WWW.vujannat.ning.COM Connecting VU Students

FINALTERM EXAMINATION

FALL 2007

MGT411 - MONEY & BANKING (Session - 4 )

Marks: 60

Time: 150min

StudentID/LoginID: ______________________________

Student Name: ______________________________

Center Name/Code: ______________________________

Exam Date: Monday, March 10, 2008

INSTRUCTIONS: Please read the following instructions carefully before attempting any question: All questions are compulsory.

This exam consists of 15 Multiple Choice Questions (MCQ’s) carrying 1 mark each, 5

fill in the blanks carrying 1 mark each, 5 True/Falls carrying 1 mark each, 3 short questions carrying 5 marks each and 2 descriptive long questions carrying 10 marks each.

For each MCQ, read the choices available and select the choice which you consider is

the correct answer. You are required to show all the working of short questions as well as Descriptive

question.

This examination is closed book, closed notes, closed neighbors.

Use of calculator is allowed.

Use of mobile phone during the exams is not allowed.

Do not ask any question about the contents of this examination from anyone.

You may wish to pace yourself with your own watch, but the Supervisor will be the

official timekeeper of the test.

Failure to comply with the Supervisor’s directions will result in your test being

cancelled. Please comply with supervisor’s directions to avoid any unpleasant event.

For Teacher's use only Question 1 2 3 4 5 6 7 8 9 10 Total

Marks Question 11 12 13 14 15 16 17 18 19 20

Marks Question 21 22 23 24 25 26 27 28 29 30

Marks Question No: 1 ( Marks: 1 ) - Please choose one The difference between a bank's reserves and their required reserves is: ►

Equity.

►

Excess reserves.

►

Net interest income.

►

Nothing, they are the same thing.

Question No: 2 ( Marks: 1 ) - Please choose one If information in a financial market is asymmetric, this means:

►

Borrowers and lenders have perfect information.

►

Borrowers would have more information than lenders.

►

Borrowers and lenders have the same information.

►

Lenders lack any information.

Question No: 3 ( Marks: 1 ) - Please choose one A bond denominated in a currency other than that of the country in which it is sold is called a(n): ► Foreign bond.

►

Eurobond.

►

Equity bond.

►

Currency bond.

Question No: 4 ( Marks: 1 ) - Please choose one Which of the following is a depository institution? ►

Life insurance company.

►

Credit union.

►

Pension fund.

►

Finance company.

Question No: 5 ( Marks: 1 ) - Please choose one Which of the following cannot be described as indirect finance? ►

You take out a mortgage from your bank.

►

An insurance company lends money to General Motors Corporation.

►

You borrow $1000 from your best friend.

►

You buy shares in a mutual fund.

Question No: 6 ( Marks: 1 ) - Please choose one One way for a bank to deal with liquidity risk is :

►

To hold sufficient excess reserves.

►

Charge all borrowers from the same industry an average rate for that industry.

►

Avoid making loans to borrowers from a broad spectrum.

►

Limit the number of loans made in any year.

Question No: 7 ( Marks: 1 ) - Please choose one Financial intermediaries: ►

Channel funds from savers to borrowers

►

Greatly enhance economic efficiency

►

Have been a source of many financial innovations

►

All of the given options.

Question No: 8 ( Marks: 1 ) - Please choose one Common stocks (or corporate stocks): ►

Represent an IOU on the part of the issuing firm.

►

Entitle the holder to contractual payments.

►

Were a poor investment over the period 1982-1996.

►

Allow the holder to share in the earnings of the firm.

Question No: 9 ( Marks: 1 ) - Please choose one

The money aggregate M1 does not include: ►

Currency in the hands of the public.

►

Traveler's cheques that have been issued.

►

Currency in the vaults of commercial banks.

►

Demand deposits at commercial banks.

Question No: 10 ( Marks: 1 ) - Please choose one At monthly interest rate of 0.3%, Rs.8,000 will produce an income of: ►

30

►

24

►

50

►

15

Question No: 11 ( Marks: 1 ) - Please choose one The money multiplier is negatively related to: ►

High-powered money.

►

The excess reserve ratio.

►

Discount borrowings from the Fed.

►

None of the given options.

Question No: 12 ( Marks: 1 ) - Please choose one If nominal income increases, the demand for money: ►

Increases.

►

Decreases.

►

Remains constant.

►

None of the given options.

Question No: 13 ( Marks: 1 ) - Please choose one Money appears to have a major influence on: ►

Inflation.

►

The business cycle.

►

Interest rates.

►

All of the given options.

Question No: 14 ( Marks: 1 ) - Please choose one Monetary policy is best described as: ►

Attempts to keep inflation constant.

►

Determining the denominations and supply of a country's currency.

►

One of the most important functions of Congress.

►

Attempts to keep inflation low and stable and growth high and stable.

Question No: 15 ( Marks: 1 ) - Please choose one The five core principles of Money and Banking include each of the following except? ►

All people act rationally.

►

Time has value.

►

Information is the basis for decisions.

►

Risk requires compensation.

Question No: 16 ( Marks: 1 ) - Please choose one The use of credit cards increases the M1 money supply. ►

True

►

False

Question No: 17 ( Marks: 1 ) - Please choose one The New York Stock Exchange (NYSE) is an example of a financial market. ►

True

►

False

Question No: 18 ( Marks: 1 ) - Please choose one On PLS account, profit ratio is lower than current account. ►

True

►

False

Question No: 19 ( Marks: 1 ) - Please choose one

Life insurance companies invest in short term investments. ►

True

►

False

Question No: 20 ( Marks: 1 ) - Please choose one Stock market is a secondary market. ►

True

►

False

Question No: 21 ( Marks: 1 )

The bonds which are issued by Corporations are known as _____________. Question No: 22 ( Marks: 1 ) ______________is used for the purchases on internet. Question No: 23 ( Marks: 1 ) PV x (1+i) = ______________. Question No: 24 ( Marks: 1 ) The interest rate used in the present value calculation is known as _____________. Question No: 25 ( Marks: 1 ) Sum of probability times pay off = _____________. Question No: 26 ( Marks: 5 ) a. Differentiate between debit and credit cards? b. Consider a 6% coupon bond with face value of $100. If the bond is sold at $98

then what will be the current yield and yield to maturity of this bond? (Marks: 2+3) Question No: 27 ( Marks: 5 )

Define financial institution. Why a system without financial institution would not work very well? Question No: 28 ( Marks: 5 ) Briefly explain the ways to calculate the bank profitability.

(Marks: 2.5 +2.5) Question No: 29 ( Marks: 10 ) A. Problem of adverse selection is caused by the Information asymmetries, give any two examples of adverse selection in the financial market, what will be the result of adverse selection? B. Explain that how the problem of adverse selection can be solved in the financial market? Marks(6+4) Question No: 30 ( Marks: 10 ) Sort out M1, M2 and M3 from the list below and calculate total value of M1, M2 and M3.

The Monetary Aggregates Monetary Aggregates Value as of August 2004

(U.S.$ billion) + Repurchase agreements + Savings deposits including money market deposit accounts + Other checkable deposits + Retail money market mutual fund shares + Eurodollars + Small-denomination time deposits + Demand deposits + Large-denomination time deposits + Traveler’s checks + Currency in the hands of the public + Institutional money market mutual fund shares

516.6 3415.3

328.5 735.5 344.5 794.7 315.3

1,036.3 7.6

686.2 1,104.7

WWW.vujannat.ning.COM Connecting VU Students

MIDTERM EXAMINATION

FALL 2007

MGT411 - MONEY & BANKING (Session - 5 )

Marks: 40

Time: 120min

StudentID/LoginID: ______________________________

Student Name: ______________________________

Center Name/Code: ______________________________

Exam Date: Monday, November 26, 2007

INSTRUCTIONS: Please read the following instructions carefully before attempting any question: All questions are compulsory. This exam consists of 10 Multiple Choice Questions (MCQs) carrying 1 mark each; 5

True False carrying 1 mark each; 3 Short Questions carrying 5 marks each; and 1 descriptive question –carrying 10 marks.

For each MCQ, read the available choices carefully and select the most appropriate choice which you consider is the correct answer, by clicking on the appropriate check box.

To answer True False questions click the option which you consider is correct. Remember not to spend too much time on any one objective type question since all

objective type questions carry equal marks; it is important to manage your time according to the marks allocated to each question.

Save your answer before proceeding to the next question. Do not click the “Finish” button while solving your paper. Once you clicked the “Finish”

button, you will not be able to access your paper again. Click it at the end of your paper. That means you have submitted your complete paper.

A clock is given in the exam software. Software will automatically close at the end of given time.

Use of mobile phone is strictly prohibited. Switch off your mobile phone during the exam.

Failure to comply with the Supervisor’s directions will result in your test being cancelled. Please comply with supervisor’s directions to avoid any unpleasant event.

Use of calculator is allowed.

For Teacher's use only Question 1 2 3 4 5 6 7 8 9 10 Total

Marks Question 11 12 13 14 15 16 17 18 19

Marks Question

Marks Question No: 1 ( Marks: 1 ) - Please choose one After the specific time period, total repayment of loan is: ►

Less than the amount of loan.

►

Greater than the amount of loan.

►

Equal to the amount of loan.

►

None of the given options

Question No: 2 ( Marks: 1 ) - Please choose one The GDP deflator is calculated as: ►

Nominal GDP/Real GDP

►

Real GDP/Nominal GDP

►

Nominal GDP – Real GDP

►

Real GDP – Nominal GDP

Question No: 3 ( Marks: 1 ) - Please choose one The variance is generally less useful than the standard deviation because:

►

It is easier to calculate.

►

Variance is a measure of risk while standard deviation is a measure of return.

►

Standard deviation is calculated in the same units as payoffs but variance is not.

►

None of the given options

Question No: 4 ( Marks: 1 ) - Please choose one Time affects the value of: ►

Financial Instruments

►

Financial Markets

►

Financial Institutions

►

Central Banks

Question No: 5 ( Marks: 1 ) - Please choose one If the yield is greater than the coupon rate: ►

The price is greater.

►

The price is lower.

►

No effect on price.

►

All of the given options

Question No: 6 ( Marks: 1 ) - Please choose one ______________investor will always prefer an investment with a certain return:

►

A risk-averse.

►

A risk-loving.

►

Risk- neutral.

►

None of the given options

Question No: 7 ( Marks: 1 ) - Please choose one Treasury bill is an example of: ►

Zero-coupon bonds.

►

Fixed payment loans.

►

Coupon Bonds.

►

Consols.

Question No: 8 ( Marks: 1 ) - Please choose one The price of a 6-month Treasury Bill is-------------than the price of a 1-year Treasury Bill. ►

Lower

►

Higher

►

Equal to

►

None of the given options

Question No: 9 ( Marks: 1 ) - Please choose one

Changes in the amount of money in the economy are related to changes in: ►

Interest rates

►

Economic growth

►

Inflation

►

All of the given options

Question No: 10 ( Marks: 1 ) - Please choose one Which of the following is true for a nation’s central bank? ►

It makes important decisions about the nation's tax and public spending policies.

►

It lends only to the nation's largest and most important business firms.

►

It has many interactions with the nation's citizens and businesses.

►

It is responsible for conducting the nation's monetary policy.

Question No: 11 ( Marks: 1 ) - Please choose one Financial institutions provide access to financial markets: ►

True

►

False

Question No: 12 ( Marks: 1 ) - Please choose one Cheques are used as a final payment: ► True

►

False

Question No: 13 ( Marks: 1 ) - Please choose one Inflation affects the purchasing power of a dollar: ►

True

►

False

Question No: 14 ( Marks: 1 ) - Please choose one Risk arises from certainty about the future: ►

True

►

False

Question No: 15 ( Marks: 1 ) - Please choose one An asset is liquid if it can be easily converted into money and illiquid if it is costly to convert: ►

True

►

False

Question No: 16 ( Marks: 5 ) Describe the basic types of money. Which one is commonly used now a days? Question No: 17 ( Marks: 5 ) By how many ways we can diversify the risk? Briefly explain them. Question No: 18 ( Marks: 5 ) Differentiate between E-Money and Stored Value Cards in detail.

Question No: 19 ( Marks: 10 )

Which of these $100 face value 1-year bonds will have a higher yield to maturity?

a. 7% coupon bond selling for $90

b. 10% coupon bond selling for $120

c. 12% coupon bond selling for $130 (Marks: 03+03+03+01)