Econ 330 Final

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

-8 percent

What are the three major parts of the Federal Reserve System?

1) Board of Governors 2) FOMC 3) District Banks

What three parties play a role in determining the money multiplier and thus the money supply?

1) Central Bank 2) Depositors 3) Banks

How did the competitive forces lead to the repeal of Glass-Steagall Act's of banking and securities industries?

1. The Act's restrictions of American banks at a competitive disadvantage relative to foreign banks. 2. Banks were allowed to hold substantial equity stakes in commercial firms in order to keep them competitive.

The U.S got its first National Currency around the

1860s

Which of the following is not true of securitization?

A process that drives the prices of financial instruments above their fundamental values

Which of the following is not a contractual savings institution?

A savings and loan association

Who was the first Treasury Secretary of the United States?

Alexander Hamilton

The Federal Reserve was created after the crisis surrounding

Banking Panics of the early 1900s

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as

Eurobonds

Which of the following bonds would have the highest default risk?

Junk Bonds

________ is the relative ease and speed with which an asset can be converted into a medium of exchange

Liquidity

As a result of strict banking regulations, the United States Has;

Many more smaller banks when compared to other industrialized countries

The greatest period of financial regulation in the U.S occurred in the

Mid 1900s

The federal Reserve did not rescue the investment bank Lehman Brothers because of

Moral Hazard

Which of the following is an example of financial intermediation?

Saver makes a deposit in a credit union ; credit union makes loan to a member for a new car

When I purchase ________, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

Stock

Federal Reserve rescued the investment bank Bear Sterns because of

System Risk

Which of the following entities in the Federal Reserve System controls the discount rate?

The Board of Governors

Which of the following entities in the Federal Reserve System sets reserve requirements?

The FOMC

Which of the following can be described as involving indirect finance?

You buy shares in a mutual fund

People in general do not lend money to one another to buy a house or a car because

a) of information problems b) they do not know about the effort other people will provide to repay their debts c) they do not know about the capacity of other people to repay their debts (all of the above)

Increasing the amount of information available to investors helps to reduce the problems of _________ and ________ in the financial markets

adverse selection ; moral hazard

A _______ is bought at a price below its face value, and the _____ value is repaid at the maturity date

discount bond ; face

A ________ is bought at a price below its face value, and the ______ is repaid at the maturity date

discount bond ; face

The most comprehensive measure of aggregate output is

gross domestic product

The interest rate falls when either the demand for bonds _______ or the supply of bonds _______

increases; decreases

In the bond market, the bond demanders are the ________ and the bond suppliers are the ______

lenders ; borrowers

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.

lenders ; borrowers

_______ is the relative ease and speed with which an asset can be converted into a medium of exchange

liquidity

financial intermediaries provide customers with liquidity services. Liquidity services

make it easier for customers to conduct transactions

Kevin purchasing concert tickets with a $100 bill is an example of the ______ function of money

medium of exchange

Kevin purchasing concert tickets with his debit card is an example of the ________ function of money.

medium of exchange

An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.

moral hazard

The yield to maturity for a discount bond is ______ related to the current bond price

negatively

The yield to maturity for a discount bond is _______ related to the current bond price

negatively

There is ________ for any bond whose time to maturity matches the holding period.

no interest-rate risk

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from

owning common stock

Currency includes

paper money and coins

Buying a share of Uber when they went public is an example of the

primary market

The Troubled Asset Reliever Program (TARP) authorized the Treasury to

purchase subprime mortgage assets from the troubled financial institutions

The 1980s is not known for banking_____

regulation

Buying a US Treasury Bond from your friend is an example of

secondary market

Well functioning financial system

solves asymmetric information problems