Test 2
taxes bankruptcy adverse selection
Critics of the Modigliani-Miller theory argue which of the following are reasons why capital structure matters?
a range between 0.00 percent and 0.25, 2015
Currently, the FOMC;s target for the federal funds rate is ____ percent and is expected to remain at that level until ____
depreciate
Currently, the inflation rate in India has been running above what the bank of India indicates as their "tolerance" level such that foreign exchange traders expect the bank of india will increase interest rates. Suppose that the bank of India announces that it will leave interest rates unchanged. Everything else held constant, the announcement by the bank of india would cause the rupee to
both are heavily regulated
Hedge funds are like mutual funds in all of the following way except:
rise, $0.20
If a bank has $50 of rate sensitive assets and $60 in rate sensitive liabilities, and the interest rate falls from 5 percent to 3 percent, a bank's profits ____ by ____
fall, $0.10
If a bank has $50 of rate-sensitive assets and $45 in rate-sensitive liabilities, and the interest rate falls from 5% to 3%, a bank's profits ____ by ____.
look at the difference in foreign and US inflation rates
A good way to predict the expected change in the nominal exchange rate is to
the classical theory of asset prices, undervalued
According to the efficient-markets hypothesis, which is based on ____, ____ assets do not exist
12
According to the most recent Beige Book, ____ out of the 12 federal reserve districts reported some expansion in economic activity
The US dollar would appreciate against both the canadian dollar and the mexican peso
According to the purchasing power parity and everything else held constant, which of the following would we expect to happen? Country Annual Inflation Rate US 2% Canada 3% Mexico 4%
7.8, 8.1
According to the september employment situation report, the unemployment rate was ____ percent. In the august report the unemployment rate was ____ percent
has no physical location
An over-the-counter market differs from a stock exchange because it:
banking industry
Because of the McFadden Act, each state had its own:
Bank Holding Company Act
Because of the ____, Microsoft cannot merge with Bank of America
adverse selection, screens new borrowers
By forcing new banks to obtain a bank charter, the government is trying to minimize ____, much as a bank ____.
reputation, reduce uncertainty about
By using an investment bank to underwrite securities, firms are hoping to use the ____ of the investment bank to ____ the new firm
when the risk of bond default is high
Normally the bond market is less susceptible to adverse selection than the stock market, except ____
growth of mutual fund accounts
One of the reasons for the decline of checking deposits in the mid-1990s was the
people could buy credit default swaps on assets they did not own
One reason that the credit default swap market grew so rapidly from 2000 to 2007 is that:
separation of commercial banks and securities firms
The Gramm-Leach-Bliley Act, which fully repealed the ____ was passed in 1999
10
The Riegle-Neal Act prohibits banks from having more that ____ percent of all commercial bank deposits
Office of the Comptroller; Federal Reserve and state agencies
The ____ regulates commercial national banks, and the ____ regulate(s) commercial state banks.
Office of the Comptroller of the Currency, FDIC
When a national bank is closed down, the ____ calls in the ____, which becomes a receiver for the bank
declining at a slower rate
When looking at the ISM Index, a PMI (the "all-item" or "top-line" composite index) value that increased from one month to the next but is below 50 means that overall manufacturing activity is ____ when compared to the previous month
none of the above
Which of the following are functions of an investment bank?
fear of a run --> depositors withdraw --> banks sell assets --> capital falls below zero
the order of a bank run is
kept the loan on their own books; securitized
when banks made loans they traditionally _____; in recent years, they have _____ the loans
the weighted average to stock and bond returns
when determining returns to your asset allocation, you would use:
credit union
which of the following is a "thrift" institution?
in recent years, most banks have received grades of "outstanding" or "satisfactory" after CRA examinations
which of the following statements about the Community Reinvestment Act (CRA) of 1977 is true?
payroll employment has been stronger in the past three months because of very strong growth in all private sector industries even though public sector jobs have been declining
with regards to the Establishment Survey of the Employment situation report for february 2012, which of the following statements BEST describes the condition of nonfarm payroll employment?
airline stock prices are currently overvalued, stock price to fall
you are perusing the Reuters new Web page and read the following: "NEW YORK, Aug. 18 (Reuters) - Major US airlines will see a 6% drop in passengers during the eight day labor day holiday period as high oil prices continue to roil the industry, the airlines' trade organization predicted on Monday." Using the efficient markets hypothesis, you believe ____ and expect to see ____
1%
your grandparents give you $1,000 as a graduation gift; you decide to save 75% in bonds and 25% in Ford Stock. If the return on the bonds is 3% and the return to FOrd is -5%, then your overall return on wealth would be about
rise, $0.20
if a bank has $50 of rate sensitive assets and $60 in rate sensitive liabilities, and the interest rate falls from 5% to 3%, its profits ____ by ____
fall by 3%
if the euro-area rate of inflation is 3% and the US rate of inflation is 6%, the euro/US dollar exchange rate will:
Second Bank of the United States, Andrew Jackson
in 1836, congress passed legislation renewing the charter of the ____; it was vetoed by ____
giving triple A ratings to securities that were riskier than the ratings suggested
in the aftermath of the 07-09 financial crisis, the rating agencies were criticized for
the trades are made directly between buyer and seller, and other participants do not have information on the transaction
over the counter markets can create volatility in stock prices because:
appreciate
suppose it is expected that the US economy will grow at a faster rate when compared to the growth rates of its major trading partners. Everything else held constant, this expectation will cause the US dollar to ____
either appreciate, depreciate, or remain constant
suppose that CHile sees an increase in copper prices which is their major export. At the same time, the central bank of Chile decreases interest rates. Everything else held constant, these two events will cause the Chilean peso to ____
depreciate
suppose that both the bank of England and the european central bank stats to indicate that they will be raising interest rates very soon. Everything else held constant, this indication will cause the US dollar to ____.
depreciate
suppose that economic data is released that suggests that the inflation rate in japan is increasing. at the same time, the Central Bank of Vietnam announces an increase in interest rates. Everything else held constant, these two events will cause tha Japanese yen to ____ against the Vietnamese dong.
the canadian dollar will appreciate versus the mexican peso and depreciate versus the US dollar
suppose that the inflation rate in the IS is 2%, the inflation rate in Canada is 3%, and the inflation rate in Mexico is 5%. According to the theory of purchasing power parity, which of the following statements is true?
appreciate
suppose the governor of the bank of canada (equivalent of the federal reserve chairman) made comments suggesting that the bank of canada may hold off on expected interest rate increases because of a slowdown in canada's economy. Everything else held constant, these comments will cause the US dollar to ____ against the canadian dollar
depreciate
suppose there is speculation that Spain is moving towards asking the European Union for financial assistance. This speculation causes a decrease n the concern about the ongoing debt crisis in the euro area. Everything else held constant, this speculation would cause the US dollar to ____ against the Euro
borrowing from other banks
Money-center banks finance their lending primarily through
issue commercial paper
When a bank issues a letter of credit, it does all of the following except:
moral hazard
Deposit insurance increases which if the following
are relatively cheap and domestic goods are relatively expensive
If the real exchange rate is greater than one, foreign goods:
agent, principle
In asymmetric information, we call the party who has information about her actions the ____ and the other, imperfectly informed party, the ____
the Securities and Exchange Commission
In the US, financial markets are primarily regulated by:
appreciate
Recently, Hungary's government has made moves that make it seem more likely that it will be getting an emergency lean from the IMF. The loan talks have been up for months because Hungary's government had been stalling to make the necessary policy changes that were required by the IMF to get the emergency loan. Without the loan, Hungary's economy would most likely spiral into chaos in the near future. Everything else held constant, the signal that Hungary is moving closer to getting the loan will cause the Hungarian forint to ____ against the Euro.
they tend to own shares in companies that import raw materials
Stockholders tend to prefer a strong dollar to a weak dollar if:
depreciate
Suppose that during a scheduled two-day FOMC (the federal reserve committee that is responsible for setting monetary policy) meeting, traders on the foreign exchange market expect that the committee will announce a new round of monetary easing (IE policy that is supposed to decrease interest rates in the US). Further assume that, after the meeting concludes, the FOMC releases a statement that has no indication that any more monetary easing is going to happen. Everything else held constant, the release of the FOMC statement would immediately cause the euro to ____ against the dollar.
depreciate
Suppose the following announcements are made at the same time: 1. The Chinese government says that it will be reducing the amount of US Treasury bonds it is currently holding and replace them with euro dominated bonds and 2. The European Central Bank is raising the interest rate within the euro area. Everything else held constant, these announcements would cause the US dollar to ____ against the euro
appreciate, depreciate, or remain constant
Suppose, because of the continuing threat of a deepening debt crisis in Europe, that the European demand for US financial assets is increasing. At the same time, the federal reserve is in the middle of a third round of quantitative easing which is expected to decrease interest rates in the United States. Everything else held constant, these two events would cause the US dollar to ____ against the euro
Glass-Steagall Act
THe result of populists' belief that risky bank behavior helped cause the Great Depression was the:
1.3; downward
The final estimate of the 2nd quarter GDP growth rate was ____. This was revised ____ from the second estimate
Federal Deposit Insurance Corporation
The name of the government agency that insures commercial bank deposits is the
imports + capital outflows = exports + capital inflows net exports = net capital inflows exports - imports = capital outflows - capital inflows
The nominal exchange rate in the short run is determined by
managers
To reduce moral hazard after buying a stock or bond, individual savers examine a firm's:
12%
Your grandparents give you $1000 as a graduation gift; you decide to save 25% in bonds and 75% in the Apple stock. If the return to the bonds is 3% and the return the Apple is 15%, then your overall return on wealth would be about:
National, state, optional
_____ banks are required to join the Federal Reserve System; for _____ banks it is ______
3.0, upward
according to the second estimate, the GDP growth rate for the fourth quarter of 2011 was ____ percent and this was ____ revision from the advanced estimate of the 4th quarter of 2010
adverse selection, credit reports
banks are reluctant to lend to borrowers with weak credit histories because of ____; they rely on ____ to reduce this problem
including restrictive covenants monitoring borrowers; activities setting net worth requirements
banks; strategies designed to solve moral hazard problems include:
commercial banks accept deposits and finance companies do not
commercial banks and finance companies differ in that ____
$130, $120, A
suppose you have the same amount of information as the firms that are trying to raise funds to invest in a project. Your firm can issue a $100 bond that promises to pay 25 percent a year. Suppose there are two firms that are trying to raise funds to pay for a project. Firm As project is safe and is guaranteed to produce $130 in revenue. Firm Bs project is risky and has a two-thirds probability of producing $180 a year, and a one-third probability it produces nothing. THe expected return on Firm As project is _____. THe expected return on Firm Bs project is ____. Thus, ____ will receive financing.
McFadden Act's, interstate banking
the 1994 Riegle-Neal Act repealed the ____ ban on ____
8.3, 8.3
the February 2-12 employment situation reported that the unemployment rate for february was ____ percent compared to January's ____ percent.
Riegle-Neal; 10
the ____ act restricts banks from holding more than ___percent of all commercial bank deposits
insolvency risk, capital requirements
to ensure banks stay healthy and keep ___ low, regulators impose ____.
buy and sell securities for others, buy and sell securities for themselves
unlike brokers who ____, dealers ____
an agreement to trade a security at a specified price at some point in the future
what is a futures contract?