Econ 3229 final
Suppose 1 year and 2 year bond yields currently are 2% and 3%. According to expectations hypothesis, what's the expected yield on 1 year bond year from now? A) 2% B) 2.5% C) 4 % D) 5%
C
Suppose John deposits $100 bill to his savings account. A) Both M1 and M2 increase B) M1 decreases and M2 increases C) M1 decreases and M2 stays unchanged D) M1 and M2 stay unchanged
C
Suppose one year and two year bonds currently offer 2% and 3%, respectively. If liquidity premium for two year bonds is 0.5%, what is the expected yield on one-year bond next year? A) 2.5% B) 2.75% C) 3.0% D) 3.5%
C
Suppose you buy a 30-year, $50 coupon payment Treasury bond with a face value of $1,000 for a price of $1,200. Assume the price of this bond decreases to $1,100 over the next year and you decide to sell it. The one-year holding period return is equal to: A) -9.17% B) -8.33% C) -4.17% D) -3.79%
C
In acting as the bankers' bank, the central bank: A) provides loans during times of financial distress, manages the payments system, and oversees commercial banks and the financial system. B) provides loans during times of financial distress, provides deposit insurance, and oversees commercial banks and the financial system. C) provides loans during times of financial distress, manages the payments system, and provides deposit insurance. D) provides deposit insurance, manages the payments system, and oversees commercial banks and the financial system.
A
Both Treasury bills and commercial paper share the following characteristic: A) They are both sold by treasury department B) They are both debt instruments C) They both carry relatively high risk for investors D) They can both be used as a collateral in order to borrow
B
Federal funds market is A) interbank loan market that are secured B) interbank loan market that are unsecured C) maintained and regulated by the Federal Reserve D) located in NYC
B
If the federal government decreases its spending and doesn't decrease taxes, the bond supply shifts to the A) left and the equilibrium interest rate rises. B) left and the equilibrium interest rate falls. C) right and the equilibrium interest rate rises. D) right and the equilibrium interest rate falls.
B
In order to ensure that the target federal funds rate is met: A) the Fed sets the rate, and commands that it be made B) the Fed uses open market operations to change supply of reserves to meet the demand for reserves at the target rate C) the Fed lends to banks at that rate D) the Fed coerces banks to adjust their demand for reserves so that the target is met
B
NASDAQ is an example of A) Centralized exchange B) Over the counter market (OTC) C) Primary market D) Money market
B
Open market sale of $10 million worth of securities will A) increase bank reserves by $10 million B) decrease bank reserves by $10 million C) increase monetary base by $10 million D) leave monetary base unchanged
B
Suppose Big Mac costs $4.8 in US and 4.5 pounds in UK. If the current exchange rate is $1.25 per pound then pound is ______ and should _______ against dollar. A) overvalued; appreciate B) overvalued; depreciate C) undervalued; appreciate D) undervalued; depreciate
B
Suppose NY Fed staff anticipates decrease in demand for reserves. To keep the market FFR close to the target they would need to conduct A) defensive open market purchase B) defensive open market sale C) dynamic open market purchase D) dynamic open market sale
B
Suppose current discount rate is 1.25%, deposit rate is 0.25% and effective FFR is 1.25. What effect will lowering discount rate to 1.0% have? A) increase FFR B) decrease FFR C) decrease discount lending D) no effect on FFR
B
Suppose that Lena, after adding comprehensive insurance to her car insurance policy, starts leaving her car unlocked. This is an example of A) stupid behavior B) moral Hazard C) adverse selection D) death spiral
B
Suppose yield on 1 year bond is 1% currently and investors expect it to be 1.8% next year. According to expectations hypothesis, what's the yield on 2 year bond right now? A) 1% B) 1.4% C) 1.8% D) 2.8%
B
Suppose you are planning to take a vacation in two years. How much would you need to save now in order to have 1,000 in two years at interest rate of 5%? A) 900 B) 907 C) 950 D) 1050
B
What is price of $100 face value, one year discount bond with an yield (of maturity) of 8%? (Hint: price of any bond equals to the present value of all the future payments it makes) A) 92 B) 92.6 C) 100 D) 108
B
What is yield to maturity of $100 face value one year discount bond selling for $98? A) 2% B) 2.04% C) 5% D) 5.26%
B
Which of the following will cause a decrease in money supply but NOT in the money multiplier? A) Increase in excess reserve-to-deposit ratio B) Decrease in total reserves C) Increase in currency-to-deposit ratio D) Increase in required reserve ratio
B
Benefits of "Grexit" include all of the following except: A) Greek government's ability to devalue drachma B) Greek government's ability to pursue its own monetary objectives C) Avoidance of austerity measures D) Increased integration with euro zone economy
D
Current demand for Jeep Wrangler in France is 10,000 units at 15,000 euros each. Suppose also the current exchange rate is 0.8 euros per $. What happens to Chrysler's sales revenues (in dollars) in France if the exchange rate changes to 0.9 euro per dollar, assuming Chrysler keeps selling the same number of cars? A) Increases to 166.7 mln dollars B) Increases to 1.8 bln dollars C) Decreases to 2 bln dollars D) Decreases to 166.7 mln dollars
D
Current target for federal funds rate is: A) 0-0.25% B) 0.5-0.75% C) 1.00-1.25% D) 1.50-1.75%
D
If more money is good, why does not government just print and throw dollar bills from helicopters? A) It's unconstitutional B) It'd cause increase in crime C) It'd cause inflation D) With more dollars around, value of dollar would decrease
D
Open market purchase by Fed will shift A) demand for reserves left B) demand for reserves right C) supply of reserves left D) supply of reserves right
D
Suppose 1 year, 2 year and 3 year bond yields currently are 2%, 2.5% and 3.2%. According to expectations hypothesis, what's the expected yield on 1 year bond two years from now? A) 2% B) 2.5% C) 4 % D) 4.6%
D
Suppose I write a check of $100 for my uncle who deposits it at his bank. Which of the following describes impact on both, mine and my uncle's, banks? A) Both banks' assets increase B) Increase in reserves for my bank and decrease in reserves of my uncle's bank C) Both banks' liabilities decrease D) Decrease in reserves for my bank and increase in reserves of my uncle's bank
D
Suppose current discount rate is 1.25%, deposit rate is 0.25% and effective FFR is 0.35. What effect will lowering discount rate to 1.0% have? A) increase FFR B) decrease FFR C) increase discount lending D) no effect on FFR
D
Suppose in 2012 you buy 3% coupon rate, $100 face value bond for $100 that has 2 years left till maturity. If in 2013 interest rates decrease to 1%, what will be the price of your bond and what will be your rate of return if you decide to sell it then? A) $100 and 3% B) $100 and 4% C) $101 and 4% D) $102 and 5%
D
Suppose in 2015 you lend $100 to a friend who promises to repay $110 in 2016. You expect 5% inflation rate during that year. However, when your friend repays debt, you discover that actual inflation was 7% that year. Given this information, your expected real interest rate was _____, but actual real interest rate turned out to be _____. A) 10%; 7% B) 7%; 5% C) 5%; 7% D) 5%; 3%
D
Suppose one year bond currently has 1% yield, is expected to have 1.2% next year and 2% two years from now. If liquidity premium for two year and three year bonds is 0.5% and 0.8%, what is a current yield on three year bond? A) 1.4% B) 1.9% C) 2.0% D) 2.2%
D
Suppose reserve requirement ratio is 16% and a bank receives new $10,000 deposit. What's the maximum amount the banking system can lend out? A) $10,000 B) $12,000 C) $120 D) $52,500 E) $62,500
D
The monetary liabilities of the Federal Reserve include A) securities and reserves. B) currency in circulation and loans to financial institutions. C) securities and loans to financial institutions. D) currency in circulation and reserves.
D
What does it mean for a money market mutual fund to "break the buck"? A) It incurs losses on its investments. B) It increases its fees to more than 1% of net asset value. C) It is unable to meet the demand for withdrawals by investors. D) The value of its share declines below $1.
D
What is yield to maturity of the same, $100 face value one year discount bond, now selling for $95? A) 2% B) 2.04% C) 5% D) 5.26%
D
What's the largest asset category for a typical bank? A) Securities B) Cash C) Consumer loans D) Real estate loans
D
Which of the following is NOT true of an insolvent bank? A) The value of its assets is less than the value of its liabilities. B) It may be unable to pay off its depositors. C) Its net worth is negative. D) It must have no more deposits.
D
Suppose reserve requirement ratio is 16% and a bank receives new $10,000 deposit. What's the maximum amount the bank can lend out? A) $10,000 B) $12,000 C) $120 D) $1,200 E) $8,400
E
In 2012, banks held required reserves $111.6 billion, excess reserves $1,458.7 billion. Currency in non-bank public was $1,092.4 billion and deposit accounts were $1,401.6 billion. What was money multiplier? A) 1.57 B) 1.12 C) 0.94 D) 0.87
C
If 2 year and 10 year Treasury bonds pay 1.5% and 2.5%, respectively and 10 year corporate bond pays 3.4%, what's the risk spread on corporate bond? A) 0.9% B) 1.5% C) 1.9% D) 5.9%
A
If US banking system has $1.5 trillion bank capital and $11.6 trillion liabilities, then calculate debt-to-equity ratio and asset-to-capital ratio A) 7.7 and 8.7 B) 7 and 10 C) 2 and 5 D) 12 and 15
A
Credit union is an example of A) Depository institution B) Insurance company C) Pension fund D) Securities firms
A
Exchange rate volatility is a problem because: A) a stable exchange rate makes import and export prices predictable, facilitating exchange. B) the higher the value of a dollar, the more exports are sold. C) the lower the value of a dollar, more goods and services are imported. D) none of the above.
A
Suppose 2-year bond currently pays 2%. What is the yield on 3-year bond today, if 1-year bond is expected to pay 2.3% two years from now? A) 2.1% B) 2.5% C) 4 % D) 5%
A
Suppose John adds comprehensive insurance to his car insurance policy right before the hail season. This is an example of A) Adverse selection B) Moral Hazard C) Principal-agent problem D) Death spiral
A
Suppose a bank has $100 million in assets, $80 million in liabilities and $20 million in capital. If in 2013 ROA was 2%, what is the bank's ROE? A) 10% B) 8% C) 4% D) 2%
A
Suppose investors anticipate that long-term bond yields will increase in the future, possibly due to the Fed increasing interest rates. Then the current demand for long-term bonds shifts A) left and the equilibrium interest rate rises. B) left and the equilibrium interest rate falls. C) right and the equilibrium interest rate rises. D) right and the equilibrium interest rate falls.
A
What is another name for non-investment grade bonds? A) Junk B) High yield C) Unsafe D) Low grade
A
When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) decrease; decreases C) increase; decreases D) decrease; increases
A
Which of the following is a common characteristic of mutual funds and hedge funds? A) Investor's money typically is not insured in these institutions B) They both make very safe investments C) They both have relatively few restrictions on opening a new account D) They both have relatively few restrictions on withdrawing money
A
What explains a shift in bank assets from business loans to real estate loans? A) Securitization made real estate loans easier B) Commercial paper market reduced demand for loans from the corporations C) Changing legal structure of large banks D) General downward trend in interest rates
A and B
Which of the following is an example of adverse selection? A) A man with a bad heart condition buys a large life insurance policy. B) A woman with a large life insurance policy takes up sky diving. C) A homeowner with a large fire insurance policy allows the wiring in her house to deteriorate. D) Hail damages your car so you add comprehensive insurance to liability (basic) car insurance plan.
A and D
A vacation to Mexico costs $500 less than a vacation to Europe. When you make this comparison, which of the following functions of money do you use? A) Medium of exchange B) Unit of account D) Store of value E) Barter trade
B
What is price of $100 face value, two year, 5% coupon bond with an yield of 8%? A) 92 B) 92.6 C) 94.6 D) 95
C
When was the Fed established? A) 1789, as a part of US consitution B) 1866, as a part of new banking regulations C) 1913, as a part of Federal Reserve Act D) 1934, as a part of Glass-Steagall Act
C
When would you be indifferent between receiving $100 now and $100 next year? A) when interest rate=1% B) when interest rate=100% C) when interest rate=0% D) None of the above
C
Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 12 percent coupon bond selling for $1,000 D) A 12 percent coupon bond selling for $1,100
C
Which of the following cities does not have a federal reserve bank? A) Chicago B) Philadelphia C) Los Angeles D) New York
C
Which of the following countries does not belong to Eurozone? A) Italy B) Austria C) Switzerland D) France
C
Why do you think exchange rate stability is rarely pursued by the Fed? A) exchange rate volatility is really not a problem. B) Fed has no means to keep exchange rate stable C) It requires Fed to sacrifice other important goals D) Current agreements with ECB and other central banks prevent Fed from pursuing stable dollar.
C
