Money and banking test 1 chapters 5 & 6
Which of the following instruments would have the lowest interest rate? a. 1-year certificate of deposit b. 5-year certificate of deposit c. 5-year U.S. treasury bond d. 5-year Greek Treasury bond
1-year certificate of deposit
Which of the following bonds has the greatest interest-rate risk? a. a one-year bond b. a five-year bond c. a ten-year bond d. a thirty-year bond
a thirty-year bond
According to the Fisher hypothesis, an increase in the expected inflation rate should lead to ___ in the nominal interest rate and ___ n the expected real interest rate. a. an increase; a decrease b. an increase; a decrease c. an increase; an increase d. a decrease; a decrease
an increase; no change
If the expected inflation rate was 4 percent and the actual inflation rate was 6 percent, then: a. borrowers gained in real terms at the expense of lenders b. lenders gained in real terms at the expense of borrowers c. borrowers and lenders were not affected d. the government lost because it collected less in taxes
borrowers gained in real terms at the expense of lenders
Usually in recessions, short-term interest rates ____ and long-term interest rates ____. a. rise; rise b. rise; fall c. fall; fall d. fall; rise
fall; fall
What does a flat yield curve imply, according to the expectations theory of the term structure of interest rates? a. the price level will not change in the future b. future long-term rates are expected to rise c. future long-term rates are expected to fall d. future short-term rates are not expected to change
future short-term rates are not expected to change
If expected inflation is 4 percent, the nominal interest rate is 6 percent, and the actual inflation rate turns out to be 2 percent, then the realized real interest rate is ___ than the expected real interest rate and borrowers ____ relative to lenders. a. less; gain b. less; lose c. greater; gain d. greater; lose
greater; lose
Investor can lock in a real interest rate and thus avoid most of the risk of unexpected inflation by buying a. corporate bonds b. inflation-indexed securities c. stock d. mortgage-backed securities
inflation-indexed securities
If expected inflation is 3 percent, the nominal interest rate is 5 percent, and the actual inflation rate turns out to be 4 percent, then the realized real interest rate is ___ than the expected real interest rate and borrowers ___ relative to lenders.
less; gain
A basis point equals a. one hundredth of a percentage point b. one tenth of a percentage point c. one half of a percentage point d. ten percentage points
one hundredth of a percentage point
The process of turning assets such as mortgages into securities sold to investors is a. default b. standard deviation c. standardization d. securitization
securitization
the term premium is a. the interest rate on a long-term bond minus the average interest rate on future-short term bonds b. the interest rate in a long-term bond plus the average interest rate on future short-term bonds c. the average interest rate on future short-tem bonds d. the standard deviation of the interest rate on long-term bonds
the interest rate on a long-term bond minus the average interest rate on future-short term bonds