Econ 2I03

5) The yield on a discount basis of a 90-day, $1,000 Treasury bill selling for $950 is A) 5 percent. B) 10 percent. C) 15 percent. D) 20 percent.

20 percent.

18) ________ policy involves decisions about government spending and taxation. A) Monetary B) Fiscal C) Financial D) Systemic

Fiscal

40) Examples of discount bonds include A) U.S. Treasury bills. B) corporate bonds. C) U.S. Treasury notes. D) municipal bonds.

U.S. Treasury bills.

Securitized loans

financial liability for the borrower

Bond

financial security represents a promise to repay

Eurocurrencies

foreign currencies deposited in banks outside the home country

Commodity Money

good used as money that also has independent value

31) The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. A) greater; coupon; above B) greater; coupon; below C) greater; perpetuity; above D) less; perpetuity; below

greater; coupon; below

Barter

System of exchange in which individuals trade G +S directly for other G+S (early inefficient)

Eurodollar

US dollar deposited outside US

Money

anything generally accepted in payments for G+S

3) Financial markets improve economic welfare because A) they channel funds from investors to savers. B) they allow consumers to time their purchase better. C) they weed out inefficient firms. D) eliminate the need for indirect finance.

) they allow consumers to time their purchase better

Functions of banks

1. financial intermediation 2. transferring resources across time and space 3. Reduce sharing/managing 4. risk sharing/managing 5. dealing with incentive problems

Regulation of financial markets

1. increase information to investors 2. ensure soundness of intermediaries 3. Financial regulation abroad

7) Which of the following is a depository institution? A) A life insurance company B) A credit union C) A pension fund D) A mutual fund

A credit union

1) The risk structure of interest rates is A) the structure of how interest rates move over time. B) the relationship among interest rates of different bonds with the same maturity. C) the relationship among the term to maturity of different bonds. D) the relationship among interest rates on bonds with different maturities.

B) the relationship among interest rates of different bonds with the same maturity

7) The bond markets are important because they are A) easily the most widely followed financial markets in the United States. B) the markets where foreign exchange rates are determined. C) the markets where interest rates are determined. D) the markets where all borrowers get their funds.

C) the markets where interest rates are determined

4) Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called A) commodity markets. B) fund-available markets. C) derivative exchange markets. D) financial markets.

D) financial markets.

) Which of the following is not included in the measure of M1? A) NOW accounts. B) Demand deposits. C) Currency. D) Savings deposits.

Savings deposits.

2) Which of the following statements about the characteristics of debt and equities is true? A) They can both be long-term financial instruments. B) Bond holders are residual claimants. C) The income from bonds is typically more variable than that from equities. D) Bonds pay dividends.

They can both be long-term financial instruments.

Secondary markets

Toronto stock exchange makes financial instruments more liquid determine price of security tat the issuing firm sells in primary market either exchanges or over the counter market

Which of the following instruments are traded in a money market? A) State and local government bonds. B) U.S. Treasury bills. C) Corporate bonds. D) U.S. government agency securities.

U.S. Treasury bills. (also banker acceptances)

or simple loans, the simple interest rate is ________ the yield to maturity. A) greater than B) less than C) equal to D) not comparable to

equal to

1) A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called A) commercial paper. B) a negotiable certificate of deposit. C) a banker acceptance. D) federal funds.

a negotiable certificate of deposit.

31) Everything else held constant, a stronger dollar benefits ________ and hurts ________. A) American businesses; American consumers B) American businesses; foreign businesses C) American consumers; American businesses D) foreign businesses; American consumers

american consumers; American businesses

13) Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them. A) assets; liabilities B) liabilities; assets C) negotiable; nonnegotiable D) nonnegotiable; negotiable

assets; liabilities

Aggregate price

average price for a G or S

Financial intermediaries

banks, insurance companies, pension funds

Equity markets

common stocks benefits: directly from corporation's profits disadvantage is that holders are residual claimants

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 A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.

coupon bond.

6) An asset s interest rate risk ________ as the duration of the asset ________. A) increases; decreases B) decreases; decreases C) decreases; increases D) remains constant; increases

decreases; decreases

Eurobonds

denominated in a currency

11) The primary liabilities of a credit union are A) bonds. B) mortgages. C) deposits. D) commercial loans.

deposits.

income

earnings over a period of time

10) The interest rate on Baa (medium quality) corporate bonds is ________, on average, than other interest rates, and the spread between it and other rates became ________ in the 1970s. A) lower; smaller B) lower; larger C) higher; smaller D) higher; larger

higher; larger

4) All else equal, the ________ the coupon rate on a bond, the ________ the bond s duration. A) higher; longer B) higher; shorter C) lower; shorter D) greater; longer

higher; shorter

Capital market

longer term debt, more price fluctuations, risky stock, mortgagees, government bonds

9) Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average. A) more; lower B) less; lower C) more; higher D) less; higher

more; lowe

fiat money

no value apart from its use as money

2) Values measured using current prices are called ________ values. A) nominal B) real C) inflated D) aggregate

nominal

8) A bond with default risk will always have a ________ risk premium and an increase in its default risk will ________ the risk premium. A) positive; raise B) positive; lower C) negative; raise D) negative; lower

positive; raise

6) The spread between the interest rates on bonds with default risk and default-free bonds is called the A) risk premium. B) junk margin. C) bond margin. D) default premium.

risk premium.

Stock

securities that represent partial ownership dividends are payments made to shareholders

Mutual fund

sells shares to investors and invest money in portfolio

Money market

short term debt instruments, safe

Timeline of debt markets

short: less than 1 year medium: between 1 and 10 years long: greater than 10 years

Hedge fun

similar to mutual but few wealthy investors and riskier

Certificate of deposits

sold by a bank and pays annual interest either neogotiable/non

Foreign bond

sold in a foreign country and denominated in that country issued by a business or corporation in another country 1. bond issues in a foreign entity 2. traded on foreign market 3. denominated in foriegn currency

Wealth

sum of persons assets

15) The stock market is important because it is A) where interest rates are determined. B) the most widely followed financial market in the United States. C) where foreign exchange rates are determined. D) the market where most borrowers get their funds.

the most widely followed financial market in the United States.

A problem with the yield on discount basis is that it ________ the yield to maturity, and this ________ increases, the ________ the maturity of the discount bond. A) understates; understatement; longer B) understates; understatement; shorter C) overstates; overstatement; longer D) overstates; overstatement; shorter

understates; understatement; longer

Foreign exchange

units of foreign currency `

Commercial paper

unsecured short term debt, minimum 50 000 maturities of 1-365 days interest is low