Eco 2411 Money and Banking Midterm Exam

in regards to a stock assume that the required return on investment is 20%, expected divident is 0.1 and a forcasted price a year from now is 50, which of the following is closest to the current price of this stock ?

41

to be considered well capitalized, a bank's leverage ratio must exceed

5%

if a bank needs to acquire funds quickly to meet an unexpected deposit outflow, the bank could

Borrow form another bank in the ferderal funds market

according to the efficient market hypothesis, the current price of a financial security

fully reflects all avaiable relevant information

If the possibility of a default increases because corporations begin to suffer losses, then the default risk on corporate bonds will ________, and the bonds' returns will become ________ uncertain, meaning that the expected return on these bonds will decrease, everything else held constant.

increase; more

A monetary expansion ___ stock prices due to a decrease in the ___ and an increase in the ____, everything else held constant.

increase; required rate of return; divident growth rate

the growth of the subprime mortage market led to

increased demand for houses and helped fuel the boom in housing prices.

According to the efficient market hypothesis, purchasing the reports of financial analysts

is not likely to be an effective strategy for increasing financial returns

accroding to the Gordon Model, which of the following is correct in regards to why the stock market began to decline in 2008

ke increased and g decreased

when the fed decrease the money stock, the money supply curve shifts to ___ and the interest rate ____, everything else held constant.

left, rises

Professional athletes often have contract clauses prohibiting risky activities such as skiing and motorcycle riding, these clauses are

limited- liability clauses

the concept of ____ is based on the common -sense notion that a dollar paid to you in the future is less valuable to you than a dollar today

present value

A corporation accquires new funds only when its securities are sold in the ?

primary market by an investment bank

Evidence from business cycle fluctuations in the United States indicates that

recessions are usually preceded by decline in the growth rate of money

in the one- period valution model, an increase in the required return on investments in equity

reduces the current price of a stock

According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rate are expected to ?

rise in the future.

If, after a deposit outflow, a bank needs an additional $3 million to meet its reserve requirements, the bank can

sell 3 million of securities

when an economic expaions occur, which of the following will we likely see ?

the interest rate spread between corporate Baa bonds and three month treasury bonds will decrease.

which of the following is a correct statement about the shadow bank system ?

the shadow bank system is engaged in banking activities and operates parallel to traditional banks

which of the following is a correct statement about the shadow banking system ?

the shadow banking system is better able to hide balance sheet risks

When housing prices began to decline after their peak in 2006, many subprime borrowers found that their mortgages were "underwater." This meant that

the value of the house fell below the amount of the mortgage

when interest rate decrease, how might business and consumers change their economic behavior

there will be more consumption spending on interest senstive items, and more investment by business,

which of the following statements about the characteristics of debt and equity is false ?

they can both be short-term financial instruments

Prior to 1863, all commercial banks in the United States

were chartered by the banking commission of the state in which they operated

Assume initially that the required return on investments is 10%, expected divident is 0.1 and a forecasted price a year from now is 50. Everything else the same, how would an increase in the required return on investments to 20% affect the present stock price ?

will decrease the present price

Assume initially that the required return on investment is 20%, expected dividend is 0.1 and a forecasted price a year from now is 50. Everything else the same, how would an decrease in the expected divident to 0.5 affect present stock price ?

would decrease it

a discount bond is also called ____ becuase the owner does no receive periodic payments.

zero coupon bond

Which of the following statement is not a factor that ultimately lead to the Financial crisis of 2008-2009 ?

All of these 3 possible answers listed here were factors that lead to the financial crisis. 1. Glass Steagall was repealled in 1999 2. For a while morgage companies and banks were primarily motivated to create many mortgages regardless of the qualification of the borrowers. 3. Mortgage Backed Securities came into existance

which of the following is an incorrect statement about the Glass-Steagall Act ?

All of these options are ture: 1. both republicans and democrats were guilty of repealing this act. 2. the repeal of galss stegall was instrumental in paving the way for the 2008 financial crisis to occur. 3. the provisions of glass steagall was the law of the financial world for many years.

in Keynes's liquidity preference framework, if there is excess demand for money, there is

an excess supply of bonds

which of the following are shot term financial instruments

A repurhcase agreement

Competition between banks

A) encourages greater risk taking.

when a depositpr deposits 1000 cash into their checking account at Bank of America which of the following is the closest to what happens in the T account ?

Demand despoits increase and required reserves increase

the statement, " let me be the government's banker and i don't care about who makes the law" can be attributed to

Mayer Amschal Rothschild

The difference of rate-sensitive liabilities and rate-sensitive assets is known as the

Gap

which of the following is included in M2 but not in M1 ?

Money market mutual fund shares ( retail)

The most notable Savings and Loan Bank failure of the 1980's can be attributed to ?

Lincoin Saving Bank and Charles Keating

the figure illustrates the effect of an increased rate of money supply growth at time period T0, From the figure, one can conclude that the ?

Liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.

if an individual used money from a demand deposit account to purchase a US saving bonds

M 1 decreases and M2 decreases

Which of the following are primary concerns of the bank manager ?

Maintaining sufficient reserves to minimize the cost to the bank of deposit outflows

Because of asymmetric information, the failure of one bank can lead to runs on other banks. This is the

Moral hazard problem

the attitude of the American people from the American revolution through the 1800's about a central bank can be best described by which of the following statements ?

Most were against a central bank, becuase of a distrust of powerful central authority

the principal agent problem would not occur if ____ of a firm complete information about actions of the ____.

Owners; managers

in regards to the Efficient Market Hypothesis which one of the forms of information could possibly include insider trading issues ?

The Strong

In regareds to the Efficient Market Hypothesis which one of the forms of information would solety include historic price information ?

The Weak

which of the following sets of conditions would most likely lead to an overall decrease in interest rate ?

a decrease in expected profitbaility of investment and a reductioin in government's deficit.

the saving and loan crisis of the 1980's was to a great extent caused by

all of these 3 option here are true: 1. deregulation 2. saving and loans buying junk bonds 3. saving and loans getting involved in commercial realestate.

the global finanacial crisis showed the need for increased financial regulation, however, too much or poorly designed regulation could ?

choke off financial innovation

The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from ?

engaging in underwriting and dealing of corporate securities