BUS 2203
True or False? A basic interest rate risk reduction strategy when interest rates are expected to fall is to keep the duration of liabilities long and the duration of assets short. Select one: True False
False
True or False? Asymmetric information increases the efficiency of financial markets. Select one: True False
False
True or False? Bonds are priced by calculating the sum of the promised payments. Select one: True False
False
True or False? Borrowers want to obtain funds as expensive as possible and on repayment terms as flexible as possible. Select one: True False
False
True or False? Central Banks cannot influence MB via loans to banks and Open Market Operations. Select one: True False
False
True or False? Federal Reserve banks operate as profit organizations. Select one: True False
False
True or False? Financial shocks and crises affect the real economy by decreasing asymmetric information. Select one: True False
False
True or False? In the short run exchange rates are determined by Purchasing Power Parity. Select one: True False
False
True or False? In weak-form efficiency, future prices can be predicted by analyzing prices from the past. Select one: True False
False
True or False? M2 is always greater than M1. Select one: True False
False
True or False? Money supply is determined by the Federal Reserve. Select one: True False
False
True or False? The ASL is the amount of output that is obtainable in the short run given the available labor, technology, and physical capital set Select one: True False
False
True or False? The Federal Reserve does not hold Treasury Gold. Select one: True False
False
True or False? The IS-LM model's biggest drawback is that it doesn't consider changes in the investment level. Select one: True False
False
True or False? The LM curve traces the equilibrium points for equal interest rates where the quantity of money demanded equals the quantity of money supplied. Select one: True False
False
True or False? The aggregate demand (AD) curve is the total quantity of final goods and services demanded at same price levels. Select one: True False
False
True or False? The financial system is a close network of independent markets. Select one: True False
False
True or False? The growth diamond is a model of economic growth being developed by economic historians at the Harvard Business School. Select one: True False
False
True or False? There are three major types of fixed exchange rate regimes . Select one: True False
False
True or False? Transaction costs are the only reason why institutional intermediaries dominate external finance. Select one: True False
False
True or False? Wealth, returns, and liquidity are negatively related to demand; risk is inversely related to demand. Select one: True False
False
True or False? According to the Public Interest Model, government tries to enact laws, regulations, and policies that benefit the public. Select one: True False
True
True or False? Asymmetric information occurs when one party knows more about an economic transaction or asset than the other party does. Select one: True False
True
True or False? Banks issue short term liabilities but buy long term assets. Select one: True False
True
True or False? Bonds with longer periods to maturity have more volatile prices. Select one: True False
True
True or False? By purchasing bonds the Federal Reserve increases the monetary base. Select one: True False
True
True or False? Central bank independence is a measure of how free from government influence central bankers are. Select one: True False
True
True or False? Central banks are responsible for the collection and the replacement of currency from circulation. Select one: True False
True
True or False? Central banks influence the FX rate via unsterilized foreign exchange interventions. Select one: True False
True
True or False? Credit risk is the chance that a borrower will default on a loan by not fully meeting stipulated payments on time. Select one: True False
True
True or False? Financial instruments can be grouped by time to maturity (money vs. capital) or type of obligation (stock, bond, derivative). Select one: True False
True
True or False? In normal circumstances, Yield to Maturity is always positive. Select one: True False
True
True or False? In strong-form efficiency, share prices reflect all information, public and private, and no one can earn excess returns. Select one: True False
True
True or False? Lobbying is a type of innovation where bankers and other financiers try to change regulations. Select one: True False
True
True or False? Markets may be classified as weak-form efficiency, semi-strong efficiency, or strong-form efficiency. Select one: True False
True
True or False? Off-balance sheet activities help banks manage their interest rate risk. Select one: True False
True
True or False? One dollar today is worth more than one dollar tomorrow. Select one: True False
True
True or False? Supply shocks, both positive and negative, shift the AS curve Select one: True False
True
True or False? The AD curve represents IS-LM equilibrium points, that is, equilibrium in the market for both goods and money. Select one: True False
True
True or False? The IS curve shows the points at which the quantity of goods supplied equals those demanded. Select one: True False
True
True or False? The aggregate supply (AS) curve is the total quantity of final goods and services supplied at different price levels. Select one: True False
True
True or False? The monetarists showed that there is a strong correlation between changes in the MS and changes in Y and also proffered timing, statistical, and historical evidence of a causal link. Select one: True False
True
True or False? The most highly leveraged investors suffer most. Select one: True False
True
True or False? The new Keynesian model is more pessimistic about curbing inflation. Select one: True False
True
True or False? The simple deposit multiplier assumes that banks hold no excess reserves and that the public holds no currency. Select one: True False
True
True or False? The three major risks are default, liquidity, and after-tax return. Select one: True False
True
True or False? To keep exchange rates fixed, the central bank must either restrict capital flows or give up its control over the domestic money supply, interest rates, and price level. Select one: True False
True
The LM curve shifts right when the money supply: Select one: a.Increases b.decreases c.remains stable
a.Increases
When central banks buy international reserves, MB: Select one: a.Increases b.Decreases c.Is neutral
a.Increases
Money base is: Select one: a.currency in circulation plus reserves b.currency in circulation c.reserves
a.currency in circulation plus reserves
Federal Reserve Banks generate money income from: Select one: a.interest earned on government securities b.mortgages c.real estate
a.interest earned on government securities
Deficits cause governments to: Select one: a.issue bonds b.issue bonds with 10-year maturity c.issue bonds with 2-year maturity
a.issue bonds
How can central bankers increase their credibility? Select one: a.make their central banks more independent b.induce the government to increase budget deficits
a.make their central banks more independent
What is PPP? Select one: a.the one price law in all economies b.the rule under which every country determines its own price
a.the one price law in all economies
City Bank currently has $400 million in transaction deposits on its balance sheet. The current reserve requirement is 10%. What are the reserve assets that City Bank should has? Select one: a.$36 million b.$40 million c.$4 million
b.$40 million
Sam promises to pay Joe $1,904 in a year if Joe gives him $1,498 today. What interest rate is Sam paying? Select one: a.29.11% b.27.11% c.25.41% d.23.41%
b.27.11%
What constant growth rate in dividends is expected for a stock valued at $37.82 if a $4.00 dividend has just been paid and the discount rate is 15%? Select one: a.4.42% b.4.00% c.7.50% d.8.00%
b.4.00%
Banks have sufficient net worth or equity capital to maintain a cushion against bankruptcy or regulatory attention but not so much that the banks are unprofitable . This trade-off is called: Select one: a.Liquidity management b.Capital adequacy management c.Asset management
b.Capital adequacy management
What is the currency of Switzerland? Select one: a.euro b.Swiss franc c.Swiss pound d.Swiss dollar
b.Swiss franc
What is the Over the Counter market? Select one: a.a stock exchanges b.a decentralized market not listed in an exchange c.FEDs foreign exchange market
b.a decentralized market not listed in an exchange
The Taylor Rule is: Select one: a.a commitment b.an equation c.a FED directive
b.an equation
How is the supply of gold described? Select one: a.elastic b.inelastic
b.inelastic
If the next year's dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be: Select one: a.$31.25 b.$40.00 c.$41.67 d.$43.33
c.$41.67
The Federal Reserve System is divided into Select one: a.16 Federal Reserve districts b.50 Federal Reserve districts c.12 Federal Reserve districts
c.12 Federal Reserve districts
What is the Leverage Ratio if Assets are $1000 and Capital is $150? Select one: a.11% b.12% c.15%
c.15%
Which of the following is correct? Select one: a.Assets=Liabilities - Equity b.Liability= Assets + Equity c.Assets = Liabilities + Equity
c.Assets = Liabilities + Equity
The efficient-market hypothesis was developed by: Select one: a.John Maynard Keynes b.Adam Smith c.Eugene Fama
c.Eugene Fama
Friedman's modern quantity theory proved itself superior to Keynes's liquidity preference theory because: Select one: a.Friedman was a better economist b.is simplest c.is more complex
c.is more complex
What is the role of a finance company? Select one: a.depose money b.offer saving plans c.make loans d.offer life insurance
c.make loans
If interest rates increase 3% and the average duration of a bank's $100 million in assets is 4 years, the value of those assets will fall by: Select one: a.$3.000.000 b.$4.000.000 c.$1.000.000 d.$12.000.000
d.$12.000.000
What should be the price of a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%? Select one: a.$22.86 b.$28.00 c.$42.00 d.$43.75
d.$43.75
Which of the following explains why most external finance is channeled through intermediaries? Select one: a.Transaction Costs b.Asymmetric Information c.Free-rider problem d.All of the above
d.All of the above
The AD curve is negatively related to: Select one: a.MS b.C c.I d.T
d.T
Financial markets can be categorized or grouped by: Select one: a.issuance (primary vs. secondary markets) b.type of instrument (stock, bond, derivative) c.market organization (exchange or OTC). d.all of the above
d.all of the above
According to the Fisher Equation, Select one: a.nominal interest equals real interest plus inflation b.real interest equals nominal interest minus inflation c.none of the above d.both a & b are correct
d.both a & b are correct
Duration gap is used by banks to: Select one: a.measure the credit risk b.measure the technology risk c.measure their risk due to changes in the inflation d.measure their risk due to changes in the interest rates
d.measure their risk due to changes in the interest rates
A $100 bond payable in a year sells for $97.56. What is the yield to maturity? Select one: a.2.10% b.2.12% c.2.39% d.none of the above
d.none of the above
What is liquidity risk? Select one: a.risk due to changes in interest rates b.risk due to exchange rates c.risk to technological investments d.risk due to a sudden surge in liability withdrawals
d.risk due to a sudden surge in liability withdrawals