Question # 5 of 15 ( Start time: 06:37:51 PM ) Total M - 1 The money aggregate M2 includes each of the following EXCEPT: Select correct option:  Small denomination time deposits. Retail Money Market Mutual fund shares 

U.S. Treasury bills    (Correct)M1  Question # 6 of 15 ( Start time: 06:39:10 PM ) Total M - 1 What is the true relationship that exists between default risk and yield? Select correct option:  Higher the default risk, higher the yield    (Correct)Lower the default risk, higher the yield Higher the default risk yield will remain constant Lower the default risk yield will remain constant   Question # 7 of 15 ( Start time: 06:39:56 PM ) Total M - 1 Other things remaining equal, the liquidity premium theory is based upon the idea that __________. Select correct option:  Investors prefer long-term bonds Investors prefer short-term bonds   (Correct) Investors are indifferent between short-term and long-term bonds Investors prefer intermediate-term bonds   Question # 8 of 15 ( Start time: 06:40:48 PM ) Total M - 1 The risk premium for an investment: Select correct option:  Increases with risk   (Correct) Is a fixed amount added to the risk free return Is negative for U.S. Treasury Securities Is negative for risk averse investors   Question # 9 of 15 ( Start time: 06:42:04 PM ) Total M - 1 Which one of the following is the narrowest definition of money? Select correct option:  C M1   (Correct) M2 M3   Question # 10 of 15 ( Start time: 06:42:46 PM ) Total M - 1 Which of the following financial instruments used primarily as store of value? Select correct option:  Options 

Stocks   (Correct) Home mortgage Bonds   Question # 11 of 15 ( Start time: 06:43:20 PM ) Total M - 1 Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other? Select correct option:  Spreading the risk Standard deviation Hedging the risk   (Correct) Variance   Question # 12 of 15 ( Start time: 06:44:21 PM ) Total M - 1 ___________ are organized to eliminate the need of costly information gathering. Select correct option:  Central bank Commercial banks Stock exchanges   (Correct) Insurance companies   Question # 13 of 15 ( Start time: 06:45:49 PM ) Total M - 1 A business cycle downturn shifts the bond supply to the: Select correct option:  Right   (Correct) Left No change None of the given options   Question # 14 of 15 ( Start time: 06:46:40 PM ) Total M - 1 An increase in the expected inflation shifts the bond supply to the _______. Select correct option:  Right   (Correct) Left No change All of the given options   Question # 15 of 15 ( Start time: 06:47:39 PM ) Total M - 1 What is true about the relationship between standard deviation and risk? 

Select correct option:  Greater the standard deviation greater will be the risk   (Correct) Greater the standard deviation lower will be the risk Greater the standard deviation risk remains the same No relation between them    Question # 1 of 15 ( Start time: 06:52:05 PM ) Total M - 1Which of the following would be considered characteristic of money?Select correct option:It is store of value   (Correct)It pays a higher return than most assetsIt is in fixed supplyIt is legal tender everywhere in the world  Question # 2 of 15 ( Start time: 06:52:46 PM ) Total M - 1Which of the following is the least liquid of all?Select correct option:MoneyBonds & stocksLands & buildings   (Correct)None of the given options  Question # 3 of 15 ( Start time: 06:53:07 PM ) Total M - 1_________ is the strategy of reducing overall risk by making two investments with opposing risks.Select correct option:Spreading the risk   (Correct)Standard deviationHedging the riskVariance  Question # 4 of 15 ( Start time: 06:53:32 PM ) Total M - 1Which one of the following is true for financial intermediaries?Select correct option:Channel funds from savers to borrowersGreatly enhance economic efficiencyHave been an source of many financial innovationsAll of the given options   (Correct) Question # 5 of 15 ( Start time: 06:54:44 PM ) Total M - 1The lowest rating for an investment grade bond assigned by Moody's is:Select correct option:BBB

ABBBaa (Correct)Aaa    Question # 6 of 15 ( Start time: 06:55:47 PM ) Total M - 1When the auto manufacturing industry does poorly due to a recession this is an example of:Select correct option:Idiosyncratic riskSystematic risk   (Correct)Risk premiumUnique risk  me: Question # 7 of 15 ( Start time: 06:57:00 PM ) Total M - 1The process of financial intermediation:Select correct option:Creates a net cost to an economy but is unavoidableIs used primarily in underdeveloped countriesIs always used when a borrower needs to obtain fundsIncreases the economy's ability to produce   (Correct)  Question # 8 of 15 ( Start time: 06:58:20 PM ) Total M - 1Which of the following best expresses the payment a lender receives for lending their money for four years?Select correct option:PV(1+i)4   (Correct)PV/(1 + i)44PVPV/(1 - i)4 Question # 9 of 15 ( Start time: 06:59:26 PM ) Total M - 1The shape of the yield curve is usually:Select correct option:Upward sloping   (Correct)Downward slopingUpward sloping for shorter maturities and downward sloping for longer maturitiesFlat  Question # 10 of 15 ( Start time: 06:59:51 PM ) Total M - 1Which of the following patterns of term structure occur most frequently?Select correct option:Ascending yield curveDescending yield curveFlat yield curve   (Correct)Humped yield curve  

Question # 11 of 15 ( Start time: 07:00:31 PM ) Total M - 1Stock exchange is an example of:Select correct option:Financial companyFinancial institutionFinancial market   (Correct)Bank  Question # 12 of 15 ( Start time: 07:01:01 PM ) Total M - 1An index number is a valuable tool because:Select correct option:The number by itself provides all of the useful information neededThe index provides a meaningful measurement scale to calculate percentage changes   (Correct)The index is more stable than the data it reflectsIt does not require any calculations to compute percentage changes Question # 13 of 15 ( Start time: 07:02:06 PM ) Total M - 1With direct finance we mean which of the following?Select correct option:Individuals (or firms) borrow directly from the saversIndividuals (or firms) borrow directly from banks.   (Correct)Individuals deposit savings directly in banks.Firms deposit savings directly in banks.  Question # 14 of 15 ( Start time: 07:03:15 PM ) Total M - 1A business cycle downturn shifts the bond supply to the:Select correct option:RightLeftNo changeNone of the given options  Question # 15 of 15 ( Start time: 07:03:34 PM ) Total M - 1A risk-averse investor will:Select correct option:Always prefer an investment with a lower expected returnAlways prefer an investment with a certain return to one with the same expected return but any amount of uncertainty (Correct)Always require a certain returnAlways focus exclusively on the expected return  Question # 1 of 15 ( Start time: 07:09:16 PM ) Total M - 1 Sum of all the probabilities should be equal to which one of the following? Select correct option: 

 Zero One   (Correct) Two Three    Stock market bubbles can lead to: Select correct option:  An inefficient allocation of resources Stock market crashes   (Correct) Patterns of volatile returns from the stock market All of the given options   The lowest rating for an investment grade bond assigned by Moody's is: Select correct option:  BBB ABB Baa Aaa    (Correct)  The money aggregate M2 includes each of the following EXCEPT: Select correct option:  Small denomination time deposits. Retail Money Market Mutual fund shares U.S. Treasury bills   (Correct) M1   What characteristic of money is not included in securities characteristics Select correct option:  Mean of payment   (Correct) Unit of account Store of value Transfer of risk   Which of the following is NOT included in the assets of commercial banks? Select correct option:  Cash Items Reserves 

Securities Bills payable   (Correct)   Securities are sometimes called as _________. Select correct option:  Secondary reserves   (Correct) Primary reserve Excessive reserve Extra reserve   Ref by Mehreen: Securities are sometimes called secondary reserves because they are highly liquid and can be sold quickly if the bank needs cash.  Banks borrow from the central bank this loan is called _________. Select correct option:  Discount loan Collateralized loan Personal loan Corporate loan   What is true about the relationship between standard deviation and risk? Select correct option:  Greater the standard deviation greater will be the risk   (Correct) Greater the standard deviation lower will be the risk Greater the standard deviation risk remains the same No relation between them   Ref by Fuad: Standard Deviation:-The standard deviation is the square root of the variance, or:Standard Deviation (case 1) =$350Standard Deviation (case 2) =$528The greater the standard deviation, the higher the risk  Most of the people among us are _________. Select correct option:  Risk lovers Risk enhancers Risk averse    (Correct)

Risk tolerating    Banking is risky because ________. Select correct option:  Depository institutions are highly leveraged  (Correct)  Banks do in all the lines of banking trades Banks pay less for the deposits All of the given options   A loan that is used to purchase the real estate is known as: Select correct option:  Real estate loan Home mortgages   (Correct) Fixed payment loan Home loan   Expectation hypothesis focuses on which one of the following? Select correct option:  Risk premium Risk free interest rate   (Correct) Yield to maturity None of the given options    Which of the following is NOT included in the definition of M1? Select correct option:  Traveler’s checks Demand deposits Currency Gold coins issued by treasury   (Correct)   The Theory of Efficient Markets: Select correct option:  Allows for higher than average returns if the investor takes higher risk  (Correct)  Says Insider-information makes markets less efficient Rules out high returns due to chance Assumes people have equal luck  

Time affects the value of which of the following?Select correct option:Financial Instruments  (Correct) Financial MarketsFinancial InstitutionsCentral Banks   Core principles of Money and Banking include each of the following except?Select correct option:People act rationally  (Correct) Time has valueInformation is the basis for decisionsRisk requires compensation  The default premium:Select correct option:Is positive for a U.S. Treasury bondMust always be less than 0 (zero)Is also known as the risk spread  (Correct) Is assigned by a bond rating agency  The Segmented Markets Theory of term structure suggests that:Select correct option:Investors have strong preferences for bonds of a particular maturity  (Correct)Investors have no preference for short-term bonds over long-term bonds, or vice versaInterest rates on long-term bonds strongly influence the demand for short-term bondsBonds of different maturities are perfect substitutes for each other     _________ is the value today of a payment that is promised to be made in the future.Select correct option:Future value  (Correct)Present valueAgreed valueNone of the given options   Which of the following is NOT included in the assets of commercial banks?Select correct option:Cash ItemsReservesSecurities

Bills payable  (Correct)  Which of the following best describes checks?Select correct option:A means of payment  (Correct)MoneyNot a promise of any kindNot acceptable by the U.S. Government for payment of taxes.  Which of the following financial instruments used primarily as store of value?Select correct option:OptionsStocksHome mortgageBonds  (Correct)  _________ is the strategy of reducing overall risk by making two investments with opposing risks.Select correct option:Spreading the riskStandard deviationHedging the risk  (Correct)Variance  What will be the result of the difference of real and nominal interest rate?Select correct option:The cost of borrowingThe effect of inflation  (Correct)The price of bondsThe return of bonds   Which of the following institution take direct deposit from customer and give loan to customer directly?Select correct option:Zarai Tarkaytee Bank LTDSoneri BankKhushali BankCredit union  (Correct)  What is true relationship between return and risk?Select correct option:Lower the risk greater the returnGreater the risk greater the return  (Correct)

Greater the risk the return will remain constantNo relationship between them  Which of the variable measured in point of time?Select correct option:Flow variableStock variableBoth flow variable and stock variable  (Correct)None of above  The money aggregate M2 includes each of the following EXCEPT:Select correct option:Small denomination time deposits.Retail Money Market Mutual fund sharesU.S. Treasury bills  (Correct)M1  Diversification is the principle of:Select correct option:Holding more than one risk at a time  (Correct)Reducing the risks we carry to just twoCreating risk to increase returnsEliminating investments from our portfolio that have idiosyncratic risk     Question # 1 of 15 ( Start time: 07:34:43 PM ) Total M - 1 If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: Select correct option: $94.00  (Correct) $94.33 $95.25 $96.10  Question # 2 of 15 ( Start time: 07:35:52 PM ) Total M - 1 What is the true relationship that exists between default risk and yield? Select correct option:  Higher the default risk, higher the yield   (Correct)Lower the default risk, higher the yield Higher the default risk yield will remain constant Lower the default risk yield will remain constant

   Question # 3 of 15 ( Start time: 07:36:56 PM ) Total M - 1 The bond rating of a security refers to which of the followings? Select correct option: The size of the coupon payment relative to the face value The return a holder is likely to receive The likelihood the lender/borrower will be repaid by the borrower/issuer  (Correct) The years until the bond matures   Question # 4 of 15 ( Start time: 07:38:00 PM ) Total M - 1 Yield curves show which of the followings? Select correct option:  The relationship between bond interest rates (yields) and bond prices The relationship between liquidity and bond interest rates (yields) The relationship between risk and bond interest rates (yields) The relationship between time to maturity and bond interest rates (yields)  (Correct)    Question # 5 of 15 ( Start time: 07:38:52 PM ) Total M - 1 Which one of the following is true for the relationship between the yield of taxable and tax exempt bond? Select correct option:  Higher the tax rate wider the gap between the yield of taxable and tax exempt bond  (Correct) Taxable bond yield is always greater than tax exempt bond Higher the tax rate shorter the gap between yield of taxable and tax exempt bond Lower the tax rate wider the gap between yield of taxable and tax exempt bond   Question # 6 of 15 ( Start time: 07:39:23 PM ) Total M - 1 When the auto manufacturing industry does poorly due to a recession this is an example of: Select correct option:  Idiosyncratic risk Systematic risk  (Correct) Risk premium Unique risk   Question # 7 of 15 ( Start time: 07:39:58 PM ) Total M - 1 Financial development measured by Select correct option:  

M1/GDP M2/GDP  (Correct)  M3/DGP All of above  Question # 8 of 15 ( Start time: 07:41:29 PM ) Total M - 1 _________ is the strategy of reducing overall risk by making two investments with opposing risks. Select correct option:  Spreading the risk Standard deviation Hedging the risk  (Correct)  Variance   Question # 9 of 15 ( Start time: 07:41:52 PM ) Total M - 1 The fact that common stockholders are residual claimants means: Select correct option:  The stockholders receive their dividends before any other residuals are paid The stockholders receive the remains after everyone else is paid  (Correct)  The stockholders are paid any past due dividends before other claims are paid The common stockholders are responsible for all corporate debts   Question # 10 of 15 ( Start time: 07:42:32 PM ) Total M - 1 Which of the following is a role of a financial institution acting as a financial intermediary? Select correct option:  Pooling the resources of small savers  (Correct)  Formulating oversight regulations Sending out free calendars at the holidays Lobbying legislators  Question # 11 of 15 ( Start time: 07:43:27 PM ) Total M - 1 According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects Select correct option:  Short-term interest rates to rise sharply Short-term interest rates to stay near their current levels  (Correct)  Short-term interest rates to drop sharply Short-term interest rates does not change 

  Question # 12 of 15 ( Start time: 07:43:46 PM ) Total M - 1 Which characteristic are common both in money and securities Select correct option:  Transfer of risk, store of value  (Correct)  Unit of account, mean of payment Mean of payment, transfer of risk Store of value, mean of payment   Question # 13 of 15 ( Start time: 07:44:23 PM ) Total M - 1 ___________ are organized to eliminate the need of costly information gathering. Select correct option:  Central bank Commercial banks Stock exchanges  (Correct)  Insurance companies  Question # 14 of 15 ( Start time: 07:44:43 PM ) Total M - 1 With direct finance we mean which of the following? Select correct option:  Individuals (or firms) borrow directly from the savers Individuals (or firms) borrow directly from banks.  (Correct)  Individuals deposit savings directly in banks. Firms deposit savings directly in banks.  Question # 15 of 15 ( Start time: 07:46:13 PM ) Total M - 1 Which of the following best expresses the payment a lender receives for lending their money for four years? Select correct option:  PV(1+i)4  (Correct)  PV/(1 + i)4 4PV PV/(1 - i)4 --------------------------------------------------------------------------------------------------------------------- Question # 1 of 15 ( Start time: 07:58:28 PM ) Total M - 1Coupon bonds make the annual payments which are called as _________.Select correct option:Annual paymentsFixed payments

Coupon payments  (Correct) Maturity payment  Question # 2 of 15 ( Start time: 07:59:44 PM ) Total M - 1Which of the following are used to monitor and stabilize the economy?Select correct option:Stock exchangesCommercial BanksCentral Banks  (Correct) Financial institutions  Question # 3 of 15 ( Start time: 08:00:06 PM ) Total M - 1Saving occurs normally in ……….Select correct option:Early ageMiddle age  (Correct) Old ageNone of above  Question # 4 of 15 ( Start time: 08:02:23 PM ) Total M - 1Liquidity is the risk that is arises as a result of which one of the following consequences?Select correct option:It arises when loan is not repaidIt arises because of sudden demands of funds  (Correct) It arises when two sides of the balance sheet do not match upIt arises when banks make additional profit by using derivatives  Question # 5 of 15 ( Start time: 08:03:05 PM ) Total M - 1Previously financial markets are located in which of the following?Select correct option:Coffee houses or Taverns  (Correct) Stock exchangesBazaarCoffee houses and Stock exchanges  Question # 6 of 15 ( Start time: 08:03:19 PM ) Total M - 1Which of the following would probably NOT earn an A rating from Standard & Poor's:Select correct option:30 years bond issued by the U.S. TreasuryNew vegetarian fast-food chain  (Correct)90 days T-Bills issued by the U.S. TreasuryBoth 30 years bond and 90 days T-Bills issued by U.S. Treasury 

 Question # 7 of 15 ( Start time: 08:04:44 PM ) Total M - 1Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:Select correct option:The yield curve must have a positive slopeThe yield curve must be invertedThe yield curve could be flat  (Correct)The slope of the yield curve should actually increase

 

 

 

Q#1Which of the following represents the transmission of monetary policy?                                      A)        an increase in the demand for SUV's due to lower gas prices                                      B)        income tax rates change                                 C)        firms alter their investment plans                                      D)        oil prices increase                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#2A tightening of monetary policy should:                                      A)        increase spending by households and businesses and increase net exports.                                      B)        raise net exports but lower spending by households and businesses.                                 C)        decrease spending by households and businesses as well as net exports.                                      D)        increase investment and household spending but lower net exports.                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#3The direct impact on spending of short-term interest rate changes by central banks is:                                      A)        definitely the strongest of all transmission mechanisms.                                      B)        only effective for net exports but not for investment and consumption.                                      C)        only effective for consumption but not investment.                                 D)        not that powerful.                                                          Feedback:

LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#4The relationship between interest rates and stock prices is referred to as:                                      A)        the Dow Jones mechanism of monetary policy.                                 B)        the asset-price channel of monetary policy.                                      C)        the wealth-creating mechanism of monetary policy.                                      D)        the investment-spending mechanism of monetary policy.                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#5The bank lending channel of monetary policy focuses on:                                 A)        banks' willingness and ability to lend.                                      B)        the interest rate banks charge their largest customer.                                      C)        how central bank policy influences the solvency of banks.                                      D)        the deposit insurance premiums banks will end up paying.                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

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Q#6For a firm that has liabilities, a decrease in interest rates increases net worth because:                                      A)        asset values will decrease.                                      B)        the principal amount of the loans will decrease.                                 C)        profits will be higher due to lower interest costs.                                      D)        None of the above.                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#7Which of the following is a transmission channel of monetary policy?                                 A)        the balance-sheet channel                                      B)        the technology-price channel                                      C)        the efficient-market channel                                      D)        the tax-impact channel                                                          

Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#8If the Fed lowers the interest-rate target and mortgage interest rates fall, the economy would be affected through:                                      A)        the balance-sheet channel                                 B)        the asset-price channel                                      C)        the efficient-market channel                                      D)        the tax-impact channel                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#9The dramatic rise of inflation in the 1970s was at least partly due to the fact that:                                      A)        the Fed wanted high rates of inflation because output was growing rapidly.                                 B)        the Fed was slow to identify decreases in potential output.                                      C)        the Fed's tight money policy of the 1970s.                                      D)        potential output rose dramatically during the 1970s.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

 

Q#10If the dynamic aggregate demand curve shifts to the right, but there is no change in potential output, the appropriate response by monetary policymakers would be to:                                 A)        shift the monetary policy reaction function to the left.                                      B)        shift the monetary policy reaction function to the right.                                      C)        steepen the monetary policy reaction function.                                      D)        flatten the monetary policy reaction function.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

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Q#11If the short-run and long-run aggregate supply curves shift to the right, the appropriate response by monetary policymakers would be to:                                      A)        shift the monetary policy reaction function to the left.                                 B)        shift the monetary policy reaction function to the right.

                                      C)        steepen the monetary policy reaction function.                                      D)        flatten the monetary policy reaction function.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

 

Q#12Bonds must have positive yields because:                                      A)        the U.S. Treasury guarantees all bonds to have a positive yield.                                 B)        people can always hold cash.                                      C)        the banking technology does not exist to deal with negative yields.                                      D)        All of the above.                                                          Feedback:LOD: 1The Challenges Modern Monetary Policymakers Face.

 

Q#13A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:                                      A)        set a target of zero inflation.                                      B)        set an inflation target well above 5 percent.                                      C)        target a nominal interest rate of zero.                                 D)        set an inflation target of two to three percent.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

 

Q#14If the target federal funds rate reaches zero:                                      A)        the FOMC must stop purchasing securities since they cannot lower nominal rates below zero.                                 B)        the FOMC would likely shift their focus to purchasing longer term securities.                                      C)        the FOMC would likely raise the required reserve rate.                                      D)        the FOMC would likely raise the discount rate.                                                          Feedback:LOD: 3The Challenges Modern Monetary Policymakers Face.

 

Q#15Some people who believe monetary policymakers should not address equity and property price bubbles, argue their position based on:                                 A)        price bubbles are virtually impossible to identify when they are developing.                                      B)        the policymakers have a history for poor investing decisions.                                      C)        their belief that government should stay out of private matters.                                      D)        All of the above.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

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Q#16The movement away from bank lending towards asset-backed securities:                                      A)        has decreased the importance of the bank lending channel.                                      B)        has eliminated the bank lending channel as a mechanism for monetary policy.                                      C)        has increased the importance of the bank lending channel of monetary policy.                                      D)        will require the FOMC to rethink the quantitative impact of changing the target federal funds rate.                                 E)        a and d.                                                          Feedback:

LOD: 2The Challenges Modern Monetary Policymakers Face

  Quiz # 46 Q#1The monetary policy transmission mechanism begins with:                                 A)        changes to the central bank's balance sheet.                                      B)        changes in household spending decisions.                                      C)        changes in exchange rates.                                      D)        movements in stock and bond prices.                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#2A decrease in short-term interest rates should:                                      A)        decrease spending by households and businesses and increase net exports.                                      B)        lower net exports but raise spending by households and businesses.                                 C)        increase spending by households and businesses as well as net exports.                                      D)        increase investment and household spending but lower net exports.

                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#3The impact of monetary policy on the exchange rate and net exports is:                                      A)        predictable for the exchange rate but not for net exports.                                      B)        predictable for both the exchange rate and net exports.                                      C)        unpredictable for the exchange rate but predictable for net exports.                                 D)        unpredictable for both the exchange rate and net exports.                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#4A fall in the interest rate tends to push up stock prices. This is referred to as:                                      A)        the Dow Jones mechanism of monetary policy.                                 B)        the asset-price channel of monetary policy.                                      C)        the wealth-creating mechanism of monetary policy.                                      D)        the investment-spending mechanism of monetary policy.                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#5A change in monetary policy results in small businesses more easily finding funding for their projects. This represents the _______ channel of monetary policy transmission.                                 A)        bank-lending                                      B)        asset-price                                      C)        balance-sheet                                      D)        interest-rate                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

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Q#6Lower interest due to a change in monetary policy results in an increase in household net worth. This represents the _______ channel of monetary policy transmission.

                                      A)        bank-lending                                      B)        asset-price                                 C)        balance-sheet                                      D)        interest-rate                                                          Feedback:LOD: 2The Monetary Policy Transmission Mechanism.

 

Q#7Which of the following is a not a transmission channel of monetary policy?                                      A)        bank-lending                                      B)        asset-price                                      C)        interest-rate                                 D)        the tax-impact channel                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#8An economist argues that if the Fed raises rates the prices of houses will fall. This refers to the _____ channel of monetary policy transmission.                                      A)        the balance-sheet channel                                 B)        the asset-price channel                                      C)        the efficient-market channel                                      D)        the tax-impact channel                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#9Which of the following is considered a "traditional" channel of monetary policy transmission?                                      A)        the balance-sheet channel                                      B)        the asset-price channel                                      C)        the efficient-market channel                                 D)        the interest-rate channel                                                          Feedback:LOD: 1The Monetary Policy Transmission Mechanism.

 

Q#10If the dynamic aggregate demand curve shifts to the left, and potential output has not changed, the appropriate response by monetary policymakers would be to:                                      A)        shift the monetary policy reaction function to the left.                                 B)        shift the monetary policy reaction function to the right.                                      C)        steepen the monetary policy reaction function.                                      D)        flatten the monetary policy reaction function.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

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Q#11Suppose output unexpectedly increases. Which of the following would be a correct policy response?                                 A)        If the increase is the result of an increase in demand with no increase in potential output, then monetary policymakers should shift the monetary policy reaction function to the left.                                      B)        If the increase is the result of an increase in demand with no increase in potential output, then monetary policymakers should shift the monetary policy reaction function to the right.                                      C)        If the increase is the result of rightward shifts in the short-run and long-run aggregate supply curve, then monetary policymakers should shift the monetary policy reaction function to the left.                                      D)        If the increase is the result of leftward shifts in the short-run and long-run aggregate supply curve, then monetary policymakers should shift the monetary policy reaction function to the right.                                                          Feedback:LOD: 3The Challenges Modern Monetary Policymakers Face.

 

Q#12Nominal interest rates cannot fall below:                                 A)        zero.                                      B)        real interest rates.                                      C)        2%.                                      D)        None of the above is correct.                                                          Feedback:LOD: 1The Challenges Modern Monetary Policymakers Face.

 

Q#13Deflation:                                      A)        is good for the economy because it makes it easier for businesses to obtain financing.                                 B)        is only a problem if policymakers cannot bring output back up to its potential level.

                                      C)        causes increases in nominal interest rates.                                      D)        fosters economic growth.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

 

Q#14Preventing equity and property price bubbles:                                 A)        is difficult for the Fed because such bubbles are virtually impossible to identify when they are developing.                                      B)        is a major goal of the Fed.                                      C)        is one of the simpler tasks the Fed perform in conducting monetary policy.                                      D)        is the responsibility of fiscal policymakers.                                                          Feedback:LOD: 2The Challenges Modern Monetary Policymakers Face.

 

Q#15Which of the following channels of monetary policy transmission is likely to become less and less important due to changes in the structure of the financial system?                                      A)        the balance-sheet channel                                      B)        the asset-price channel                                 C)        the bank-lending channel                                      D)        the interest-rate channel                                                          

Quiz # 43 

Q#1Focusing on the last fifty years in U.S. history, one would say that:                       A)     recessions have disappeared.                       B)     the number of recessions has increased but their duration has decreased.                       C)     the number of recessions has increased and their duration has increased.                                           D) the number of recessions has decreased.                                                        Feedback:LOD: 1Understanding Business Cycle Fluctuations.

 

Q#2Which of the following would not be classified as a shock?                       A)     a decrease in the price of oil.                                           B)     a decrease in consumer confidence.                                           C) an increase in demand for imports.                       D)    All of the above are considered shocks.                                                        Feedback:LOD: 1Sources of Fluctuations in Output and Inflation.

 

Q#3If the central bank reduces its inflation target:                       A)     the monetary policy reaction curve will shift to the right.                                           B) the monetary policy reaction curve will shift to the left.                       C)     there will be a movement up along the monetary policy reaction curve.                       D)    there will be a movement down along the monetary policy reaction curve.                                                        Feedback:LOD: 2Sources of Fluctuations in Output and Inflation.

 

Q#4If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to:                                           A) raise the real interest rate.                       B)     lower the real interest rate.                       C)     keep the real interest rate constant and focus on only changing the nominal interest rate.                       D)    purchase Treasury securities.                                                        

Feedback:LOD: 2Sources of Fluctuations in Output and Inflation.

 

Q#5Suppose that a decline in consumer confidence shifts the dynamic aggregate demand curve to the left. Which of the following is correct?                       A)     In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the right.                                           B) In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the left.                       C)     If monetary policymakers react, the dynamic aggregate demand curve will shift to the left.                       D)    In the absence of a monetary policy response, the dynamic aggregate demand curve will shift to the right.                                                        Feedback:LOD: 3Sources of Fluctuations in Output and Inflation.http://groups.google.com/group/vuZs/web/mba Q#6Stagflation is associated with:                       A)     a rightward shift in the short-run aggregate supply curve.                       B)     a rightward shift in the dynamic aggregate demand curve.                       C)     a leftward shift in the dynamic aggregate demand curve.                                           D) a leftward shift in the short-run aggregate supply curve.                                                        Feedback:LOD: 2Sources of Fluctuations in Output and Inflation.

 

Q#7Which of the following statements is correct?                                           A) Monetary policymakers cannot eliminate the effects of a supply shock.                       B)     Monetary policymakers can shift the long-run aggregate supply curve.

                       C)     Monetary policymakers cannot neutralize movements in aggregate demand.                       D)    Shifts in the monetary policy reaction function shift the short-run aggregate supply curve.                                                        Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#8A decrease in consumer confidence would like result in monetary policymakers:                       A)     making the slope of the monetary policy reaction curve flat.                       B)     shifting the monetary policy reaction curve left.                                           C) shifting the monetary policy reaction curve right.                                           D)    making the slope of the monetary policy reaction curve steep.                                                        Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#9An increase in taxes would:                                           A) cause the dynamic aggregate demand curve to shift to the left.                       B)     cause a movement down and along the existing dynamic aggregate demand curve.                       C)     cause a movement up and along the existing dynamic aggregate demand curve.                       D)    cause the dynamic aggregate demand curve to shift to the right.                                                        Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#10Monetary policymakers can take advantage of the opportunity provided by positive supply shocks by: 

                      A)     making the slope of the monetary policy reaction curve flat.                                           B) shifting the monetary policy reaction curve left.                       C)     raising the potential level of output.                       D)    making the slope of the monetary policy reaction curve steep.                                                        Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.http://groups.google.com/group/vuZs/web/mba 

 

Q#11During the 1990s:                       A)     the U.S. economy never suffered a single decline in output.                       B)     inflation fell steadily.                       C)     there was less volatility in the economy.                                           D) All of the above are correct.                                                        Feedback:LOD: 1Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#12If potential output changes:                       A)     in the long run inflation must fall.                       B)     in the long run inflation must rise.                       C)     in the long run inflation will not change from its previous level.                                           D) in the long run what happens to inflation depends on the actions of monetary policymakers.                                                        Feedback:LOD: 1Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#13If potential output increases and monetary policy makers respond by shifting the monetary policy reaction curve to the left, then in the long run:                                           A) inflation will move to a new, lower target level.                       B)     inflation will return to the previous target level.                       C)      inflation will increase because the decline in the long-run real interest rate will shift the dynamic aggregate demand curve to the right.                       D)    inflation will increase because the decline in the long-run real interest rate will shift the dynamic aggregate demand curve to the left.                                                        Feedback:LOD: 3Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#14Real-business-cycle theory seeks to explain business cycle fluctuations by focusing on:                       A)     real aggregate demand.                       B)     the inflexibility of prices and wages.                                           C) fluctuations in potential output                       D)    changes in monetary policy.                                                        Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#15If a drop in potential output occurs, and monetary policymakers wish to keep inflation at the target level, then they must:                                           A) shift the monetary policy reaction curve to the left more than they would if the economy were just experiencing a recessionary gap.                       B)     shift the monetary policy reaction curve to the left less than they would if the economy were just experiencing a recessionary gap. 

                      C)      shift the monetary policy reaction curve to the right more than they would if the economy were just experiencing a recessionary gap.                       D)      shift the monetary policy reaction curve to the right less than they would if the economy were just experiencing a recessionary gap.                                                        Feedback:LOD: 3Using the Aggregate Demand-Aggregate Supply Frameworkhttp://groups.google.com/group/vuZs/web/mba 

 Quiz # 44

 Q#1Considering business cycles over the last fifty years in U.S. history, one would say that:                                 A)        the lower the growth, the more likely inflation is to fall.                                      B)        the lower the growth, the less likely inflation is to fall.                                      C)        the higher the growth, the more likely inflation is to fall.                                      D)        inflation does not change as much with growth as it used to.                                        Feedback:LOD: 1Understanding Business Cycle Fluctuations.

 

Q#2Which of the following is correct?                                      A)        A decrease in the price of oil would be a supply shock.                                      B)        A decrease in consumer confidence would be a demand shock.                                      C)        Shocks can cause shifts in either the demand or supply curve.                                 D)        All of the above are correct.                                                          Feedback:LOD: 1Sources of Fluctuations in Output and Inflation.

 

Q#3If the central bank increases its inflation target:                                 A)        the monetary policy reaction curve will shift to the right.                                      B)        the monetary policy reaction curve will shift to the left.                                      C)        there will be a movement up along the monetary policy reaction curve.                                      D)        there will be a movement down along the monetary policy reaction curve.                                                          

Feedback:LOD: 2Sources of Fluctuations in Output and Inflation.

 

Q#4If government purchases decrease and as a result push current output above potential output, monetary policymakers are likely to:                                      A)        raise the real interest rate.                                 B)        lower the real interest rate.                                      C)        keep the real interest rate constant and focus on only changing the nominal interest rate.                                      D)        purchase Treasury securities.                                                          Feedback:LOD: 2Sources of Fluctuations in Output and Inflation.

 

Q#5Suppose that an increase in consumer confidence shifts the dynamic aggregate demand curve to the right. Which of the following is correct?                                      A)        In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the right.                                 B)        In the absence of a monetary policy response, the short-run aggregate supply curve will shift to the left.                                      C)        If monetary policymakers react, the dynamic aggregate demand curve will shift farther to the right.                                      D)        Even without a monetary policy response, the dynamic aggregate demand curve will shift back to the left.                                                          Feedback:LOD: 3Sources of Fluctuations in Output and Inflation.http://groups.google.com/group/vuZs/web/mba 

 

Q#6Stagflation is associated with:                                 A)        higher inflation and lower growth.                                      B)        higher inflation and higher growth.                                      C)        lower inflation and lower growth.                                      D)        lower inflation and lower growth.                                                          Feedback:LOD: 2Sources of Fluctuations in Output and Inflation.

 

Q#7Which of the following statements is incorrect?                                      A)        Monetary policymakers find it more difficult to deal with the effects of a supply shock.                                 B)        Monetary policymakers can shift the long-run aggregate supply curve.                                      C)        Monetary policymakers can neutralize movements in aggregate demand.                                      D)        Shifts in the monetary policy reaction function shift the dynamic aggregate demand curve.                                                          Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#8A decrease in consumer confidence would like result in fiscal policymakers:                                 A)        cutting taxes or increasing spending.                                      B)        shifting the monetary policy reaction curve left.                                      C)        shifting the monetary policy reaction curve right.                                      D)        raising taxes or decreasing spending.                                                          Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#9A decrease in taxes would likely occur in response to some shock that:                                 A)        caused the dynamic aggregate demand curve to shift to the left.                                      B)        caused a movement down and along the existing dynamic aggregate demand curve.                                      C)        caused a movement up and along the existing dynamic aggregate demand curve.                                      D)        caused the dynamic aggregate demand curve to shift to the right.                                                          Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#10To take advantage of the opportunity provided by positive supply shocks, monetary policymakers should act to:                                      A)        flatten the slope of the monetary policy reaction curve.                                 B)        shift the monetary policy reaction curve left.                                      C)        raise the potential level of output.                                      D)        make the slope of the monetary policy reaction curve steeper.                                                          Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.http://groups.google.com/group/vuZs/web/mba 

 

Q#11The "great moderation" of the 1990s has been attributed to:                                      A)        luck.                                      B)        the increased ability of economies to absorb external economic disturbances.                                      C)        more effective monetary policy.                                 D)        All of the above.                                                          Feedback:LOD: 1Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#12In the long run an increase in potential output will mean that:                                      A)        in the long run inflation must fall.                                      B)        in the long run inflation must rise.                                      C)        in the long run inflation will not change from its previous level.                                 D)        None of the above; what happens to inflation in the long run depends on the actions of monetary policymakers.                                                          Feedback:LOD: 1Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#13For "opportunistic disinflation" to occur:                                 A)        potential output must increase and monetary policy makers must respond by shifting the monetary policy reaction curve to the left.                                      B)        potential output must increase and monetary policy makers must respond by shifting the monetary policy reaction curve to the right.

                                      C)        potential output must increase and monetary policy makers must respond by shifting the dynamic aggregate demand curve to the right.                                      D)        None of the above is correct.                                                          Feedback:LOD: 3Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#14Which of the following is true about real-business-cycle theory?                                      A)        According to the theory, the short-run aggregate supply curve shifts slowly in response to deviations of current output from potential output.                                      B)        It assumes the inflexibility of prices and wages.                                      C)        According to the theory, any shift in the dynamic aggregate demand curve results in fluctuations in potential output with no effect on inflation.                                 D)        None of the above is correct.                                                          Feedback:LOD: 2Using the Aggregate Demand-Aggregate Supply Framework.

 

Q#15Which of the following represents a correct action by monetary policy makers?                                 A)        A drop in potential output occurs, and monetary policymakers shift the monetary policy reaction curve to the left.                                      B)        A drop in potential output occurs, and monetary policymakers shift the monetary policy reaction curve to the right.                                      C)        A recessionary gap occurs and monetary policymakers shift the monetary policy reaction curve to the right.                                      D)        A recessionary gap occurs and monetary policymakers shift the monetary policy reaction curve to the left.                                                          Feedback:

Quiz # 39 

Q#1Over the long run, if central banks want to avoid high rates of inflation they need to be concerned with:                       A)     unemployment.                                           B) money growth.                       C)     real economic growth. 

                      D)    productivity of labor.                                                        Feedback:LOD: 1Why We Care About Monetary Aggregates.

 

Q#2Consider the ratio of the average annual inflation rate to the average annual rate of money growth. If a country ratio's had a value greater than one that country would have:                                           A) an average inflation rate greater than the average rate of money growth.                       B)     an average inflation rate less than the average rate of money growth.                       C)     a high unemployment rate.                       D)    an economy suffering from a recession.                                                        Feedback:LOD: 2Why We Care About Monetary Aggregates.

 

Q#3Inflation can be thought of as:                                           A) a decrease in the price of money.                       B)     an increase in the price of money.                       C)     no change in the price of money, just in the supply of money.                       D)    no change in the price of money, just in the demand for money.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#4If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following equals the velocity of money?                       A)     (P·Y) +M

                       B)     (P·M)/Y                       C)     (Y·M)/P                                           D) (P·Y)/M                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#5Which of the following expresses the equation of exchange?                                           A) MV = PY                       B)     MV = Y                       C)     MY = PV                       D)    MP = VY                                                        Feedback:LOD: 1The Quantity Theory and the Velocity of Money.http://groups.google.com/group/vuZs/web/mba Q#6Key assumptions behind the quantity theory of money include:                       A)     the change in nominal GDP is zero.                       B)     the percentage change in the price level equals the percentage change in real GDP.                                           C) the velocity of money is constant.                       D)    the money supply is fixed.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#7If we let Md represent money demand, then we can write the equation for money demand as: 

                      A)     Md =VY.                                           B) Md = (1/V) PY.                       C)     Md = PY.                       D)    Md = V(Y/P).                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#8A rate of inflation that is less than the growth rate of money for a country could be explained by:                                           A) a decreasing velocity of money.                       B)     a contracting real economy.                       C)     a constant velocity of money.                       D)    a increasing velocity of money.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#9Which of the following statements is incorrect?                       A)     The velocity of M2 is relatively stable over long time periods.                                           B) The velocity of M2 is less stable than the velocity of M1.                       C)     The velocity of M2 is more volatile in the short run than the long run.                       D)    Fisher's assumption about money velocity being stable in the long run was incorrect.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#10During economic slowdowns (recessions) the velocity of money tends to:                       A)     move unpredictably.                                           B) decrease.                       C)     remain constant, as Fisher predicted.                       D)    slightly increase.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.http://groups.google.com/group/vuZs/web/mba 

 

Q#11The portfolio demand for money reflects:                       A)     the money we hold for our everyday transactions.                       B)     the money we hold to purchase stocks and bonds and other financial securities.                                           C) the portion of wealth people desire to hold in the form of money.                       D)    b and c                                                        Feedback:LOD: 2The Demand for Money.

 

Q#12The Lucas critique focuses specifically on:                                           A) the role that economic policymaking has on people's economic behavior.                       B)     the relationship between Fed policy and the money supply.                       C)     the inability to measure economic time lags accurately.                       D)    the moving away from the gold standard to flexible exchange rates.                                                        Feedback:

LOD: 2Targeting Money Growth in a Low-Inflation Environment.

 

Q#13To use money growth as a short-term monetary policy instrument, a central bank must:                       A)     believe the deposit expansion multiplier is volatile and unpredictable.                       B)     believe that only money matters.                       C)     believe that there is an unpredictable relationship between money aggregates and inflation.                                           D) believe there is some stable link between the monetary base and the money aggregates.                                                        Feedback:LOD: 2Targeting Money Growth in a Low-Inflation Environment.

 

Q#14One cost that potentially could result from central banks targeting money growth is:                                           A) volatile interest rates.                       B)     a slowdown in financial innovation.                       C)     high inflation.                       D)    a very stable interest rate.                                                        Feedback:LOD: 2Targeting Money Growth in a Low-Inflation Environment.

 

Q#15If a central bank set an explicit inflation target it would require that it:                       A)     put more emphasis on the interest rate target and less on a money target.                       B)     shift its focus entirely to a nominal interest rate target.                                           C) be willing to live with more volatility in the interest rate. 

                      D)    give up control of targeting the monetary base.                                                        Feedback:LOD: 3Targeting Money Growth in a Low-Inflation Environment.http://groups.google.com/group/vuZs/web/mba 

  

Quiz # 40 

Q#1The single most important fact in monetary economics is the:                                           A) positive relationship between money growth and inflation rates.                       B) positive relationship between money growth and the real interest rate.                       C)     negative relationship between money growth and the real interest rate.                       D)    negative relationship between money growth and inflation rates.                                                        Feedback:LOD: 1Why We Care About Monetary Aggregates.

 

Q#2When a country has a high inflation rate:                       A)     people tend to spend money more quickly, which helps to reduce inflation.                                           B) people tend to spend money more quickly, which has the same effect on inflation as an increase in money growth.                       C)     people tend to spend money more slowly, which has the same effect on inflation as an increase in money growth.                       D)    there is also typically a high unemployment rate.                                                        Feedback:LOD: 2Why We Care About Monetary Aggregates.

 

Q#3Inflation can be thought of as:                                           A) a decrease in the value of money.                       B)     an increase in the value of money.                       C)     no change in the value of money, just in the supply of money.                       D)    no change in the value of money, just in the demand for money.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#4If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following represents nominal GDP?                       A)     (P·Y) +M                       B)     (P·M)/Y                       C)     (Y·M)/P                                           D) (P·Y)                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#5If the equation of exchange is MV=PY and we assume that velocity is constant and that real output is determined solely by economic resources and production technology, then a change in M will result in a change in:                                           A) P.                       B)     Y.                       C)     PV.                       D)    VY.                                                        Feedback:

LOD: 1The Quantity Theory and the Velocity of Money.http://groups.google.com/group/vuZs/web/mba 

 

Q#6Which of the following is not a key assumption behind the quantity theory of money?                                           A) The change in nominal GDP is zero.                       B)     The percentage change in the price level equals the percentage change in the money supply.                       C)     The velocity of money is constant.                       D)    Real growth is determined by resources and technology.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#7If we let Md represent money demand and the money market is in equilibrium, then:                       A)     Md =VY.                       B)     Md = V(PY).                                           C) Md V =PY.                       D)    Md = V(Y/P).                                                        Feedback:LOD: 2 The Quantity Theory and the Velocity of Money.

 

Q#8A central bank policy to stabilize inflation by keeping money growth constant would be viable only if:                       A)     the velocity of money was decreasing over time.                       B)     the velocity of money was increasing over time.                                           C) velocity of money was constant.

                       D)    nominal GDP were constant.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#9Increases in velocity in the late 1970s and early 1980s can be attributed to financial innovations that:                       A)     made holding money very costly.                       B)     allowed individuals to economize on the amount of money they held.                                           C) Both of the above are correct.                       D)    None of the above is correct.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.

 

Q#10As the monetary policy strategy of the European Central Bank has evolved over time, the role of money:                       A)     has become more prominent.                                           B) has become less prominent.                       C)     has not changed.                       D)    has changed in that there is more emphasis on the equivalent of M1 than M2.                                                        Feedback:LOD: 2The Quantity Theory and the Velocity of Money.http://groups.google.com/group/vuZs/web/mba 

 

Q#11The higher the nominal interest rate:                       A)     the higher the opportunity cost of holding money.

                       B)     the less money people will hold for any given level of transactions.                       C)     the higher the velocity of money.                                           D) All of the above are correct.                                                        Feedback:LOD: 2The Demand for Money.

 

Q#12The precautionary demand for money is usually included in the:                                           A) transactions demand for money.                       B)     portfolio demand for money.                       C)     both the transactions demand and the portfolio demand for money.                       D)    None of the above; it is a separate category.                                                        Feedback:LOD: 2The Demand for Money.

 

Q#13Controlling inflation:                       A)     is made more difficult in a high-inflation environment due to changes in velocity.                                           B) is made more difficult in a low-inflation environment due to changes in velocity.                       C)     depends more on the resolve of the central bank in a low-inflation environment.                       D)    is simpler in the short run because velocity is constant.                                                        Feedback:LOD: 2Targeting Money Growth in a Low-Inflation Environment.

Q#14Changes in mortgage refinancing rates have affected the velocity of M2 because:                       A)     people who are refinancing take out equity in their home and deposit funds in liquid deposit accounts.                       B)     as mortgages are refinanced flows of funds from holders of both old and new mortgages flow through accounts that are part of M2.                                           C) Both of the above are correct.                       D)    None of the above is correct.                                                        Feedback:LOD: 2Targeting Money Growth in a Low-Inflation Environment.

 

Q#15Comparing the ECB and the Fed, it is accurate to say that:                       A)     the ECB puts more emphasis on the interest rate target and less on a money target.                                           B) the ECB and the Fed differ in their emphasis on money growth but both use interest rates as their operating targets.                       C)     the ECB only uses a money growth target while the Fed only uses an interest rate target.                       D)    None of the above is correct.                                                        Q#1If capital flows freely between countries and a country has a fixed exchange rate, you know that the country:                       A)     exports more than it imports.                       B)     must have ample gold reserves.                       C)     must have a strong monetary policy.                                           D) cannot have a domestic monetary policy.                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#2If inflation in country B exceeds inflation in country A, purchasing power parity implies that:                       A)     the currency of country A should depreciate relative to the currency of country B.                                           B) the currency of country B will depreciate relative to the currency of country A.                       C)     the inflation rate in country A will rise to match the inflation rate in country B.                       D)    the inflation rate in country B will fall to match the inflation rate in country A.                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#3If the inflation rate in country A is 4.5% and the inflation rate in country B is 3.0% we should expect the percentage change in the number of units of country A's currency per unit of country B's currency to be:                       A)     + 50.0%.                       B)     -0.5%.                                           C) +1.5%.                       D)    +75%.                                                        Feedback:LOD: 3Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#4Which of the following statements is most correct?                                           A) A central bank cannot have both a fixed exchange rate and an independent inflation policy.                       B)     A central bank can select between a fixed exchange rate and an independent inflation policy, provided fiscal policy cooperates.                       C)     The central banks of most industrialized countries focus on fixed exchange rates.                       D)    While most central banks of industrialized countries favor fixing exchange rates, their primary concern is domestic inflation.                                                        

Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#5If arbitrage occurs across countries with a flexible exchange rate when the bonds in each country are identical and there are no barriers to capital flows:                       A)     the interest rates on the bonds will be identical.                       B)     the prices of the bonds will be identical.                                           C) the expected returns are the same.                       D)    the inflation rates in each country will be identical.                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.http://groups.google.com/group/vuZs/web/mba Q#6Consider the following: an investor in the U.S. is pondering a one-year investment. She can purchase a domestic bond for $5000 that has an interest rate of i; she can also purchase a bond in England for 7500 British pounds (£) that bond pays an interest rate of if. The current exchange rate is $1.50/£. She considers the bonds to be of equal risk. Ifi = if the expected returns are not equal. What do you know?                                           A) The exchange rate must be flexible.                       B)     The bonds initially sold for different prices.                       C)     c). Arbitrage doesn't work.                       D)    The exchange rate is fixed between the U.S. and Britain.                                                        Feedback:LOD: 3Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#7Which of the following best characterizes the United States?                       A)     a controlled domestic interest rate, a closed capital market and a flexible exchange rate                       B)     a controlled domestic interest rate, an open capital market and a fixed exchange rate

                       C)     no control over the domestic interest rate, an open capital market and a flexible exchange rate                                           D) a controlled domestic interest rate, an open capital market and a flexible exchange rate                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#8If the Fed decides to maintain a fixed euro/dollar exchange rate, when it buys euros:                       A)     banking system reserves will decrease.                       B)     the domestic money supply will decrease.                                           C) there will be pressure on domestic interest rates to decrease.                       D)    All of the above.                                                        Feedback:LOD: 2Mechanics of Exchange-Rate Management.

 

Q#9A sterilized foreign exchange intervention would:                       A)     not alter the central bank's holdings of international reserves.                       B)     alter the liability side of the central bank's balance sheet but leave the asset side unchanged.                       C)     leave the central bank's balance sheet unchanged.                                           D) alter the asset side of a central bank's balance sheet but leave the domestic monetary base unchanged.                                                        Feedback:LOD: 2Mechanics of Exchange-Rate Management.

 

Q#10Fixing an exchange rate between two countries makes the most sense when:

                       A)     both countries use the same national language.                       B)     the countries' macroeconomic fluctuations are negatively correlated.                                           C) the countries' macroeconomic fluctuations are positively correlated.                       D)    one country has a lot of international reserves and the other doesn't.                                                        Feedback:LOD: 2The Costs, Benefits, and Risks of Fixed Exchange Rates.http://groups.google.com/group/vuZs/web/mba 

 

Q#11A country that suffers from bouts of high inflation and wants to fix its exchange rate should tie its currency to the currency of a:                       A)     larger country.                                           B) country with a strong reputation for low inflation.                       C)     country with similar inflation performance.                       D)    country that is still on the gold standard.                                                        Feedback:LOD: 2The Costs, Benefits, and Risks of Fixed Exchange Rates.

 

Q#12If the U.S. were to revert to a gold standard, trade deficits would:                       A)     result in gold reserves in the U.S. increasing.                       B)     quickly disappear.                                           C) result in higher domestic interest rates.                       D)    result in high inflation.                                                        Feedback:LOD: 3The Costs, Benefits, and Risks of Fixed Exchange Rates.

 

Q#13In 1997 there was a speculative attack on the Thai baht. This resulted from:                                           A) the belief by speculators that the Thai central bank didn't have U.S. dollar reserves to maintain the current fixed rate.                       B)     the belief by speculators that the Thai central bank was run by corrupt officials.                       C)     the revelation that the Thai central bank had depleted its gold eserves.                       D)    the overthrow of the Thai president and the central bank.                                                        Feedback:LOD: 2The Costs, Benefits, and Risks of Fixed Exchange Rates.

 

Q#14The Bretton Woods System failed in 1971 due to:                       A)     very low rates of inflation in the U.S.                       B)     the lack of capital mobility across international borders.                                           C) the desire on the part of participating countries to have an independent monetary policy.                       D)    All of the above.                                                        Feedback:LOD: 2Fixed Exchange-Rate Regimes.

 

Q#15Dollarization:                       A)     has the benefit of providing additional revenue in the form of seignorage to the country that dollarizes.                       B)     is the same as a monetary union.                                           C) would enable a small emerging-market country to avoid an exchange-rate crisis.                       D)    Both a and c are correct.

                                                        Feedback:LOD: 2Fixed Exchange-Rate Regimeshttp://groups.google.com/group/vuZs/web/mba 

 Quiz # 38

 Q#1Which of the following statements is correct?                       A)     The Fed engages in foreign currency transactions on a daily basis.                       B)     The Fed engages in foreign currency transactions in conjunction with the meetings of the FOMC.                                           C) The Fed almost never engages in foreign currency transactions.                       D)    The Fed is not permitted to engage in foreign currency transactions.                                                        Feedback:LOD: 1Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#2The currency of country A will depreciate relative to that of country B if:                                           A) the inflation rate in country B is higher than that in country A.                       B)     the inflation rate in country A is higher than that in country B.                       C)     the inflation rates in the two countries are the same but country A fixes its exchange rate.                       D)    Both a and c are correct.                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#3If the inflation rate in country A is 2.5% and the inflation rate in country B is 2.0% we should expect the percentage change in the number of units of country A's currency per unit of country B's currency to be: 

                      A)     + 4.5%.                                           B) 0.5%.                       C)     +1.25%.                       D)    +.8%.                                                        Feedback:LOD: 3Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#4If a country like Mexico, for example, wants its inflation rate to diverge from that of the United States, then:                                           A) if the U.S. inflation rate rises Mexico must be prepared for the peso/dollar exchange rate to decrease.                       B) if the U.S. inflation rate rises Mexico must be prepared for the peso/dollar exchange rate to increase.                       C)     if the U.S. inflation rate falls Mexico must be prepared for the peso/dollar exchange rate to decrease.                       D)    None of the above; it would not be in Mexico's best interests for its inflation rate to diverge from that of the United States.                                                        Feedback:LOD: 3Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#5If arbitrage occurs across countries with a fixed exchange rate when the bonds in each country are identical and there are no barriers to capital flows:                                           A) the interest rates on the bonds will be identical.                       B)     the interest rate on the domestic bond will be greater than that on the foreign bond due to differences in inflation.                       C)     the expected return from the foreign bond will be higher.                       D)    the inflation rates in each country will be identical.                                                        

Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.http://groups.google.com/group/vuZs/web/mba 

 

Q#6Consider the following: an investor in the U.S. is pondering a one-year investment. She can purchase a domestic bond for $5,000 that has an interest rate of i; she can also purchase a bond in England for 10,000 British pounds (£) that pays an interest rate of if. The current exchange rate is $2.00/£. She considers the bonds to be of equal risk. Ifi = ifbut the $/£ exchange rate is expected to fall, the investor should:                                           A) buy the U.S. bond.                       B)     buy the British bond.                       C)     buy the British bond and hold it until after the exchange rate falls.                       D)    rely on arbitrage to equalize her return whichever bond she buys.                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#7Capital controls consist of:                       A)     restrictions on the ability of foreigners to invest in a country.                       B)     obstacles that prevent the selling of investments and taking funds out of the country.                       C)     fixed interest rates.                       D) Only a and b are correct.                                                        Feedback:LOD: 2Linking Exchange-Rate Policy with Domestic Monetary Policy.

 

Q#8If the Fed decides to maintain a fixed euro/dollar exchange rate, and buys euros:                       A)     its dollar liabilities will decrease.

                                           B) its dollar liabilities will increase.                       C)     there will be pressure on domestic interest rates to increase.                       D)    Both b and c are correct.                                                        Feedback:LOD: 2Mechanics of Exchange-Rate Management.

 

Q#9Which of the following statements is correct?                                           A) To sterilize a foreign exchange intervention in which it purchased a foreign bond, the Fed would sell a U.S. Treasury bond.                       B)     To sterilize a foreign exchange intervention in which it purchased a foreign bond, the Fed would buy a U.S. Treasury bond of the same face value.                       C)     To sterilize a foreign exchange intervention in which it sold a foreign bond, the Fed would sell a U.S. Treasury bond of the same face value.                       D)    The Fed will sterilize foreign exchange interventions that increase reserves but not those that decrease reserves.                                                        Feedback:LOD: 2Mechanics of Exchange-Rate Management.

 

Q#10All of the following are benefits of fixed exchange rates except:                       A)     international trade is simplified.                       B)     the risk associated with foreign investment is reduced.                       C)     policymakers' hands are tied.                                           D) it means adopting another country's interest-rate policy.                                                        Feedback:LOD: 2The Costs, Benefits, and Risks of Fixed Exchange Rates.

http://groups.google.com/group/vuZs/web/mba 

 

Q#11Speculative attacks are more likely if a country has:                       A)     a flexible interest rate.                       B)     capital controls.                                           C) a fixed exchange rate.                       D)    All of the above.                                                        Feedback:LOD: 2The Costs, Benefits, and Risks of Fixed Exchange Rates.

 

Q#12If the U.S. were to revert to a gold standard, a U.S. current account deficit would result in:                       A)     gold reserves in the U.S. decreasing.                       B)     higher domestic interest rates.                       C)     deflation.                                           D) All of the above.                                                        Feedback:LOD: 3The Costs, Benefits, and Risks of Fixed Exchange Rates.

 

Q#13Floating exchange rates:                                           A) act as automatic macroeconomic stabilizers.                       B)     require higher levels of foreign exchange reserves than do fixed exchange rates.                       C)     means a country cannot control its domestic interest rates.                       D)    All of the above are true.

                                                        Feedback:LOD: 2The Costs, Benefits, and Risks of Fixed Exchange Rates.

Q#14Under the Bretton Woods System:                       A)     each country pegged its currency to the U.S. dollar.                       B)     countries held U.S. dollar reserves.                       C)     there were complex capital controls.                                           D) All of the above.                                                        Feedback:LOD: 2Fixed Exchange-Rate Regimes.

 

Q#15In a country that has a currency board, its central bank:                       A)     has only one job: to maintain the exchange rate.                       B)     loses its role as lender of last resort.                       C)     will gradually be phased out.                                           D) Both a and b are correct.                                                        

 Q#1Central banks today place most of their focus on:                       A)     the unemployment rate.                       B)     the quantity of M2.                                           C) interest rates.                       D)    controlling the size of the money multiplier.

                                                        Feedback:LOD: 1The Federal Reserve's Monetary Policy Toolbox.

 

Q#2Which of the following statements is most correct?                       A)     The Fed can control both the monetary base and the interest rate.                       B)     The Fed can control the size of the monetary base but not the federal funds rate.                       C)     The Fed cannot control the size of the monetary base but can control the federal funds rate.                                           D) The Fed can control the size of the monetary base or the federal funds rate, but not both.                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#3Which of the following statements is most correct?                       A)     The FOMC sets the federal funds rate.                       B)     The discount rate is the primary policy tool of the FOMC.                       C)     The difference between the target and actual federal funds rate is the dealer's spread.                                           D) The FOMC sets the target federal funds rate.                                                       Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#4If the market federal funds rate were below the target rate, the response from the Fed would likely be to:                                           A) sell U.S. Treasury securities.                       B)     change the target rate. 

                      C)     purchase U.S. Treasury securities.                       D)    raise the discount rate.                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#5If the Fed uses open market operations to increase reserves in the banking system, the federal funds rate is expected to:                       A)     rise.                                           B) fall.                       C)     remain unchanged.                       D)    change in an unpredictable manner.                                                        Feedback:LOD: 2Federal Reserve's Monetary Policy Toolbox http://groups.google.com/group/vuZs/web/mbaQ#6The Fed could make the market federal funds rate equal the target rate by:                       A)     mandating that all loans be transacted at the target rate.                                           B) entering the federal funds market as a borrower and a lender.                       C)     setting the discount rate below the federal funds rate.                       D)    raising the required reserve rate.                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#7Which of the following statements is most correct?                                           A) Over the last 10 years the deviations between the target and market federal funds rate have decreased.

                       B)     The market federal funds rate always equals the target federal funds rate.                       C)     Over the last 10 years the deviations between the target and market federal funds rate have increased.                       D)    There doesn't appear to be any relationship at all between the target and market federal fund rates.                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#8Discount lending ties into the Fed's function of:                       A)     open market operations.                                           B) serving as the lender of last resort.                       C)     serving as the government's bank.                       D)    a and c                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#9The fact that for most of its history the Fed was reluctant to make discount loans actually:                       A)     pushed the discount rate above the target federal funds rate.                       B)     proved to be a very stabilizing force for financial markets.                                           C) was at times a destabilizing force for financial markets.                       D)    resulted in banks in very poor financial shape as being the only ones borrowing from the Fed.                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#10The use of lagged reserve accounting usually makes the demand for reserves                       A)     highly unpredictable to the point of volatility.                       B)     nearly constant with hardly any change at all.                                           C) predictable.                       D)    subject to daily changes by the Fed.                                                        Feedback:LOD 2The Federal Reserve's Monetary Policy Toolbox. http://groups.google.com/group/vuZs/web/mba

 

Q#11One key difference between the Fed and the European Central Bank (ECB) in their reserve requirements is that the:                                           A) ECB pays interest on required reserves.                       B)     ECB doesn't pay interest on reserves and the Fed does.                       C)     reserve requirements of the ECB are determined annually.                       D)    reserve requirements of the ECB are at a much higher rate than the Fed's.                                                        Feedback:LOD: 1Operational Policy at the European Central Bank.

 

Q#12For the European Central Bank (ECB) the equivalent of the FOMC's target federal funds rate is the:                                           A) target refinancing rate.                       B)     European target federal funds rate.                       C)     European inter-bank target discount rate.                       D)    London Inter-Bank Offer Rate.                                                        Feedback:LOD: 1Operational Policy at the European Central Bank.

 

Q#13Which of the following statement is most true regarding monetary policy tools?                       A)     The Fed currently uses a monetary supply quantity tool for monetary policy.                       B)     The required reserve rate is the most easily observable monetary policy tool. 

                      C)     The federal funds rate is not the best tool because it fails the controllable test of a good monetary policy tool.                       D) The central bank may set an interest rate target or a money supply target, but cannot generally achieve both.                                                        Feedback:LOD 2Linking Tools to Objectives: Making Choices.

 

Q#14A good definition for intermediate targets of monetary policy would be:                                           A) instruments that are not under the direct control of the central banks but lie between operational instruments and objectives.                       B)     instruments under the direct control of central bankers but one step removed from operational targets.                       C)     the quantity or non-price targets of monetary policy.                       D)    a price but non-quantifiable target that is difficult for the market to anticipate.                                                        Feedback:LOD 2Linking Tools to Objectives: Making Choices.

 

Q#15During the 1990s many countries developed a monetary policy framework that focused on inflation targeting. This is an example of policymakers:                       A)     bypassing intermediate targets and focusing directly on an objective.                       B)     focusing exclusively on an intermediate target.                       C)     focusing on a single numerical target.                                           D) a and c                                                        Feedback:LOD 2Linking Tools to Objectives: Making Choices.

Consider the following formula for the Taylor rule:

Target federal funds rate = 2½ + current inflation + ½(inflation gap) +½(output gap)

 http://groups.google.com/group/vuZs/web/mba

 

Q#16If the current rate of inflation is 3%, the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:                                           A) 7.5%.                       B)     10.0%.                       C)     8.0%.                       D)    3.5%.                                                        Feedback:LOD: 3A Guide to Central Bank Interest Rates: The Taylor Rule

  Quiz # 36 Q#1In selecting a target for monetary policy, the Fed may control:                                           A) the federal funds rate or the monetary base, but not both.                       B)     the federal funds rate, but not the monetary base.                                           C)     both the money supply and the federal funds rate.                       D)    neither the money supply nor the federal funds rate.                                                        Feedback:LOD: 1The Federal Reserve's Monetary Policy Toolbox.

 

Q#2The Fed's most commonly used monetary policy tool is:                       A)     the reserve requirement.

                                           B) open market operations                       C)     the discount rate.                       D)    capital requirements.                                                        Feedback:LOD: 1The Federal Reserve's Monetary Policy Toolbox.

 

Q#3If the Fed wishes to engage in a contractionary monetary policy, it may:                                           A) raise the target federal funds rate.                       B)     lower the target federal funds rate.                       C)     lower the reserve requirement.                       D)    None of the above is correct.                                                        Feedback:LOD: 1The Federal Reserve's Monetary Policy Toolbox.

 

Q#5If the Fed raises the target federal funds rate, it may attempt to achieve this by:                       A)     buying government securities.                                           B) selling government securities.                       C)     lowering the reserve requirement                       D)    None of the above is correct.                                                        Feedback:LOD: 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#5The federal funds market is a market in which:                                           A) banks with excess reserves loan reserves to other banks that have reserve shortfalls.                       B)     Treasury bonds are bought and sold by households, banks, and other financial institutions.                       C)     the government deficit is financed.                       D)    state and local governments borrow from the federal government.                                                        Feedback:LOD: 2The Federal Reserve's Monetary Policy Toolbox. http://groups.google.com/group/vuZs/web/mba

 

Q#6If the federal funds rate exceeds the target rate, the Fed:                       A)     actively participates in the federal funds market by buying and selling reserves in the federal funds market.                                           B) uses its policy tools to affect the volume of reserves in the banking system.                       C)     requires that all banks charge the target rate when they make loans to other banks in the federal funds market.                       D)    None of the above is correct.                                                        Feedback:LOD: 2The Federal Reserve's Monetary Policy Toolbox.

 

Q#7Loans made by banks in the federal funds market are:                       A)     secured by government securities.                       B)     insured by the FDIC.                                           C) unsecured.                       D)    insured by the Fed.                                                        

Feedback:LOD: 2Federal Reserve's Monetary Policy Toolbox.

 

Q#8If the Fed uses open-market operations to reduce reserves in the banking system, the federal funds rate is expected to:                                           A) rise.                       B)     fall.                       C)     remain unchanged.                       D)    change in an unpredictable manner.                                                        Feedback:LOD: 2Federal Reserve's Monetary Policy Toolbox

 

Q#9For most of the Fed's history, its practice of discouraging discount lending tended to:                       A)     help to stabilize the interbank market for reserves.                                           B) destabilize the interbank market for reserves.                       C)     have no effect on the interbank market for reserves.                       D)    sometimes stabilize, but sometimes destabilize the interbank market for reserves.                                                        Feedback:LOD: 2Federal Reserve's Monetary Policy Toolbox

 

Q#10Short-term discount loans made to sound banks that have temporary reserve shortfalls are referred to as:                                           A) primary credit.                       B)     secondary credit. 

                      C)     tertiary credit.                       D)    seasonal credit.                                                        Feedback:LOD: 1Federal Reserve's Monetary Policy Toolbox http://groups.google.com/group/vuZs/web/mba

 

Q#11Today, the primary use of the reserve requirement is to:                       A)     control the size of the money supply.                                           B) stabilize the demand for reserves.                       C)     provide a low-cost source of funds for the Federal Reserve System (since the Fed does not pay interest on reserve deposits).                       D)    None of the above is correct.                                                        Feedback:LOD: 2Federal Reserve's Monetary Policy Toolbox

 

Q#12One difference between the conduct of monetary policy by the European Central Bank (ECB) and the Fed is that:                       A)     the Fed focuses solely on a money supply target while the ECB focuses on an interest-rate target.                                           B) the Fed conducts its monetary policy at one site (the NY Fed) while the ECB conducts monetary policy in a decentralized manner through each member nation's central bank.                       C)     The Fed is independent of the fiscal authorities while ECB policy is dictated by the fiscal policies of the member states.                       D)    None of the above is correct.                                                        Feedback:LOD: 1Operational Policy at the European Central Bank.

 

Q#13Desirable characteristics of a monetary policy instrument include:                       A)     it is easily observed.                       B)     it is controllable and may be quickly altered.                       C)     it is tightly linked to the policymakers' objectives.                                           D) All of the above are correct.                                                        Feedback:LOD: 1Linking Tools to Objectives: Making Choices.

 

Q#14Interest-rate targets have become more commonly adopted by central banks in recent decades because:                                           A) such a policy tends to be less destabilizing than a monetary aggregate target.                       B)     this policy rule is required by fiscal policymakers in most countries.                       C)     the adoption of a monetary aggregate target always resulted in high rates of money growth.                       D)    None of the above is correct.                                                        Feedback:LOD: 2Linking Tools to Objectives: Making Choices.

 

Consider the following formula for the Taylor rule:

Target federal funds rate = 2½ + current inflation + ½(inflation gap) + ½(output gap)

 

Q#15If the current rate of inflation is 4%, the target rate of inflation is 3%, and output is 2% above its potential, the target federal funds rate would be:                       A)     7.5%.                       B)     10.0%.                                           C) 8.0%.

                       D)    9.0%.                                                        Feedback:

Quiz # 33 

Q#1A central bank's balance sheet would categorize each of the following as liabilities EXCEPT:                          A)     currency.                                                 B) gold.                          C)     securities.                          D)    accounts of the commercial banks.                                                            Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#2Which of the following is not an asset of a central bank?                          A)     securities held by the central bank                          B)     loans provided to commercial banks                          C)     foreign exchange reserves held by the central bank                                                 D) currency issued by the central bank                                                            Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#3A liability of the central bank in functioning as a Banker's Bank is:                          A)     currency.                          B)     securities. 

                         C)     loans.                                                 D) accounts of commercial banks.                                                            Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#4If the Federal Reserve is to be independent, the quantity of securities it purchases is determined by:                          A)     Congress.                                                 B) the Federal Reserve itself.

 

                         C)     the amount the public wants to purchase at the going price.                          D)    the Treasury.                                                            Feedback:LOD: 2The Central Bank's Balance Sheet.

 

Q#5The central bank's balance sheet shows three basic assets. Which are needed so that the central bank can perform its role as the government's bank?                                                 A) securities and foreign exchange reserves                          B)     securities and loans                          C)     foreign exchange reserves and loans                          D)    Securities, foreign exchange reserves, and loans are all needed for the central bank to serve as the government's bank.                                                            Feedback:LOD: 1The Central Bank's Balance Sheet http://groups.google.com/group/vuZs/web/mbaQ#6For the Federal Reserve, the largest liability on the balance sheet is:

                                                 A) non-bank currency.                          B)     reserves.                          C)     government accounts.                          D)    Treasury certificates.                                                            Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#7Reserves are:                          A)     liabilities of the commercial and central banks.                          B)     assets of the U.S. Treasury.                          C)     assets of the central bank and liabilities of the commercial bank.                                                 D) assets of the commercial banks and liabilities of the central bank.                                                            Feedback:LOD: 2The Central Bank's Balance Sheet.

 

Q#8Monetary policy operations for central banks are run through changes in the liability category of:                                                 A) reserves.                          B)     government's accounts.                          C)     currency.                          D)    gold.                                                            Feedback:LOD: 2The Central Bank's Balance Sheet.

 

Q#9The monetary base is the sum of:                          A)     reserves and M2.                          B)     M1 and reserves.                          C)     non-bank currency, reserves, and M1.                                                 D) non-bank currency and reserves.                                                            Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#10One advantage a central bank has over other businesses, including banks, is that it:                                                 A)     receives all of its funding from the government.                          B)     doesn't have stockholders.                                                 C) can control its balance sheet at will.                          D)    doesn't have a board of directors.                                                            Feedback:LOD: 2Changing the Size and the Composition of the Balance Sheet. http://groups.google.com/group/vuZs/web/mba

 

 Q#11An open market purchase of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show:                          A)     a decrease in the asset of securities and a decrease in the liability of reserves.                          B)     a decrease in the liability of reserves.                          C)     no change in the size of the balance sheet; however, the composition of assets will change from securities to cash.                                                 D) an increase in the asset category of securities and an increase in the liability category of reserves.                                                            

Feedback:LOD: 2Changing the Size and the Composition of the Balance Sheet.

 

Q#12If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $4 million open market purchase by the Fed will result in deposit creation of:                          A)     $40 million.                          B)     $36 million.                          C)     $20 million.                          D)    $18,000,000.                                                            

 

Q#13If required reserves are expressed by RR, the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as ____.                          A)     rDD                          B)     (1/rD) D                                                 C) 1/rD

                          D)    rD times 10                                                            Feedback:LOD: 2The Deposit Expansion Multiplier.

 

Q#14The term for the process of turning reserves into bank deposits is called:                                                 A) multiple deposit creation.                          B)     saving.                          C)     investing. 

                         D)    risk spreading.                                                            Feedback:LOD: 1The Deposit Expansion Multiplier.

 

Q#15Which of the following best completes the statement: "If people decrease their currency holdings, all else the same, the monetary base…":                          A)     does not change but the quantity of M2 will increase.                          B)     the monetary base increases as does the quantity of M2.                          C)     the monetary base decreases as does the quantity of M2.                          D)    there is no change to either the monetary base or M2.                                                             http://groups.google.com/group/vuZs/web/mba

 

Q#16If banks hold more excess reserves, all else the same, the money supply will:                          A)     rise.                                                 B) fall.                          C)     remain unchanged.                          D)    change in an unpredictable manner.                                                            Feedback:LOD: 3The Monetary Base and the Money Supply.

 

Q#17Let M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves. If RR equals required reserves; and ER equals excess reserves; then m would equal:                                                 A) M/MB.                          B)     R/ER.

                          C)     C + D.                          D)    C + D - ER.                                                            Feedback:LOD: 3The Monetary Base and the Money Supply

 Quiz # 34

 Q#1A central bank's liabilities include:                       A)     securities held by the central bank.                       B)     foreign exchange reserves held by the central bank.                       C)     loans to commercial banks by the central bank.                                           D) commercial bank reserve deposits in the central bank.                                                        Feedback:LOD: 1The Central Bank's Balance Sheet.           Q#2Securities held by a central bank are part of the bank's                                           A) assets.                       B)     liabilities.                       C)     reserve holdings.                       D)    None of the above is correct.                                                        Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#3When the Fed issues additional discount loans, holding everything else constant, the Fed's:                     

                      A) assets and liabilities both rise.                       B)     assets and liabilities both decline.                       C)     assets rise and its liabilities fall.                       D)    assets fall and its liabilities rise.                                                        Feedback:LOD: 2The Central Bank's Balance Sheet.

 

Q#4The Fed controls the federal funds rate primarily by adjusting which component of its assets?                                           A) securities                       B)     reserves                       C)     foreign exchange reserves                       D)    currency                                                        Feedback:LOD: 2The Central Bank's Balance Sheet.

 

Q#5The Fed controls the federal funds rate primarily by adjusting which component of its liabilities?                       A)     securities                                           B) reserves                       C)     the government account                       D)    currency                                                        Feedback:LOD: 2The Central Bank's Balance Sheet. http://groups.google.com/group/vuZs/web/mba

 

Q6The monetary base consists of:                       A)     currency held by the public only.                       B)     currency held by the public + checkable deposits.                       C)     reserves only.                                           D) currency held by the public + reserves.                                                        Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#7Reserves consists of:                       A)     vault cash only.                       B)     deposits at Fed only.                                           C) vault cash + deposits at Fed.                       D)    None of the above is correct.                                                        Feedback:LOD: 1The Central Bank's Balance Sheet.

 

Q#8Which of the following is not a part of the monetary base?                       A)     vault cash                       B)     currency in the hands of the public                       C)     reserve deposits at the Fed                                           D) checkable deposits                                                        Feedback:LOD: 3The Central Bank's Balance Sheet.

 

Q#9When the Fed expands the money supply:                                           A) both its liabilities and its assets increase.                       B)     both is liabilities and its assets decrease.                       C)     its liabilities increase and its assets decrease.                       D)    its liabilities decrease and its assets increase.                                                        Feedback:LOD: 2Changing the Size and the Composition of the Balance Sheet.

 

Q#10Which of the following does not directly increase the Fed's liabilities?                       A)     an open market security purchase                       B)     an increase in the volume of discount loans.                       C)     the purchase of additional foreign exchange by the Fed.                                           D) an increase in the ratio of currency to deposits.                                                        Feedback:LOD: 2Changing the Size and the Composition of the Balance Sheet. http://groups.google.com/group/vuZs/web/mba

 

Q#11Bank reserves are:                       A)     an asset for banks and for the Fed.                       B)     a liability for banks and for the Fed.                                           C) an asset for banks and a liability for the Fed.                       D)    a liability for banks and an asset for the Fed.                                                        

Feedback:LOD: 1Changing the Size and the Composition of the Balance Sheet.

 

Q#12If there are no offsetting transactions, a foreign exchange purchase by the Fed will cause the monetary base to:                                           A) rise.                       B)     fall.                       C)     remain unchanged.                       D)    change in an unpredictable manner.                                                        Feedback:LOD: 2Changing the Size and the Composition of the Balance Sheet.

 

Q#13If the Fed increases the amount of discount loans, the Fed's assets will ____________ and its liabilities will _____________.                                           A) increase; increase                       B)     decrease; decrease                       C)     increase; decrease                       D)    decrease; increase                                                        Feedback:LOD: 2Changing the Size and the Composition of the Balance Sheet.

 

Q#14The maximum amount of money that may be created by an individual bank is the bank's:                                           A) excess reserves.                       B)     total reserves. 

                      C)     required reserves.                       D)    excess reserves x simple deposit expansion multiplier.                                                        Feedback:LOD: 2Deposit Expansion Multiplier.

 

Q#15Suppose that currency holdings remain constant and that banks hold no excess reserves, If the reserve requirement is 10%, a $500,000 open market purchase by the Fed will cause the money supply to:                                           A) increase by a maximum of $500,000.                       B)     increase by a maximum of $5,000,000.                       C)     decrease by a maximum of $500,000.                       D)    decrease by a maximum of $5,000,000.                                                        Feedback:LOD: 2Deposit Expansion Multiplier. http://groups.google.com/group/vuZs/web/mba

 

Q#16A given change in the monetary base will have a larger impact on the money supply when:                       A)     banks hold a larger proportion of excess reserves.                                           B) the public holds a smaller proportion of their wealth in currency and a larger proportion of their wealth in checkable deposits.                       C)     the reserve requirement is higher.                       D)    None of the above is correct.                                                        Feedback:LOD: 2The Monetary Base and the Money Supply

 

Q#17One of the difficulties faced by the Fed in controlling the money supply is that the Fed:                                           A) can control the monetary base, but the size of the money supply is also affected by the decisions of households and banks.                       B)     has little control over the monetary base even though it has tight control over the money multiplier.                       C)     has no control of influence over either the monetary base or the money multiplier.                       D)    None of the above is correct.

Quiz # 31 

Q#1The three branches of the Federal Reserve System include each of the following EXCEPT the:                       A)     Board of Governors.                       B)     Federal Open Market Committee.                                           C) Comptroller of the Currency.                       D)    twelve regional Reserve Banks.                                                        Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#2The Federal Reserve was created in:                       A)     1939.                       B)     1919.                       C)     1929.                                           D) 1913.                                                        Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#3Currently the requirement of holding a non-interest earning reserve account at the Fed must be met by:                       A)     only nationally chartered banks.                       B)     only member banks.                       C)     member banks and non-member banks over $100 million in assets.                                           D) all banks, member or not.                                                        Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#4The Federal Reserve Districts are a product of:                                           A) economic and political forces as well as population distribution.                       B)     solely economic forces that existed at the time of the Federal Reserve Act.                       C)     economic and political forces that existed at the time the Fed was formed.                       D)    solely population distribution at the time of the Federal Reserve Act.                                                        Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#5In its role as the government's bank, the Federal Reserve performs all of the following services EXCEPT:                       A)     issue new currency.                       B)     manage U.S. Treasury borrowings.                       C)     maintain the U.S. Treasury's bank account.                                           D) provide discount loans.                                                        Feedback:LOD: 2The Structure of the Federal Reserve System.

http://groups.google.com/group/vuZs/web/mba Q#6Open market operations are conducted at the ____ Fed.                                           A) New York                       B)     Richmond                       C)     Chicago                       D)    San Francisco                                                        Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#7Buying and selling U.S. Treasury Securities for the Fed's own portfolio is called:                       A)     managing the Treasury account.                       B)     discount buying.                                           C) open market operations.                       D)    reserve adjustment.                                                        Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#8The largest Federal Reserve District geographically is serviced by:                       A)     the Reserve Bank in New York.                       B)     the Reserve Bank in Chicago.                                           C) the Reserve Bank in San Francisco.                       D)    None of the above, since the districts are divided fairly equally geographically.                                                        Feedback:

LOD: 1The Structure of the Federal Reserve System.

 

Q#9Current law regarding the Fed's Board of Governors stipulates that:                                           A) no more than one governor can come from the same district.                       B)     no more than two governors can come from the same district.                       C)     every district must have at least one governor on the board.                       D)    no more than three governors can come from the same district.                                                        Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#10The permanent voting members on the FOMC include the:                                           A) President of the New York Fed.                       B)     Secretary of the Treasury.                       C)     President of the Federal Reserve Bank of Atlanta.                       D)    Director of the FDIC.                                                                             Feedback:LOD: 1The Structure of the Federal Reserve System.http://groups.google.com/group/vuZs/web/mba 

 

Q#11The federal funds rate is the interest rate:                       A)     the Fed charges banks who borrow from them.                       B)     the U.S. Treasury charges banks that need emergency funds.                                           C) banks charge each other for overnight loans of their excess reserves at the Fed.

                       D)    the FDIC charges banks who need to borrow from them to meet depositor

demands.

                                                        Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#12The FOMC controls the real interest rate:                                           A) if inflation is slow to adjust.                       B)     if inflation changes quickly.                       C)     only if they adjust the federal funds rate by an amount greater than the change in the rate of inflation.                       D)    None of the above.                                                        Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#13FOMC meetings would best be described as:                                           A) fairly formal sessions with not much give and take.                       B)     an informal meeting with the Chairman as a passive observer.                       C)     informal meetings with significant give and take among participants.                       D)    a press conference, where the financial press can ask questions regarding the Fed's view of the economy.                                                        Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#14Which statement best completes the following sentence; "The U.S. dollar is to the fifty states as the euro is to the ____________."                       A)     European Central Bank                       B)     European System of Central Banks                       C)     National Central Banks                                           D) euro area                                                        Feedback:LOD: 2The European Central Bank.

 

Q#15The Agreement to form a European monetary union was formalized in the Treaty of:                       A)     Milan.                       B)     Paris                       C)     Versailles.                                           D) Maastricht.                                                        Feedback:LOD: 1The European Central Bank.http://groups.google.com/group/vuZs/web/mba 

 

Q#16One key difference concerning the communications from the Fed's FOMC and the European System's Governing Council is that the:                                           A) president and vice-president of the Governing Council hold a news conference after their regular monthly meetings; the leaders of the FOMC hold no such conference.                       B)     leaders of the FOMC answer questions from the financial press immediately after their meetings                       C)     Governing Council meetings are open to the public; the FOMC meetings are not. 

                      D)    the Chairman of the Fed lets his position be known before the FOMC meeting, where the President of the Governing Council does not.                                                        Feedback:LOD: 2The European Central Bank

  

Quiz # 32 

Q#1The U.S. Federal Reserve system was created in response to:                          A)     pressure from banks for more regulatory control over their actions.                          B)     demand from the U.S. Treasury for the introduction of a national currency (to replace the banknotes that were issued by state-chartered banks                                                 C) into the 1920s).                          D)    a series of 21 financial panics between 1870 and 1920.                                                            Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#2Which of the following banks must belong to the Federal Reserve System?                          A)     all commercial banks                          B)     all savings banks                                                 C) all nationally chartered banks                          D)    all state chartered banks                                                            Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#3As a result of a 1980 change in banking law, state-chartered banks that are not members of the Federal Reserve system now:                          A)     may hold their reserves in interest-bearing securities instead of in non-interest-bearing deposits at the Fed.                                                 B) have the same reserve requirements as member banks.                          C)     receive lower interest rates on reserve holdings than do member banks.                          D)    may no longer hold reserves at the Fed.                                                            Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#4The boundaries of the Federal Reserve Districts:                          A)     are altered every 5 years to reflect changing population density patterns in the U.S.                                                 B) were set in 1914.                          C)     are altered every 5 years so that there are approximately an equal number of banks in each Federal reserve District.                          D)    change annually in response to changing economic and population patterns.                                                            Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#5The 12 Federal Reserve Banks that make up the Federal Reserve System are:                          A)     federally chartered banks.                          B)     private, non-profit organizations.                          C)     owned by the commercial banks in their districts.                                                 D) All of the above are correct.                                                            

Feedback:LOD: 1The Structure of the Federal Reserve System.http://groups.google.com/group/vuZs/web/mba 

 

Q#6As the bank for the U.S. government, the Federal Reserve:                          A)     issues new currency and destroys old currency.                          B)     maintains bank accounts for the U.S. Treasury.                          C)     manages U.S. Treasury borrowings.                                                 D) All of the above are correct.                                                            Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#7As a bankers' bank, the Federal Reserve Banks of the Federal Reserve System:                          A)     hold reserve deposits for banks in their districts.                          B)     provide check-clearing and electronic fund transfer services.                          C)     provide discount loans.                                                 D) All of the above are correct.                                                            Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#8The largest Federal Reserve District (in terms of geographical size) is serviced by the:                          A)     New York Fed.                          B)     Atlanta Fed.                          C)     Dallas Fed.

                          D)    San Francisco Fed.                                                            

 

Q#9The discount rate today is, in practice, most directly set by the:                         A) FOMC.                          B)     President of the New York Fed.                          C)     U.S. President.                          D)    Comptroller of the Currency.                                                            Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#10One of the factors designed to help provide autonomy for the Fed is:                                                 A)  a 14-year nonrenewable term for members of the Board of Governors.                          B)     lifetime appointment for members of the Board of Governors.                          C)     that the U.S. Constitution prohibits congressional control of the Fed.                          D)    that the Fed is owned and controlled by the member banks, guaranteeing that the Fed engages in actions that benefit these banks.                                                            Feedback:LOD: 2The Structure of the Federal Reserve System.http://groups.google.com/group/vuZs/web/mba 

 

Q#11Which of the following is not one of the duties of the Board of Governors?                                                  A)     setting the reserve requirement                          B)     administering consumer credit laws 

                         C)     supervising and regulating the Federal Reserve District Banks                          D)    establishing the exchange rate between the dollar and other currencies                                                            

 

Q#12The interest rate that the FOMC most directly attempts to control is the:                          A)     prime rate.                                                 B) federal funds rate.                          C)     mortgage interest rate                          D)    student-loan interest rate.                                                            Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#13The Fed may stimulate the economy by:                          A)     raising the real interest rate.                                                 B) lowering the real interest rate.                          C)     lowering the nominal interest rate, even if the real interest rate rises.                          D)    None of the above is correct.                                                            Feedback:LOD: 2The Structure of the Federal Reserve System.

 

Q#14Under normal circumstances, the FOMC meets to establish monetary policy:                          A)     once a week.                                                 B) roughly every six weeks.                          C)     every six months.

                          D)    once a year.                                                            Feedback:LOD: 1The Structure of the Federal Reserve System.

 

Q#15The policy objectives provided by Congress to the Fed:                          A)     provide a detailed statement of specific policy targets for inflation, unemployment, and economic growth.                          B)     require that the Fed focus its efforts solely on maintaining a low inflation-rate target.                                                 C)     require the Fed to focus solely on maintaining a low unemployment rate.                                                 D) only state broad policy objectives, but do not provide specific policy targets.                                                            Feedback:LOD: 2The Structure of the Federal Reserve System.http://groups.google.com/group/vuZs/web/mba 

 

Q#16Monetary policy in the countries that participate in the European Monetary Union is determined by the:                          A)     Federal Reserve Board of Governors.                          B)     Parliaments of each of the member countries.                          C)     central banks for each of the member countries, each of which pursues a separate monetary policy.                                                 D) the European Central Bank.                                                            Feedback:LOD: 1The European Central Bank.

 

Q#17The actual implementation of monetary policy in the European Monetary Union is conducted by the:                        

                         A) central banks of the member countries.                          B)     European Central Bank.                          C)     FOMC.                          D)    Treasuries of the Member nations.                                                                                   

MGT411 MCQs from Money, Banking and Financial 

 Q#1The central bank in theUnited States is:                          A) the Bank ofAmerica.                          B) theU.S. Treasury.                                                 C) the Federal Reserve.                          D) the Bank of TheUnited States.                                                            Feedback:LOD: 1The Basics: How Central Banks Originated and Their Role Today.

 

Q#2Many governments give their central bank control over issuing currency because:                          A) the only way to distribute currency to banks is through the central bank.                          B) having large amounts of currency can lead to lower rates of inflation.                          C) central banks use the profits from issuing currency to finance their operations.                                                 D) printing currency can be profitable for a government, so government officials may have a strong incentive to print too much.                                                            Feedback:LOD: 1The Basics: How Central Banks Originated and Their Role Today.

 

Q#3Monetary policy in theUnited States is under the control of the:                                                 A) Federal Reserve.                          B) President.                          C)U. S. Treasury.                          D)U.S. Senate.                                                            Feedback:LOD: 1The Basics: How Central Banks Originated and Their Role Today.

 

Q#4Central banksperform each of the following EXCEPT:                          A) issuing currency.                          B) serving as the government's bank.                          C) controlling the availability of money and credit.                                                 D) managing fiscal policy.                                                            Feedback:LOD: 3The Basics: How Central Banks Originated and Their Role Today.

Q#5                 A central bank typically:                          A) facilitates interbank payments.                          B) controls the money supply.                          C) has a monopoly in printing currency.                                                 D) All of the above are correct.                                                                                    Feedback:

LOD: 1The Basics: How Central Banks Originated and Their Role Today.http://groups.google.com/group/vuZs/web/mba Q#6The specific goals of central banks include each of the following EXCEPT:                          A) high and stable real growth.                          B) low and stable inflation.                                                 C) high levels of imports.                          D) low and stable unemployment rates.                                                            Feedback:LOD: 1Stability: The Primary Objective of All Central Banks.

 

Q#7If prices are not stable:                          A) money performs better as a unit of account.                                                 B) money becomes less useful as a store of value.                          C) it may be an inconvenience, but resources are still allocated efficiently.                          D) None above given                                                            Feedback:LOD: 2Stability: The Primary Objective of All Central Banks.

 

Q#8Low and stable inflation implies:                          A) that the rate of inflation averaged over many years is zero (0).                          B) low rates of economic growth.                                                 C) that the rate of inflation year after year is low.                          D) low rates of unemployment.                                                            

Feedback:LOD: 2Stability: The Primary Objective of All Central Banks.

 

Q#9Everything else equal, if the growth rate of a country exceeds its sustainable rate, then the central bank:                          A) will keep interest rates low to keep the momentum.                                                 B) is likely to raise interest rates to slow the rate of growth.                          C) will now identify this new rate as the sustainable rate and try to maintain it.                          D) is likely to lower the interest rate thinking a slowdown is coming to offset this boom.                                                            Feedback:LOD: 2Stability: The Primary Objective of All Central Banks.

 

Q#10The Fed and other central banks often have a positive, rather than a zero, inflation rate target because:                          A) a zero inflation rate target introduces a risk of deflation.                          B) economic growth is higher when inflation is higher.                          C) politicians prefer having a higher inflation rate because this raises incomes and purchasing power for everyone.                          D) None of the above is correct.                                                            http://groups.google.com/group/vuZs/web/mba 

 

Q#11Successful monetary policy relies on:                          A) luck.                          B) the institutional environment.                          C) competent people in responsible positions. 

                         D) knowledgeable citizens who know how to react to the policy.                                                 E) b and c                                                            Feedback:LOD: 2Meeting the Challenge: Creating a Successful Central Bank.

 

Q#12The idea that central banks should be independent of political pressure is an idea that:                          A) the Federal Reserve Act included in 1913.                                                 B) is relatively new.                          C) every central bank was founded upon.                          D) became quite popular in the early 1900s.                                                                                    Feedback:LOD: 1Meeting the Challenge: Creating a Successful Central Bank.

 

Q#13The operational components required for truly independent central banks include:                                                 A) monetary policies that cannot be reversed by anyone outside of the central bank.                          B) the ability to have policies reversed.                          C) a budget controlled by Congress.                                                 D) the chairperson of the bank being answerable only to the president.

 

                                                            Feedback:LOD: 2Meeting the Challenge: Creating a Successful Central Bank.

 

Q#14One argument for an independent central bank is:                          A) without independence, competent people would not take a position in a central bank.                                                 B) successful monetary policy requires a long time horizon; one that is usually well beyond the next election of most public officials.                          C) politicians have a long-run focus that is not well tuned to addressing economic problems.                          D) central bankers have a short-run focus that usually corrects problems faster.                                                            Feedback:LOD: 2Meeting the Challenge: Creating a Successful Central Bank.

 

Q#15The means for assuring accountability and transparency:                          A) are the same for all successful central banks.                                                 B) are different across the central banks of most countries.                          C) involve setting specific numerical targets so there is no confusion as to what the goal is.                          D) All of the above.                                                                                    Feedback:LOD: 1Meeting the Challenge: Creating a Successful Central Bank.http://groups.google.com/group/vuZs/web/mba 

 

Q#16One reason given for more central bankers releasing their decisions publicly is:                         A) to let the public debate the appropriateness of monetary policy decisions.                          B) most people do not understand monetary policy, so it really doesn't do any harm to release the decisions publicly.                                                 C) that for monetary policy to be stabilizing, speculation about central bankers decisions should be minimized.                          D) so that central banks across the world can coordinate their policies.

 

                                                 A) monetary and fiscal policy often times conflict.                          B) fiscal and monetary policy never conflict.                          C) monetary policy ultimately controls fiscal policy since the Fed controls the money supply.                          D) fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget.

Quiz # 27Q#1 A bank faces a tradeoff that can impact its likelihood of failure in that:A) banks that are operating in more competitive markets tend to be less efficient than banks that are monopolies in their local market.B) more profitable banks tend to be less liquid and more likely to fail.C) the greater the regulation from government the more likely the bank will fail.D) the larger the bank in asset size the more likely it will fail.

Q#2 What matters most during a bank run is:A) the liquidity of the bank.B) the solvency of the bank.C) the number of depositors.D) All of the above.

Q#3 The federal government is concerned about the health of the banking system for many reasons; the most important of which may be that:A) banks are where government bonds are traded.B) a significant number of people are employed in the banking industry.C) banks are of great importance in enabling the economy to operate efficiently.D) many people earn the majority of their income from interest on bank deposits.

Q#4 Contagion effects occur, in the absence of deposit insurance, because:A) when one bank becomes insolvent, most banks generally become insolvent.B) U.S. banking regulations effectively guarantee that all banks will receive the same level of profits or losses.C) there is asymmetric information concerning the solvency of banks.D) bank failures tend to occur more frequently during periods of rapid economic growth.

Q#5 It is difficult for depositors to know the true health of banks because:A) regulations prohibit this information from being made public.B) most of the information on bank loans is private and based on sophisticated models.C) the financial statements of banks are too difficult for most people to understand.D) banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage.

Q#6 The government provides deposit insurance, which protects:A) large corporate deposit accounts, but only the amounts that exceed the $100,000 deductible.B) the deposits of banks in their Federal Reserve accounts.C) depositors for up to $100,000 should a bank fail.D) the deposits that people have, but only for federally chartered banks.

Q#7 One of the unique problems that banks face is that:A) they hold illiquid assets to meet liquid liabilities.

B) they hold liquid assets to meet illiquid liabilities.C) they hold liquid assets to meet liquid liabilities.D) both banks' assets and liabilities are illiquid.

Q#8 If the lender of last resort function of the government is to be effective in minimizing a crisis it must be:A) credible, with banks knowing they can get loans quickly.B) used on a limited basis.C) reserved only for those banks which are most deserving.D) very difficult for banks to obtain to minimize moral hazard.

Q#9 With deposit insurance:A) depositors need to involve themselves with the risk taking by bank managers.B) the deposits of a bank customer are insured up to the amount on deposit.C) there is a creation of potential moral hazard by bank managers.D) All of the above are correct.

Q#10 Under the purchase and assumption method of dealing with a failed bank, the FDIC:A) sells the failed bank to the Federal Reserve.B) finds another bank to take over the insolvent bank.C) takes over the day-to-day management of the bank.D) sells off the profitable loans of the failed bank in an open auction.

Q#11 Which of the following statements is incorrect?A) The higher the deposit insurance limit the higher the risk of moral hazard.B) The lower the deposit insurance limit the lower the risk of moral hazard.C) Deposit insurance limits do not impact moral hazard, they only impact adverse selection.D) Increasing the deposit insurance limits above $100,000 would increase coverage for relatively few depositors.

Q#12 The government's too-big-to-fail policy applies to:A) a bank run in specific highly populated states which impacts a large percent of the total population.B) banks that have branches in more than two states.C) large corporate payroll accounts held by some banks where many people would lose their income.D) large banks whose failure would certainly start a widespread panic in the financial system.

Q#13 The too-big-to-fail policy results in a moral hazard problem that:A) is larger in small banks.B) is larger in large banks.C) affects large and small banks equally.D) is smaller than the moral hazard problem that would exist in the absence of this policy.

Q#14 You have savings accounts at two separately FDIC insured banks. At one of the banks your account has a balance of $70,000. At the other bank the account balance is $65,000. If both banks fail you will receive:A) $100,000.B) $135,000.C) $70,000.D) $67,500.

Q#15 One reason that financial regulations restrict the assets that banks can own is to:

A) limit the growth rate of banks.B) combat the moral hazard that government safety nets provide.C) prevent banks from being too profitable.D) keep banks from spending lavishly on perks for executives.

Q#16 One reason a bank officer may be reluctant to write off a past-due loan is:A) it will decrease the bank's assets and capital.B) it will increase the bank's liabilities.C) it will increase the bank's liabilities and assets, requiring more capital to be held.D) Bank officers are not reluctant to write-off past due loans.

Q#17 The CAMELS ratings are:A) made public monthly to the financial markets so people can judge the relative quality of banks.B) published once a quarter in banking journals issued by the Federal Reserve.C) not made public.

D) included in the annual report of publicly owned banks.