MBF final
If the annual earnings for a company are $30, there is no anticipated growth in dividends (earnings) and the required rate of return is 30%, then the current price of the stock should be
$100
The largest denomination bill currently issued in the U.S. is
$100
You have two savings accounts at an FDIC insured bank. You have $225,000 in one account and $40,000 in the other. If the bank fails, you will receive:
$250,000
You have two savings accounts at an FDIC insured bank. You have $225,000 in one account and $40,000 in the other. If the bank fails, you will receive:
$250,000.
What is the maximum amount of write-downs (defaults) the bank could sustain without becoming insolvent (bankrupt)? Values are millions of dollars.Assets LiabilitiesReserves $60 Transaction Deposits $500Bonds $400 CDs $300Loans $600 Equity _____
$260
The earnings for a company are $10 and they are expected to grow at 5% annually. According to the Gordon Growth Model, if the required rate of return is 9%, then the price of the company's stock should be
$262.50
A company currently pays an annual dividend of $6.50 per share. It expects the growth rate of the dividend will be 2.5% (0.025) annually. If the interest (discount) rate is 5% (0.05) what does the dividend-discount model predict the current price of the stock should be?
$266.50
A consol paying $20 annually when the interest rate is 5 percent has a price of
$400
Your rich uncle Albert gives you a savings bond that pays $500 four years from now. If the relevant interest rate for you is 2%, what is the present value of the bond?
$461.92.
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?
$5 million
If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is
$650
You start with a $1,000 portfolio; it loses 50% over the next year, the following year it gains 50% in value. At the end of two years your portfolio is worth:
$750
If $100 in transaction deposits were withdrawn, what is the minimum amount the bank would have to borrow to meet the reserve requirement, if there were no other changes to the balance sheet?
$80
What is the present discounted value of $100 to be paid to you one year from now assuming a 10% interest rate (no calculator needed)?
$90.9
The present value of a discount bond with two years to maturity, face value of $10,000 and yield to maturity 4% is
$9245.56.
The present value of a discount bond with one year to maturity, face value $1000 and yield to maturity 5% is
$952.38
Junk bonds tend to have
(A. higher risk premia. B. higher yields. C. higher default risk) all of the above.
Who of the following always serve on the FOMC?
(A. the Chairman of the Board of Governors B. the Board of Governors C. the President of the FRBNY) all of the above
Basel III raises _______
(asset quality B. capital adequacy C. liquidity requirements) all of the above
With a 10 year treasury note yielding 1.65% and inflation expected at say 2%, what should a TIPS yield?
-.35%
The yield to maturity on a bond is the
. rate of discount that makes the sum of present values for all future payments equal to the purchase price.
Suppose that Fly-By-Night Airlines, Inc. has a return of 5% twenty percent of the time and 0% the rest of the time. The expected return from Fly-By-Night is:
1.0%
One hundred basis points could be expressed as:
1.00%
A two-year coupon bond has a face value of $1000, a coupon rate of 5% and a yield to maturity of 2%. What is the price of the bond?
1058.25
How many districts are there in the Federal Reserve?
12
The First Bank of the United States was chartered in the
1700s
After three years, a deposit of $1000 that compounds annually at an interest rate of 20% returns
1728
The need for a lender of last resort was identified as far back as:
1873, by British economist Walter Bagehot
When was the current Federal Reserve first chartered?
1914
The Federal Reserve began using open market operations in the
1920s
A bond is selling for $50 and has a coupon of $10, what is the current yield?
20%
A one-year discount bond with face value $1000 and price $800 has a yield of
20%
How many different central banks has the United States had in its history?
3
According to the Taylor Rule, if the output gap rises by 2% and inflation rises by 1%, then the federal funds rate should rise by
3.0%
Farou invests $2,000 at 8% interest. About how long will it take for Farou to double his investment (e.g., to have $4,000)?
9 years
What's a Treasury Bill?
A. A Treasury security that matures in a year or less
Which of the following statements is true?
A. A current account deficit results in a financial account deficit
Which is NOT a harmful consequence of inflation, cet. par. ?
A. Falling interest rates
A bond is
A. a debt instrument, that is, the issuer has taken out a loan.
Members of the European Monetary Union
A. adopt a common currency called the euro.
A promise of a $100 payment to be received one year from today is:
A. equally valuable as a payment received today if the interest rate is zero.
The current yield of a bond:
A. equals zero for a zero-coupon bond since these bonds have no coupon payments.
If the U.S. has a financial/capital account surplus, it means that
A. foreigners purchase more of U.S. assets than U.S. residents purchase foreign assets.
During a recession you would expect the difference between the commercial paper rate and the yield on U.S. T-bills of the same maturity to:
A. increase reflecting the possibility of higher default risk for commercial paper.
In the long run, exchange rates are primarily driven by ____; in the short run, exchange rates are primarily driven by ____.
A. inflation; interest rates
A system in which some governments or central banks seek to manipulate their exchange rates by buying or selling currency in the foreign exchange market is a
A. managed float system.
A current account surplus exists when
A. net exports are positive.
When foreigners purchase U.S. assets, there is an inflow of funds from abroad and this is recorded as a
A. positive item in the financial account.
A country's exchange rate is the
A. price of its currency in terms of another currency.
What's possibly harmful about running s current account deficit?
A. reduces a countries money supply and raises interest rates
Under fixed exchange rates, an over-valued currency will
A. result in a loss of foreign reserves and eventual devaluation
If you expect interest rates to increase, would you rather buy short-term or long-term bonds that you plan to sell before they mature?
A. short-term
The bulk of the transactions in the foreign exchange market are driven by
A. the flow of financial assets between countries
The price of a bond is inversely related to
A. the time to maturity. B. the yield to maturity. BOTH
According to the expectations hypothesis
A. yields on 20 year bonds are, in theory, equal to the 'average' of current and expected future yields on 1 year bonds, other things equal
A decrease in government spending shifts _____ to the
AD, left
In a wage-price spiral, when higher wage demands and accommodative monetary policy follow each other, the wage increase is represented by a shift in _____ and the change in monetary policy is represented by a shift in
AS,AD
In the long-run, a current account deficit is due to
B. Investment > Saving
A country that finds it is increasingly losing assets to, and adding to its debt to foreigners, likely has
B. a financial account surplus
The current account is
B. an accounting statement that includes all spending flows across a nation's border for the purchase of goods and services.
An increase in purchases of U.S. goods and services by foreigners would shift the
B. demand for dollars curve to the right
A statement of spending flows into and out of the country during a particular period for purchases of assets is called a
B. financial account.
The purchase of U.S. goods and services by foreigners
B. increases the demand for U.S. dollars.
If interest rates fall by 1% what will happen to a bond with a duration of 5?
B. its price will rise by 5%
With compound growth, most of the large gains come
B. later in the holding period
A current account deficit implies
B. net purchase of U.S. assets by non-residents is positive
An increase in the demand for existing bonds, should
B. raise bond prices and lower bond yields
Under fixed exchange rates, an undervalued currency will
B. result in an increase in foreign reserves
An appreciation of the U.S. dollar against other currencies means that
B. the U.S. dollar trades for more foreign currency.
In the long run, if inflation is higher in India than in the U.S., one would expect
B. the rupee to depreciate relative to the dollar
Commercial paper refers to:
B. unsecured short-term debt issued by corporations and governments.
The interest rate that equates the price of a bond with the present value of its payments:
B. will vary inversely with the value of the bond.
Which of the following sequences accurately describes the evolution of the payments system?
Barter, coins made of precious metals, paper currency, checks, electronic funds transfers
________ is the field of study that applies concepts from social sciences such as psychology and sociology to help understand the behavior of securities prices.
Behavioral finance
Why do some favor less Fed independence?
Believe that Fed should be more accountable to the public
Which of the following is responsible for invoking the Fed's emergency powers?
Board of Governors
Brittany and Christina both buy bonds with yield to maturity of 4%, but Brittany's bond has 2 years to maturity and Christina's has 5. After one year, yields for these bonds rise to 7%.
Both bonds fall in value but Christina's falls more.
Who produces U.S. bills / who distributes them?
Bureau of Engraving and Printing/ Federal reserve
Which of the following statements is true of a country that has a gold standard exchange rate system?
C. A country running a deficit in its balance of payment would experience an outflow of gold which would force it to reduce its money supply.
Which of the following is a disadvantage of a free-floating exchange rate system?
C. Fluctuating exchange rates make international transactions riskier and thus increase the cost of doing business with other countries.
Under a system of free-floating exchange rates, a nation will experience
C. a tendency toward equilibrium in its balance of payments.
An increase in the Fed's balance sheet means, other things equal, that
C. bank reserves are increasing
Interest on most bonds issued by states is usually exempt from:
C. both state and federal income taxes.
A recession in the United States will
C. decrease imports of the United States but not affect exports of the United States.
Under the Bretton Woods system established after WWII,
C. exchange rates were fixed and only the dollar was convertible into gold
Free-floating exchange rates are determined by the
C. forces of demand and supply in the foreign exchange market.
International trade has the potential to
C. increase the availability of goods and services to all nations.
The foreign exchange market
C. refers to the entire array of institutions through which people buy and sell currencies.
Interest rate risk of a bank refers to
C. risk of losses due to changes in interest rates impacting liabilities differently than assets.
One feature of the gold standard was that
C. slow gold production could lead to deflation
With a desired change in M1 of $100 and an estimated monetary base multiplier (m1) of 5, the Fed should change
C. the monetary base by 20
Why did China undervalue the yuan in the past, when it employed fixed exchange rates?
C. to increase exports from China
Bank examiners review the condition of a bank using:
CAMELS
Which of the following was the largest single relief package in U.S> history?
CARES act
The primary difference in certificates of deposit (CDs) that are equal to or less than $100,000 and those over $100,000 (other than the amount) is:
CDs greater than $100,000 are negotiable and therefore can be bought and sold.
Which of the following is a financial regulator?
CFTC
Suppose there is an increased demand from foreign countries for Iowa pork. What happens to the U.S. dollar exchange rate in a flexible foreign currency market?
D. The demand for U.S. dollars increases, causing the U.S. dollar exchange rate to rise.
If the U.S.dollar depreciates against other currencies,
D. U.S. products are now cheaper to foreign countries.
An open economy's GDP is given by
D. Y = C + I + G + NX.
Which of the following is not a trade barrier?
D. a growing sentiment in favor of "buying local"
The balance between spending flows into a country and spending flows out of that country is called a country's
D. balance of payments.
A current account surplus exists if the balance on the
D. current account is positive.
All other things unchanged, an increase in the value of the dollar against the euro
D. decreases U.S. net exports and shifts the aggregate demand curve to the left.
Purchasing-power parity describes the forces that determine
D. exchange rates in the long run.
A system in which exchange rates are set by government policy is called a
D. fixed exchange rate system.
If the price level in the United States increases relative to prices in foreign countries, then
D. imports of the United States will increase and exports of the United States will decrease.
Which of the following is NOT a way in which changes in monetary policy is thought to affect economic activity in the short-run?
D. interest rate changes and changes in velocity and the value of the dollar
Which of the following was an objective of the framers of the Federal Reserve System?
Decentralized power
Which of the following is a bank liability?
Demand deposits
The legislation intended to "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes." was
Dodd-Frank
According to Friedman's monetarist model, what will happen if the money supply doubles in the SR?
E. nominal gdp will double (PxY)
International reserves are
E. various internationally acceptable assets
What is compound interest?
Earning interest on interest
Which is NOT true of Dodd-Frank?
Eliminated bank ownership of equity (these are true: Created financial stability oversight council B. Created orderly liquidation authority for systemically important non-bank financial institutions created consumer financial protection bureau E. restricts banks' ability to engage in proprietary trading)
Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run?
Equilibrium will be re-established at point E at a higher price level.
Which of the following is a false statement about the structure of the Federal Reserve System?
Exporter and importer interests are reflected
Thw organization that does the day to day regulation of securities exchanges and administers the licensing exams like series 7, etc is
FINRA
Which of the following is a GSE?
FNMA
A central bank that is concerned about deflation will try to raise interest rates.
False
A central bank using the Taylor Rule is only concerned about inflation.
False
A falling real interest rate means nominal rates are falling as well.
False
A two-year bond is a perfect substitute for two consecutive one-year bonds.
False
A typical bank has a positive gap.
False
According to the AS-AD model, if workers demand higher wages, then equilibrium output and the equilibrium price level will fall in the short run.
False
According to the Herfindahl index, the United States has one of the most concentrated banking industries in the world.
False
According to the time consistency problem in monetary policy, since the policy maker can always change a policy they have committed to, their credibility is weakened. This suggests that a central bank should follow discretionary policy
False
An advantage of the gold standard was that it allowed currencies to freely float against each other
False
An investor with rational expectations can perfectly forecast future asset prices.
False
As incomes in foreign nations rise, foreigners will buy less from the United States and more from their own economies.
False
Banks can increase their ratio of capital to assets by reducing assets and/or issuing more equity or more debt
False
Banks should strive to raise their level of equity as high as possible.
False
Behavioral finance explains how investors form rational expectations.
False
Bitcoin is considered money
False
Commercial banks are the only institutions in the United States that take transactions deposits.
False
Countries with independent central banks tend to have higher inflation.
False
Federal Reserve notes were the first fiat currency in the U.S.
False
Government bonds are more liquid than corporate bonds.
False
Government regulation is relatively permissive in the United States compared to other countries.
False
Hedge funds were created to reduce risk for investors.
False
If a positive liquidity premium is included in the formula for the term structure, a downward sloping yield curve is impossible.
False
If the interest rate falls, people will want to hold more bonds, meaning the demand for money shifts to the left.
False
If the nominal interest rate is less than expected inflation, the real interest rate is positive.
False
In a reverse repurchase agreement, the Fed is buying bonds from dealers and others?
False
In the past, excessive competition led to a low rate of innovation within the banking industry.
False
Interest payments from commercial loans are an increasingly important source of bank profits.
False
Investors who use trends to make forecasts have rational expectations.
False
Regulation Q, put in place under Glass Stegall after the depression, and putting a ceiling on the interest rate banks could pay on deposits, helped lower macroeconomic volatility in the United States starting in the late 1980s.
False
Regulatory capture tends to eliminate regulatory forbearance.
False
SWEEP accounts allow banks to make interest on reserves.
False
The ECB, unlike the Fed, has no role in regulation of EU banks
False
The Fed cannot be audited
False
The Fed's exit strategy refers to how they will cease active monetary policy actions
False
The Federal Reserve is considered to be independent since it cannot be affected by Congressional legislation.
False
The Financial Stability Oversight Council regulates only banks
False
The Glass-Steagall Act was a key part of the stabilization of the financial sector during the Great Depression.
False
The Gramm-Leach-Bliley legislation outlawed interstate banking.
False
The IMF currently helps countries maintain fixed exchange rates against each other's currency
False
The chairman of the Board of Governors has sole discretion on changes in the money supply.
False
The liquidity premium is included in calculations of the yield curve to account for default risk.
False
The present value of a future payment is always greater than the payment.
False
Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD2. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?
Firms and workers will negotiate higher nominal wages to restore lost purchasing power. This shifts the SRAS curve to the left until the gap is eliminated
The relationship between real and nominal rates is called the
Fisher equation
Where does the Fed get its operating income from?
Interest on bonds
Suppose the economy has an inverted yield curve. According to the expectations hypothesis, which of the following interpretations could be used to explain this?
Interest rates are expected to fall in the future
Which of the following is not an important addition made to the Basel Accords by Basel III in 2010?
It ends the too-big-to-fail problem.
What do economists mean by the term "sticky wage"?
It refers to a wage that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus in the labor market.
Which of the following statements is true?
Leverage increases expected return and increases risk.
Why buy stock on margin?
Leverage-increase % returns
________ is the relative ease and speed with which an asset can be converted into a medium of exchange.
Liquidity
If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = excess reserves, then m would equal:
M/MB
The money aggregate M2 includes:
M1
If an individual moves money from a checking account to a savings account
M1 decreases and M2 stays the same.
With financial diversification you can get
More return and less risk
The part of the Federal Reserve that implements open market operations is the
New York Fed
________ and ________ may provide an explanation for stock market bubbles.
Overconfidence; social contagion
Which of the following best expresses the payment a saver receives for investing their money for two years?
PV(1 + i)2
The Federal Reserve chairman credited with ending the Great Inflation is
Paul Volker
Critics of fiat money generally urge the government to
Place limits on the creation
A bank takes deposits and uses the funds to make commercial loans. Hence, the _____ increases.
ROE
Suppose that the economy is in long-run equilibrium at point A. Now suppose the stock market crashes, significantly reducing household wealth. What happens in the short-run?
Real GDP decreases to Y3 and the price level falls to P3.
Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the short run?
Real GDP increases to Y2 and the price level rises to P2
Which of the following are part of the recommendations for banking regulation of the Basel III accords?
Require more Tier I assets
Which of the following statements is most correct?
Reserves are assets of the commercial banks and liabilities of the central bank
The agency whose "primary concern is maintaining fair and orderly markets and protecting investors from fraud" is the
SEC
Which of the following does not regulate banks?
SEC
Which of the following is not included in the measure of M1?
Savings Deposits
The two best known bond rating services are:
Standard & Poor's and Moody's Investment Services.
Which of the following is not a feature of common stock?
Stockholders receive regular fixed payments on their shares.
Which of the following is NOT an entity of the Federal Reserve System?
The Comptroller of the Currency
Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.
The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government lowers the capital gains tax to stimulate investment.
The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?
The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption.
________ are the time and resources spent trying to exchange goods and services.
Transaction costs.
'Dropping money from a helicopter' by the Fed basically refers to the Fed possible financing of fiscal policy actions
True
A change in the discount rate shifts the supply of reserves.
True
A decrease in the money supply will shift the AD curve to the left.
True
A financial account surplus implies that a countries assets are falling or its liabilities are rising
True
A major problem under the gold standard was the inability to adjust the money supply to economic expansion
True
A managed float exchange rate system is often used to reduce the uncertainty of businesses engaged in importing and exporting.
True
According to the Discounted Dividends Model (Gordon Growth Model) the price of a stock is directly (positively) related to the expected growth rate of earnings.
True
According to the Taylor Rule, if inflation rises by 2%, then the targeted interest rate should rise by more than 2%.
True
According to the quantity theory of money, an increase in the supply of money would shift AD to the right.
True
All public corporations must pay a fraction of their profits as dividends.
True
An economic expansion can lead to higher equilibrium bond yields.
True
An increase in U.S. demand for Japanese made cars (made in Japan) would, other things equal, increase the U.S. financial account surplus
True
An increase in the interest rate shifts AD to the left in the SR.
True
An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.
True
Bank reserves are a combination of required reserves and excess reserves.
True
Banks chartered by the Federal government are called national banks.
True
Banks operating in more than one state used to be illegal.
True
Bubbles in financial markets are evidence that they are not strongly efficient.
True
By treaty, the primary goal of the ECB is stable prices.
True
Changes in technology, regulation and competition has changed the nature and operations of commercial banking in the U.S. over the last 40+ years
True
Debt monetization or the Fed 'printing money' is nothing more than extremely accomodative monetary policy
True
Deflation (falling prices) means that real rates are greater than nominal rates.
True
Duration measures the % change in the price of a bond resulting from a 1% change in interest rates
True
During a financial panic, banks hold more reserves and the money supply falls, ceteris paribus.
True
Federal Reserve notes are liabilities of the Fed but assets of the banking system.
True
Forecasts satisfying rational expectations are unbiased.
True
If you buy a bond and hold it to maturity, there is no interest rate risk.
True
In general, an increase in Fed assets or a decrease in Fed liabilities (other than reserves) will increase reserves and the monetary base
True
In theory, the interest rate paid on reserves (IOER) should be the minimum rate on overnight loans.
True
Inflation targetting is a variation of the Taylor rule
True
Insolvent banks that are allowed to continue to operate tend to take on more risk.
True
It is impossible to have a current account deficit and a current account surplus at the same time.
True
Junk bonds are a financial innovation that took business away from traditional banks.
True
Long-run aggregate supply corresponds to the level of potential output.
True
Longer maturity bonds have greater interest rate risk.
True
Loophole mining and regulatory arbitrage are ways for banks to get around regulations.
True
Mortgage backed assets are an example of a securitized asset.
True
New banking regulations after the financial crisis require banks to hold more capital in order to reduce leverage and moral hazard
True
Off-balance-sheet activities may increase the risk of banks.
True
One advantage of the Taylor Rule is that it would never require a negative nominal interest rate target.
True
One of the central banks in U.S. history was killed by Andrew Jackson.
True
Policy that tends to make recessions worse and booms inflationary is called pro-cyclical.
True
Prior to legislation in 2003, all checks had to be sent back to the originating bank in paper form
True
Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.
True
Raising the reserve requirement led to a worsening of the Great Depression.
True
Referring to monetary policy, the impact lag is said to be long and variable and the implementation lag is short
True
Regulation Q (the restriction on interest paid on deposits) and rising nominal interest rates during the Great Inflation were responsible for an increase the size of the mutual fund industry.
True
Regulatory forbearance was a problem during the S&L crisis.
True
Reserves are a liability of the Fed.
True
The Basel accords put more emphasis on assessing the risk of assets.
True
The FRBNY has the job of conducting open market operations.
True
The S in CAMELS stands for sensitivity to risk.
True
The U.S. Federal government has never defaulted on its bonds.
True
The current yield and the yield to maturity for a consol are the same.
True
The decision on whether to default on a loan or debt raises a time consistency problem.
True
The discount rate is the rate at which banks lend reserves to one another, usually overnight.
True
The fraction of excess reserves is a measure of capital adequacy.
True
The high nominal yields in the 1970s were primarily due to inflation.
True
The inflation target, stated or implicit, is usually around 2%.
True
The long term goal of keeping inflation low can conflict with the short term goal of lowering unemployment.
True
The major financial reform legislation arising from the the Financial Crisis of 2007- was Dodd Frank
True
The panic of 1907 led to the chartering of the current Federal Reserve.
True
The present value of a future payment depends on the period of time until the payment.
True
The present value of a future payment is higher the longer the period of time until the payment, ceteris paribus.
True
The process of bundling loans and selling pieces of the group is known as securitization.
True
There was a period of time when the United States did not have a central bank.
True
To ensure solvency in case of defaults, a bank could issue stock.
True
Typically, the Fed sets the discount rate above the equilibrium federal funds rate.
True
Yield to maturity is the most accurate measure of the return on a bond.
True
banks hold capital as a cushion against losses as well as to have 'skin in the game' i.e., to reduce moral hazard
True
Who produces U.S. coins / who distributes them?
U.S. Mint /Federal Reserve
Which of the following is true?
U.S. Treasury Bill yields are lower than the yields on commercial paper.
How will a recession in the economies of our foreign trading partners affect U.S. aggregate demand?
U.S. aggregate demand will decrease.
The period of time when the Fed was essentially monetizing the debt was
WWII
Total Bank Assets = Total Bank Liabilities + Total Bank Capital
Which of the following correctly portrays a bank's balance sheet?
Which of the following statements is most true concerning economic policy in the U.S.?
Which of the following statements is most true concerning economic policy in the U.S.?
What's a bear market?
a 20%+ drop in stock prices
A situation when an asset price differs from its fundamental value is
a bubble
What's a bond?
a debt instrument representing fixed obligation to pay back borrowed funds
An open market sale of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show:
a decrease in the asset of securities and a decrease in the liability of reserves.
Which of the following will increase the short-run aggregate supply?
a decrease in the price of capital
What's a Bank?
a financial institution that takes in deposits and makes loans
A fully amortized loan is another name for
a fixed-payment loan.
Of the following assets, the least liquid is
a house.
A bank run involves:
a large number of depositors withdrawing their funds during a short time span.
Which of the following is NOT true of a monetary economy (one that uses money) compared to one that uses barter?
a monetary economy has multiple prices for every item for sale
A Phillips curve implies
a negative relationship between inflation and unemployment.
Vault cash is:
a part of reserves and an asset of commercial banks.
Money eliminates the need for:
a search for a double coincidence of wants.
The Taylor Rule is used by a central bank that is targeting
a short term interest rate.
The financial system is inherently more unstable than most other industries due to the fact that:
a single firm failing in banking can bring down the entire system; this isn't true in most other industries.
Gold is:
a small portion of the Fed's assets
As compared to the Great Recession (2007-09), the Covid Recession (2020) also involved
a supply shock
What's inflation?
a sustained increase in the general level of prices
The monetary policy framework is:
a way to prioritize and implement the central bank's objectives when they are in conflict.
What's a recession?
a wide-spread, sustained downturn in economic activity
The relation between the yields of government bonds and their term to masturity is shown in
a yield curve
Which function was the Federal Reserve originally designed to perform?
acting as lender of last resort
Which is NOT an impact monetary policy generally has on the economy in the short-run?
affects long-run economic growth
In the long run, the output level is determined by
aggregate supply
Providing stock options to corporate managers was an idea designed to:
align managers' interest with the stockholders' interest.
Bank consolidation may be desirable because
all of the above
Technology has helped to make possible which of the following innovations?
all of the above
Which of the following are functions of a central bank?
all of the above (regulating banks B. clearing checks C. acting as lender of last resort)
If fundamental analysis does not help stock market investors make profits, then the stock market is
all of the above (allocationally efficient. B. weakly efficient. C. semi-strongly efficient.)
According to the discounted dividends model, the price of a security will increase if
all of the above (he risk-free discount rate falls B. the expected growth rate of dividends increases C. the equity risk premium falls)
Which of the following could be examples of inefficiencies in financial markets data?
all of the above (January effect B. small firms effect C. bubbles)
Base III raises
all of the above (asset quality, capital adequacy, liquidity requirements)
Asset managers try to maximize profitability and minimize
all of the above (defaults, write-downs, credit risk.)
The Great Inflation affected the banking industry through the following channels.
all of the above (higher nominal interest rates B. decline in deposits C. increase in disintermediated borrowing)
Which of the following affect(s) the demand for bonds?
all of the above (real rate of return B. household wealth C. liquidity)
Which of the following contributed to the S&L crisis in the 1980s?
all of the above (rising real interest rates around 1980 B. S&L involvement in commercial real estate C. regulatory forbearance)
A bank can increase its level of reserves by
all of the above (selling securities, increasing borrowings, calling loans.)
If technical analysis cannot prove profitable information to investors, markets satisfy
all of the above (weak efficiency. B. semi-strong efficiency. C. strong efficiency.)
One characteristic that distinguishes holding period return from the coupon rate, the current yield, and the yield to maturity is:
all of the other returns can be calculated at the time the bond is purchased, but holding period return cannot.
A repurchase agreement is:
an agreement where the parties agree to reverse the transaction on a specific day.
Governments employ three strategies to contain the risks created by government safety nets. These include each of the following, except:
an excise tax on bank profits.
When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check clears, the Fed's balance sheet will show:
an increase in assets and liabilities of $1 million.
What could have caused the aggregate demand curve to shift to the right from AD1 to AD2?
an increase in exports
Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and real GDP in the short run?
an increase in government transfer payments
Which of the following could cause continually rising prices in the LR?
an increasing money supply
After the FOMC announces say an increase in the target fed funds rate, the Fed's trading desk in New York engages in
an open market sale or reverse repo operation
A bank can meet its required level of required reserves by
any of the above (selling securities, increasing borrowings, calling loans)
Money is
anything that is generally accepted in payment for goods and services or in the repayment of debt
In a barter system people:
are less likely to specialize as extensively as they would in a monetary economy.
Tax-exempt bonds:
are most beneficial to those who pay higher income tax rates.
Savings and loan institutions:
are owned by depositors who also have a common bond.
An employee who is primarily concerned with managing credit risk is involved in
asset management
A goal of the Securities and Exchange Commission is to reduce problems arising from
asymmetric information
Gresham's Law states that
bad money drives out good
The FDIC was created in response to
bank runs
The FDIC was created in response to
bank runs.
Which of the following changes or innovations does NOT depend on computer technology?
banker's acceptances
The biggest reason for the consolidation of the banking industry in the 1980s was
bankruptcy
Off-balance sheet activities worsen the asymmetric information problem between
banks and regulators
The FDIC is intended to alleviate asymmetric information problems between
banks and the public
The FDIC is intended to alleviate asymmetric information problems between
banks and the public.
During the 2007-09 financial crisis and its aftermath, money supply growth remained modest despite a huge increase in the monetary base. Why?
banks are holding more excess reserves
A change in the monetary base leads to a larger change in the money supply since
banks lend excess reserves, which become deposits.
Federal Reserve Banks are owned by
banks that are members of the Federal reserve System
The government's role of lender of last resort is directed to:
banks that experience sudden deposit outflows.
Banks can effectively choose their regulators by deciding whether to:
be chartered at the national or state level.
Whatever a society uses as money, the distinguishing characteristic is that it must
be generally acceptable as payment for goods and services or in the repayment of debt.
If the Fed were to increase the required reserve rate from ten percent to twenty percent, the simple deposit expansion multiplier would:
be half as large as it was before the increase.
Bonds issued by the U.S. Treasury would:
be held by the Fed as part of its securities.
One reason for the decreased economic volatility starting in the 1980s (the great moderation) was
better monetary policy.
A distributed, encrypted online ledger is a
blockchain
Moral hazard problems arise because:
borrowers have incentives to act in ways that do not reflect the lender's interest.
An increase in the reserve requirement would lead to a decrease in
both
The money multipliers tend to fall during a financial panic due to a rise in
both of the above (C/D and ER/D)
Bank consolidation is potentially a problem because
both of the above (larger banks are harder to regulate. B. a failure of a large bank has a big effect on the economy.)
ARMs
both of the above. ( force borrowers to assume interest rate risk. B. became more prevalent during the Great Inflation)
Criteria used to judge a central bank's independence include each of the following, except:
cabinet or ministry level of authority.
In the long run, monetary growth
cannot affect the factors that determine the economy's unemployment
An employee who is primarily concerned with making sure the bank has enough capital to cover potential loan defaults is involved in _____ management.
capital adequacy
People differ on the method by which stock should be valued. Some people are chartists, others behavioralists. The basic difference between these groups is:
chartists study charts of stock prices; behavioralists focus on investor psychology and behavior.
Given a choice between two investments with the same expected payoff most people will:
choose the one with the lower standard deviation
An important function of the regional Federal Reserve Banks is
clearing checks
The value of fiat money:
comes from government decree and public acceptability
Bonds rated as "highly speculative" are:
commonly referred to as junk bonds.
Sarbanes Oxley dramtically increased
compliance
What are the four sources of aggregate demand?
consumption, private investment, government purchases, and net exports
What is meant by an interest rate?
cost of borrowing, return for lending money
Inflation arising from a rise in the price of imported input goods like copper is an example of
cost-push inflation
A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a
coupon bond
The most beneficial government reaction to the Great Depression was
creating the FDIC
The most beneficial government reaction to the Great Depression was
creating the FDIC.
The risk of a bank loan going into default (not being paid back) is referred to as
credit risk
Each of the following items would appear as assets on the central bank's balance sheet, except:
currency
The monetary liabilities of the Federal Reserve include
currency in circulation and reserves.
The dollar amount of interest is largest for a loan if the interest is compounded
daily.
An increase in the excess reserve ratio will cause m1 to
decrease
If the Fed were to sell gold, the money supply would
decrease
If the Federal Reserve wants to increase the equilibrium interest rate, it will _____ the _____ money.
decrease, supply of
In the long run, a decrease in aggregate demand, all other things unchanged, will cause the price level to _______ and potential output to _______ .
decrease; remain stable
During the early years of the Great Depression, a study of the money aggregates reveals that the money multiplier:
decreased.
An increase in the time to the promised future payment ________ the present value of the payment.
decreases
The variance of a portfolio containing n assets with independent returns:
decreases as n increases.
All other things unchanged, a lower exchange rate
decreases exports, increases imports, decreases net exports and aggregate demand.
When a bank takes savings from many small savers and lends it to many borrowers, the bank:
decreases the risk to savers through diversification.
The chance that a bond issuer won't make promised payments is called
default risk
Ratings from Moody's and S&P measure
default risk.
The nominal interest rate minus the expected rate of inflation
defines the real interest rate
A decrease in GDP causes the _____ money to shift and for equilibrium interest rates to
demand for, fall
A decrease in the government budget deficit causes the _____ bonds to shift and for equilibrium interest rates to
demand for, fall
Which of the following reduces the incentive for the public to monitor the soundness of banks?
deposit insurance
The government provides deposit insurance; this insurance protects:
depositors for up to $250,000 should a bank fail.
eMoney ('electronic money) basically 'stores' and transfers value as
digital computer entries
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of
discounting the future.
The dividends that stockholders receive are:
distributions from profits
A bank's return on equity (ROE) is calculated by:
dividing the bank's net profit after taxes by the bank's capital.
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply
does not change.
In general, economists believe that the Phillips curve is
downward sloping in the short run but vertical in the long run.
Funding for the operations of the Board of Governors of the Federal Reserve is derived from
earnings of the Federal Reserve district banks
The fact that a financial intermediary can hire a lawyer to write one contract that works for many customers is an example of:
economies of scale
The erosion of Glass-Steagall allowed financial institutions to take advantage of
economies of scope
When economists say that money promotes ________, they mean that money encourages specialization and the division of labor.
efficiency
The Federal Open Market Committee usually meets ________ times a year.
eight
In terms of value of transactions, the largest share of the non-cash retail payments made each year in the United States are made by:
electronic funds transfers
Governments supervise banks mainly to do each of the following, except:
eliminate all risk faced by investors.
What's a stock?
equity - representing partial ownership in a corporation
Quantitative easing is:
expansion of the supply of aggregate reserves beyond the amount needed to maintain the policy rate target.
The political business cycle refers to the phenomenon that just before elections, politicians enact _________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies.
expansionary; a higher inflation rate; contractionary
If output is below the natural rate, output will increase due to a _____ in wages, which leads _____ to shift to the right.
fall, AS
If S&P upgrades a corporate bond its yield will _____ and its risk premium will
fall, fall
Credit cards are considered money
false
In the long run, the major cause of inflation is excessive government spending.
false
Interest rates are countercyclical.
false
Money is less liquid than bonds.
false
The C in CAMELS stands for credit risk
false
The fact that U.S. currency is legal tender means that they must be accepted in payment by private individuals
false
What is the fed's key policy rate?
fed funds rate
Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called ________ money.
fiat
The rationale for the existence of central banks is mainly that:
financial systems are prone to periods of extreme volatility.
Which of the following central bank policies would be pro-cyclical?
fixing an interest rate at a constant value
The yield on a one-year bond is currently 3% and the expected yield for the next three years is also 3%. Assuming no liquidity premium, the yield curve is
flat
Sarbanes oxley (SOX) did all BUT which of the following
forbid proprietary trading
A central bank holds foreign exchange reserves for:
foreign exchange interventions.
Most U.S. currency is apparently held by
foreigners
According to the efficient markets hypothesis, the current price of a financial security
fully reflects all available relevant information.
The procedure that estimates the interest-rate sensitivity of a bank's assets and liabilities is called:
gap analysis
Which of the following is NOT a method banks use to control credit risk?
gap analysis
Which of the following is a method banks use to deal with interest rate risk?
gap analysis
U.S. currency was originally backed by (convertible into)
gold and/or silver
Both ________ and ________ are Federal Reserve assets.
government securities; discount loans
The fact that common stockholders are residual claimants means the stockholders:
have a claim against the revenue that remains after everyone else is paid
Under the liquidity premium theory, if investors expect short-term interest rates to remain constant, the yield curve should:
have an increasing slope
When monetary policymakers are unable to solve the time consistency problem, the primary result is
high inflation
Which of the following contributed to falling profits for banks in the 1970s and early 1980s?
high inflation
The monetary base is also known as
high-powered money
If a central bank is using the Taylor Rule and decides to lower its inflation target, this will lead to ____ interest rate targets.
higher
Which of the following were factors exacerbating the Great Depression?
higher interest rates
Compared to bonds, stocks generally has
higher risk and higher returns
The higher the future value of the payment the:
higher the present value
An increase in investment will lead to ____ equilibrium output and a _____ equilibrium price level in the short run.
higher, higher
A decrease in oil prices will lead to ____ equilibrium output and a _____ equilibrium price level in the short run.
higher, lower
Inflation targeting does all of the following except:
hinder economic growth
The dividend-discount model predicts that stock prices:
hould be high when dividends are high.
An economic analysis of the short run is useful to explain
how deviations of real GDP from potential output can and do occur.
The Fed, as lender of last resort, is said to deal with
illiquidity
Once the FOMC meetings adjourn, the public is made aware of the FOMC's decision:
immediately after the meeting.
Which of the following is NOT part of the Dodd Frank reforms?
imposition of ceiling on interest banks can charge
The long run in macroeconomic analysis is a period
in which full wage and price flexibility and market adjustment have been achieved.
The short run in macroeconomic analysis is a period
in which wages and some other prices do not respond to changes in economic conditions
If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:
increase
A bank's off-balance-sheet activities usually:
increase its net income but do not change its assets or liabilities.
In the LR, an increase in the money supply would likely
increase prices/inflation only
A substantial decline in the general level of prices (say the CPI) would
increase the purchasing power of a dollar
A central bank's purchase of securities made by writing checks on itself will:
increase the size of their balance sheet.
Financial institutions, acting as financial intermediaries, perform all of the following, except:
increase transactions costs.
The Basel accords basically
increased capital requirements
Which of the following was NOT part of the Fed's monetary policy actions in 2020?
increased government expenditures
An increase in inflationary expectations will likely increase
inflation
Under a regime of fixed exchange rates and capital mobility, the main concern is domestic
inflation
The main problem from inflation as seen by most economists is:
inflation creates risk
The Taylor Rule is a formula for how the federal funds rate should respond to changes in the
inflation gap. output gap. the equilibrium real federal funds rate.
Supporters of Federal Reserve independence contend that independence from the rest of the federal government leads to lower
inflation rates
Why do we need to discount future dollar values?
interest
If the monetary base grows considerably yet the money supply remains unchanged, it must mean that
interest on excess reserves
The opportunity cost of money is
interest rate
What's the Fed Funds rate?
interest rate banks charge one another for reserve loans
Assume an investor has a choice of 3 consecutive one-year bonds or one 3-year bond. Assuming the expectations hypothesis of the term structure of interest rates is correct the:
interest rate of the 3-year bond should equal the average interest rate of the 3 one-year bonds
The fact that a bank's assets tend to be long-term while its liabilities are short-term creates:
interest-rate risk
Bank holding companies allows bankers to circumvent
interstate banking regulations
What's a business cycle?
irregular but recurring fluctuations in economic activity
A bank whose cash holdings is less than their liabilities
is illiquid
The expected value of an investment:
is the probability-weighted sum of the possible outcomes.
When the Continental Congress issued currency to finance the Revolutionary War, the Continental Congress:
issued too many "continentals," eventually making the currency worthless.
The Federal Reserve is considered independent because
it has its own source of funds.
During a bank crisis:
it is important for regulators to be able to distinguish insolvent from illiquid banks.
The Standard & Poor's 500 Index differs from the Dow Jones Industrial Index because:
it takes into account the prices of more stocks and it uses a different weighting scheme.
The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize
its own welfare.
During World War II, the Fed accommodated the war effort by:
keeping bond prices high and interest rates low.
According to Bagehot, in a banking crisis, the central banks should
lend freely to all sound banks at a penalty interest rate
Short maturity bonds have ____ interest rate risk than long maturity bonds.
less
An increase in the ratio of excess reserves to deposits - ER/D makes the process of multiple deposit creation
less powerful
A bank suffers defaults on some loans. Hence, the _____ decreases.
level of capital
Suppose that a bank initially has a leverage ratio of 8 to 1. If this bank increases its capital by $1 million and its assets by $10 million, then the bank's:
leverage and risk increases.
The bond rating of a security reflects the:
likelihood the lender/borrower will be repaid by the borrower/issuer.
An employee who is primarily concerned with making sure the bank has enough reserves is involved in
liquidity
The L in CAMELS stands for
liquidity
Which of the following factors could explain difference in yields on bonds with the same time to maturity?
liquidity
Discount lending by the Fed can be used to deal with bank
liquidity problems
Regulators require a bank to hold some of its assets as reserves mainly to address:
liquidity risk.
Why did early Keynesians (and Keynes) feel that monetary policy would at some point be ineffective in a downturn?
liquidity trap
The two main categories of profit making assets on a bank's balance sheet are
loans and securities.
Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.
long-term, short-term
________ means people are more unhappy when they suffer losses than they are happy when they achieve gains.
loss aversion
The acronym CAMELS, which is the criteria used by supervisors to evaluate the health of banks, includes the following, except:
losses
The risk structure of interest rates says:
lower rated bonds will have higher yields.
Municipal bonds tend to have lower yields than other bonds, ceteris paribus, due to
lower taxes
The interest rates charged on most credit cards is:
lower than they should be given the problem of adverse selection.
A central bank might use expansionary monetary policy in order to
lower unemployment.
The Federal Reserve makes an open market purchase and the change in reserves is the same as the change in the MB. Therefore, the Fed
made the purchase from the banks.
If the internal rate of return from an investment is more than the opportunity cost of funds the firm should:
make the investment.
In its role as bank for the U.S. government, the Federal Reserve performs all of the following services, except:
making discount loans.
What's the FX market?
market where foreign currencies are bought and sold
Monetary aggregates are
measures of the money supply reported by the Federal Reserve
Of money's three functions, the one that distinguishes money from other assets is its function as a
medium of exchange.
If prices are not stable:
money becomes less useful as a store of value.
The difference between money and income is that
money is a stock and income is a flow
Which of the following is an example of disintermediation?
money market mutual funds
When the Fed buys securities, how much banks hold as excess reserves affects which of the following
money multiplier
In the long run, the price level is determined by
money supply
Two problems that arise from asymmetric information are:
moral hazard and adverse selection.
Financial intermediation is:
much more important than direct finance through stock and bond mark
M1 is:
much smaller than GDP
The economy's potential output corresponds to the level of
natural employment
An increase in which of the following would lead to decrease in equilibrium output and an increase in equilibrium prices?
negative supply shock
Blue chip bonds tend to have
neither of the above (higher yields. B. higher risk premia.)
How many members (including the chairman) are there on the Federal Reserve Board of Governors?
none of the above
Which of the following pieces of legislation eased the barriers between banks and insurance companies?
none of the above (Glass-Steagall B. FIRREA C. FDICIA)
When the Fed uses open market operations to offset changes in the monetary base due to outside factors (rather than to change the base for policy reasons), its action is said to be
none of these (compensating, demand driven, dynamic)
If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's required reserves will:
not change.
If the returns of two assets are perfectly positively correlated, an investor who puts half of his/her savings into each will:
not gain from diversification
A bank usually treats the moral hazard problem by using all of the following, except:
not making loans
Each governor on the Board of Governors can serve
one full nonrenewable fourteen-year term plus part of another term.
Bank's hold marketable securities as part of their assets. For U.S. banks these marketable securities include:
only bonds
What was the main policy tool of conventional monetary policy (before the 2007 Financial crisis)?
open market operations
What was/is the primary monetary policy tool during 'conventional' Fed policy (pre financial crisis)?
open market operations
Which of the following shifts the supply of reserves?
open market operations
Which tool does the Fed use most commonly to control the money supply?
open market operations
Buying and selling U.S. Treasury Securities for the Fed's own portfolio is called:
open market operations.
In practice, the most often used tool used by the Federal Reserve to control short-run interest rates and the money supply has been
open market operations.
The quantity of securities held by the Federal Reserve is controlled through:
open market operations.
Securitization has allowed some banks to concentrate on
origination of loans.
Independence of a central bank refers to independence from
other parts of the government.
Professor Jeremy Siegel, of the University of Pennsylvania, conducted research that showed that:
over the long run, stocks have been less risky than bonds.
which of the following is NOT part of the reforms put in place by Dodd-Frank
oversight council to review Fed monetary policy actions
which of the following is NOT part of the reforms put in place by Dodd-Frank
oversight council to review Fed monetary policy actions (does include: establishment of oversight council to monitor systemic risk C. derivatives clearinghouses established D. orderly liquidation authority)
Banking regulations prevent banks from:
owning common stocks of corporations.
Currency includes
paper money and coins
Central bank accountability means:
politicians will establish goals and central bankers will report on their progress.
The long-run aggregate supply curve is vertical at
potential output
The autonomy of modern central banks means that governments cannot increase their spending by:
printing money
A zero-coupon bond refers to a bond which:
promises a single future payment.
Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to
propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies.
A decrease in excess reserves held by banks will ____ the base multiplier and ___ the money supply, cet. par.
raise/raise
As part of it's 'exit strategy' following its unconventional policies during and after the 07 financial crisis, which of the following did the fed NOT do
raised their balance sheet
Which of the following is NOT a harmful effect of inflation (anticipated or anticipated)
raising the real interest rate
Fedwire is a
real time gross settlement electronic payment system run by the Federal Reserve
Why do banks screen potential borrowers carefully?
reduce adverse selection
A primary goal of central banks is to:
reduce systematic risk.
Which of the following was NOT part of the fiscal stimulus actions in 2020?
reduced loan rates
Which of the following is NOT a function of the Federal Reserve?
regulate brokers and insurance companies
The "too big to fail" policy exacerbates the moral hazard problem between
regulators and banks
The ECB conducts open market operations through purchases and sales of
repos
The term structure of interest rates:
represents the variation in yields for securities differing in maturities.
If the _____ for a stock fall(s), the current price of the stock rises.
required rate of return
Which of the following do NOT generate fees for banks?
reserves
Acording to the tril-lemma, with fixed exchange rates and the free use of monetary policy to deal with inflation, China must
restrict capital mobility
During a financial crisis, the demand for reserves shifts to the _____,
right
The rate of return on a bond can be negative if market yields
rise
If the Fed buys $300 in securities and the reserve requirement is 5%, according to the simple formula for the money multiplier, the money supply
rises by $6000.
Default risk is measured by the
risk premium
Considering the balance sheet for all commercial banks in the U.S., the largest category of liabilities is:
saving's deposits and time deposits.
The return a sovereign (government) earns from creating (minting) money is called
seignorage
All other things unchanged, an increase in exports relative to imports will
shift the aggregate demand curve to the right.
All other things unchanged, an increase in government spending will
shift the aggregate demand curve to the right.
If a central bank is following a policy of fixing an interest rate at a constant value, then, if the economy expands, the bank will respond by
shifting the supply of money (bank reserves) to the right.
The adoption of inflation targeting has often led to problems in the
short run
The U.S. Treasury yield curve:
shows the relationship among bonds with the same risk characteristics but different maturities.
The expectations hypothesis suggests the:
slope of the yield curve depends on the expectations for future short-term rates.
The credit risk a bank faces is the risk resulting specifically from:
some of the bank's loans not being repaid.
What is the Fed's 'Dual Mandate' (twin goals)?
stable prices and maximum employment
The difference between standard deviation and value at risk is:
standard deviation reflects the spread of possible outcomes where value at risk focuses on the value of the worst outcome.
Forward guidance is:
statements today about policy targets in the future.
Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a
store of value
Under flexible exchange rates, monetary policy has ____ impacts on the domestic economy while fiscal policy has ______ weaker impacts, as compared to in a closed economy
stronger, weaker
If insider information does help investors, the market cannot be
strongly efficient
Capital is the cushion banks have against:
sudden drops in the value of their assets.
When the Fed makes an open market sale of bonds the _____ of reserves shifts to the
supply, left
Policies to provide incentives (tax cuts, etc) and thus to increase aggregate supply and increase output in the short-run are
supply-side policy
Changes in general economic conditions usually produce:
systematic risk.
Regulators do not consider a financial institution to be a bank if it does not
take deposits
Regulators do not consider a financial institution to be a bank if it does not
take deposits.
For the European Central Bank (ECB), the equivalent of the FOMC's target federal funds rate is the:
target refinancing rate.
Interest rate risk is measured by the
term premium
Rising inflation means
that the price level is rising at an increasing rate.
Paper money was first issued by the U.S. Government
the Civil War
Over the past seventy-five years, power within the Federal Reserve has shifted from
the Federal Reserve Banks to the Board of Governors in Washington.
If the Federal Reserve is to be independent, then the quantity of securities it purchases is determined by:
the Federal Reserve itself
The Gramm-Leach Bliley legislation overturned
the Glass-Steagall legislation.
The group that makes decisions about the conduct of monetary policy for the ECB is
the Governing Council
The principle tool the Fed uses to keep the federal funds rate close to the target is:
the IOER rate.
In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of
the aggregate demand and the short-run aggregate supply curves.
The vertical Phillips curve occurs in the long run because
the aggregate supply curve is vertical which means that changes in aggregate demand will not change unemployment.
The "coupon rate" is:
the annual amount of interest payments made on a bond as a percentage of the amount borrowed.
The Dow Jones Industrial Average is:
the average price of stock in 30 of the largest companies in the U.S.
In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because
the bills were denominated in large amounts and could be stored electronically.
The reason financial intermediaries play such an important role in economies has to do with all of the following except:
the composition of GDP.
Net interest income for a bank is:
the difference between interest income and interest expense.
In the bank reserves market, which of the following serves as a ceiling on the fed funds rate?
the discount rate
The price of a bond is directly related to
the face value.
The principal-agent problem is quite common in large public corporations due to:
the fact that the people making the operational decisions are usually not the owners.
According to the liquidity premium theory of the term structure
the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium.
What matters most during a bank run is:
the liquidity of the bank.
The payments system is
the method of conducting transactions in the economy
If the monetary base grows considerably yet the money supply remains unchanged, it must mean that
the monetary base multiplier has fallen
An increase in Treasury deposits at the Fed causes
the monetary base to decrease
The bid price for a bond quote is:
the price at which the bond dealer is willing to purchase the bond.
Suppose the economy is initially at point A. Now suppose that there is an increase in government purchases. In the short-run,
the price level rises to Pb and real GDP increases to Yb.
Which of the following statements is true? Economists generally agree that
the primary cause of inflation is increases in the money supply growth that exceed growth increases in aggregate demand.
When we say that money is a stock variable, we mean that
the quantity of money is measured at a given point in time.
The interest rate on Treasury Inflation Protected Securities is a direct measure of
the real interest rate
Financial regulators set capital requirements for banks. One characteristic about these requirements is:
the riskier the asset holdings of a bank, the more capital it will be required to have.
Glass Steagall required
the separation of commercial banks from investment banks
If a public corporation goes bankrupt and does not have enough assets to pay off all creditors:
the stockholders cannot lose more than their investment.
Inflation affects the equilibrium yield on bonds due to its impact on
the supply and demand for bonds.
Government budget deficits affect the equilibrium yield on bonds due to its impact on
the supply of bonds
Financial intermediation exists, in part, because:
the transaction costs associated with direct finance can at times be prohibitive.
The Federal Reserve and the European Central Bank are exceptional among central banks due to
their independence.
In the long run, unemployment will be at the natural rate. This implies that
there is no relationship between unemployment and inflation and consequently, the Phillips curve is vertical.
The existence of a lender of last resort creates moral hazard for bank managers because:
they have an incentive to take too much risk in their operations.
One of the unique problems that banks face is:
they hold illiquid assets to meet liquid liabilities.
What's does an ACH do?
transfers funds electronically
Laws that require companies to fully inform investors about debts and loans on their balance sheets are intended to increase
transparency
The creation of the SEC was intended to increase _____ in financial markets.
transparency
When money prices are used to facilitate comparisons of value, money is said to function as a
unit of account
If yields on one-year bonds are expected to rise and the liquidity premium is zero, the yield curve will be
upward sloping
The measure of risk that focuses on the worst possible outcome is called:
value at risk
In the long run, the aggregate supply curve is
vertical
The total stock of assets, real and financial, make up a person's
wealth
Term structure models the yields of bonds with
with different times to maturity
All other factors held constant, an investment:
with more risk should sell for a lower price and offer a higher expected return
Risk structure models the yields of bonds
with the same times to maturity
The interest rate that equates the present value of payments received from a debt instrument with its value today is the
yield to maturity
One major difference between a debit and credit card is:
you can build a credit history with the credit card but not with the debit card, and get assistance with a defective purchase.