Smartlearn CH.2

An increase in which of the following factors will cause households to decrease their supply of loanable funds provided?

+immediate consumptions needs +riskiness of investments

An increase in which of the following factors will cause households to increase their supply of loanable funds provided?

+interest rates +households wealth

The unbiased expectations theory posits that current long-term interest rates are geometric averages of current and expected future short-term interest rates.

True

If the rate of interest is set below the equilibrium rate, there will be ____ loanable funds.

a deficit of

If the rate of interest is set above the equilibrium rate, there will be ______ loanable funds.

a surplus of

A serious of equal cash flows received at fixed intervals over an entire finite investment period are

annuity payments.

A risk free investment is one in which the return is

certain.

A security which processes the option to be exchanged for a difficult type of security at a present price is called a

convertible security.

The demand for loanable funds _________ as interest rates increase.

decreases

The risk that a security issuer will fail to make interest and principal payment on the security is called

default risk.

The difference between the nominal rate quoted on a security and the rate quoted on a Treasury Security with similar characteristics is called the

default/ credit risk premium.

The non-financial sectors of U.S. business ______ far more loanable funds than they _________.

demand, supply

The tendency of foreign investors to invest their funds in risk-free U.S. government securities during times of crisis is referred to as a

flight to quality

In a growing economy, the demand for funds is ______ and interest rates will tend to _____.

high; increase

The higher the level of actual or expected the ____ will be the prices of good and services in the future.

higher

The Fisher effect predicts that the _______ expected inflation is, the ______ will be nominal interest rates.

higher, higher lower, lower

The ____ the annuity payment "PMT", the _____ the future value of the annuity

higher, higher lower, lower

The _____ the interest rate "r", the _____ the value of FV

higher, higher lower, lower

When financial market participants have ____ near-term spending needs, the supply of loanable funds at every interest rate is_____

higher, lower lower, higher

A consequence of the unbiased expectations theory is that if investors believe that short-term interest rates will _____ in future periods, the yield curve will be ____ sloped.

increase, positively decrease, negatively

The supply of loanable funds ______ with increasing interest rates.

increases

As the risk of an investment increases, investors are willing to supply less funds to invest in it. The supply curve shifts to the left and the interest rate ________.

increases.

Short-term securities have a more active secondary market and hence are more _______ long-term securities

liquid

The ________ the interest rate "r", the ______ the value of PV

lower, higher higher, lower

The ____ the annuity payment "PMT", the _____ the present value of the annuity.

lower, lower higher, higher

The ______ the annuity payment "PMT", the ______ the present value of the annuity.

lower, lower higher, higher

A single payment received at the beginning or end of an investment period is called a

lump sum payment

The theory that argues that investors have specific maturity preferences and must be paid a premium to hold securities of a different is the

market segmentation theory.

The difference between the required yield on long and short term securities of the same characteristics except maturity is called

maturity premium.

The prices of securities with longer maturities are ______ sensitive to changed in interest rates when compared to shorter maturity securities.

more

The cumulative sum of past U.S. government deficits is called the

national debt.

Nominal interest rates are important because they affect the ______ of most securities traded in the money and capital markets, at home and abroad.

price

When interest rates are high, businesses prefer to finance investments with

retained earnings.

When local government temporarily invest tax revenues in financial markets until the funds are needed, they become a ________ of loanable funds.

supplier

The loanable funds theory categorizes all market participants ( consumers, businesses, government, and foreign participants) as net ______ or ______ of funds.

suppliers, demanders