True/False
Only in very rare circumstances do financial regulators work in the finance industry after their public service
False
The current low interest rate make long-term bond investments extremely attractive to life insurance companies
False
The current low interest rates make long-term bond investments extremely attractive to life insurance companies
False
The fisher model and the quantity theory of money fit together perfectly and provide a thorough explanation of the link between inflation and interest rates
False
The maturity distribution of US Treasury debt shifts to long maturities when current interest rates are low compared with long-term averages
False
The maturity distribution of US treasury debt shifts to longer maturities when current interest rates are low compared with long-term averages
False
While an industry has the legal right to lobby the government concerning the creation of regulatory agencies, the industry is strictly forbidden to lobby regulatory agencies concerning the development of regulatory rules
False
In the Loanable Funds model, the demand for funds is determined by business borrowing, consumer borrowing, and the supply of money
False- Government borrowing not the supply of money
the treasury tips program provides excellent protection from unanticipated inflation for entities with high tax brackets
False- I think it's false because of the word excellent, they are subject to high taxes
Rule 144a offering are a type of shelf registration and therefore have much lower interest rates
False- Rule 144a is a bond that is sold to qualified institutional buyers and tend to have higher yields than most public offerings
A number of experts have argued that pension benefit guaranty corporation charges excessively high insurance premiums to contributing employers
False- The Pension Benefit Guaruntee Corp is actually underfunded because of extremely low interest rates in previous years
Bid-asked spreads on municipal bonds are smaller than the bid-asked spreads of treasury bonds of the same maturity because of preferential tax status of the municipal and the default insurance used by many issues
False- bid ask spreads on treasury bonds will be much smaller because the risk of them is much smaller
The interest rate on 10-year US Treasury securities has been more variable than the interest rate on US Treasury bills
False- bills are shorter term than 10-year securities and therefore more variable
In the Loanable Funds model, the supply of funds is determined by business savings, consumer borrowing, and the supply of money
False- consumer savings not consumer borrowing
US Treasury debt as a % of GDP was very high at the end of World War II, was roughly constant until the mid-1970s, and has been declining consistently with few interruptions since
False- debt as % of GDP has been rising
In the current environment of historically low interest rates, investing in long-term bonds is especially attractive for individuals who want to preserve their principal
False- higher interest rates will lead to more interest paid back with principal
The revolving door has been used to explain one of the reasons why "captured regulators" refers for the tendency for regulators to serve for very short periods of time
False- idk why
Besides US Treasury securities, the largest type of assets purchased by the Fed Reserve through quantitative easing has been agency securities
False- im guessing mortgage-backed securities are larger
In the Loanable Funds model, increases in the money supply adversely affect business opportunities and crowd out business borrowers
False- it lowers the interest rate so it increases business opportunities and borrowings
The Quantity Theory of Money indicates that every increase int eh money supply will result in an increase in the general price level
False- it may increase quantity if economy is not operating at capacity
The treasury TIPS program allows investors in high tax brackets protection against anticipated inflation
False- it protects against unanticipated inflation as well
The term moral hazard in the context of commercial banks refers to the tendency of commercial banks to take on too little risk for fear of being punished severely by regulatory agencies
False- moral hazard is when the banks take on the risk because the consequences of the risk won't fall directly on them
All evidence indicates that security markets are efficient in both the short run and the long run
False- not always efficient
The commercial banking industry in the US is strongly in favor of having over-the-counter derivative securities traded on organized exchanges with clearinghouses that guarantee performance
False- over the counter derivative securities are not traded on an organized exchange and have little to no transparency about deals
Quantitative easing by the Fed Reserve refers to the setting of low targets for the growth rate of the money supply
False- quantitative easing aims to increase the money supply to lower interest rates
Regulators are virtually always chosen because of their independent thinking and their lack of contact with the industry to be regulated
False- regulators need to be experts in the industry they regulate
Mutual funds are attractive to individual investors because studies have shown that the average mutual fund significantly and consistently outperforms indexes of returns
False- the average mutual funds underperform market indices by essentially the amount of the fees charged by the fund
In the capital asset pricing model, the bid-asked spreads are smaller for securities with larger betas
False- the bid asked spreads would be larger for securities with larger betas
Each of the 12 federal reserve districts in the US has a president who is a member of the federal open market committee
True
In general, interest rates levels tend to follow the business cycle with rates rising during expansions and declining during economic contractions
True
In order for income per capita to increase in the US, productivity per capita must increase
True
In the Loanable Funds model, the demand for funds increase if government borrowing increases
True
In the Quantity Theory of Money, an increase in the money supply in excess of the increase in the growth of output can result in inflation
True
The circular flow between production and income in the aggregate economy implies that the only way that income per capita can increase is if productivity per capita increases
True
The term moral hazard in the context of the largest commercial banks refers to the tendency of commercial banks to take on too much risk because of the confidence that the government will bail them out if they fail
True
The total debt of the US is larger than the total debt of China as a percentage of gross domestic product
True
The total debt of the US is larger than the total debt of Japan
True
The total debt of the US is larger than the total debt of the UK
True
The treasury Tips program provides exactly equivalent protection against fully anticipated inflation compared to US treasury bonds
True
When a bond is sold by best efforts, the underwriting fees are lower then for issues sold by firm commitment
True
The repeal of the McLaren Act helped to reduce the excessive concentration in the banking industry in the United States
False- the McLaren act allowed banks to operate in more than one state causing many mergers and reducing the concentration- repealing it would do the opposite
more than 50% of US treasury marketable debt is in the form of treasury notes
True
Interest rates on US Treasury securities reached a peak in the early 1980s and has been trending downward ever since
True (refer to graph in intro)
All defined benefit pension plans in the US are backed by the Pension Benefit Guaranty Corporation
False- the PBGC does not insure the defined benefit plans of governmental units, such as states or municipalities
defined benefit pension plans are less attractive than defined contribution plans for individuals who plan to transfer jobs to distant locations
True - this is because defined benefit pension plans are a percentage of your salary overtime
Besides US treasury securities, the largest type of assets purchased by the federal reserve and quantitative easing is mortgage back securities
True, this is then followed by government agencies securities
Defined benefit pension plans are less attractive than defined contribution plans for individuals who plan to transfer jobs to distant locations
True- because defined benefit pension plans are a % of your income over time at the company
if inflation is fully anticipated, treasury notes should provide at least as much as protection against inflation as treasury tips
this is true because they take anticipated inflation into account
The assets purchased through the federal reserve quantitative easing include US treasury securities, mortgage back securities, and government agencies securities
true
The total debt of the United States treasury is larger than the treasury debt of Canada and Australia combined
true
according to the quantity theory of money, quantitative easing by the Federal Reserve must lead to inflation if productive capacity is fully utilized
true
if inflation is fully anticipated treasury notes should provide as much protection against inflation as treasury tips
true
in the quantity theory of money, an increase in the money supply in excess of the increase in the growth of output can result in inflation
true
interest rates on US treasury securities reached a peak in the early 1980s and have been trending downward ever since
true
when a bond issue is sold by best efforts the underwriting fees are lower than four issues sold by firm commitment
true
long-term interest rates tend to fluctuate less than short-term interest rates
true long-term interest rates provide more stability
if inflation is fully anticipated, treasury notes should provide as protection against inflation as treasury tips
true- the fisher model
The quantity theory of money indicates that every increase in the money supply will result in an increase in the general price level
false - if there is excess in the market then it will result in an increase in quantity not price level
in the current environment of historically low interest rates investing in long-term bonds is especially attractive for individuals who want to preserve their principal
false - if you are going to buy a bond that is long-term you would want interest rates to be high
in general, interest-rate levels tend to follow the business cycles with rates falling during expansions in rising during economic contractions
false - interest rates rise during expansions and fall during contractions
The treasury TIPS program allows investors in high tax brackets protection only against anticipated inflation
false - it can provide protection against unanticipated inflation as well
The Federal open market committee contains precisely eight individuals i.e. the seven members of the board of governors in the president of the New York federal reserve
false - it contains all 7 governors and the 12 presidents of the federal reserve
US treasury debt as a percentage of gross domestic product was very high at the end of World War II was roughly constant until the mid-1970s and has been declining consistently with a few interruptions since then
false - it has been inclining consistently
Mutual funds with front end loans have been shown to be better performers than mutual funds with 12b-1
false - it honestly just depends on what type of investment you are doing
besides US treasury securities the largest type of assets purchased by the federal reserve and its quantitative easing has been agency securities
false - it is mortgage-backed securities
from 1990 through approximately 2007, mortgage debt in the US as a percentage of GDP remained relatively constant
false - mortgage debt was gradually inclining all the way up to 2007 and peaked. consumer credit in municipal securities remained relatively constant
In order for income per capita to increase in the United States, productivity per capita must decrease
false - productivity per capita must increase
private offerings of corporate bonds typically lower higher interest rates than public offerings, other things equal, because of their greater market ability
false - public offerings are more marketable and have lower interest rates
Quantitative easing by the Federal Reserve refers to the setting of low targets for the growth of the money supply
false - quantitive easing by the Federal Reserve refers to the federal reserve injecting money into the economy to increase money supply first hand
quantitive easing by the federal reserve refers to the setting of high targets for the growth rate of the money supply
false - quantitive easing refers to the federal reserve injecting more money into the economy to increase the money supply
The US treasury debt went from approximately 10 million in the 1980s to 16, billion today
false - the US treasury debt is nearing 16 trillion
bid ask spread is on municipal bonds are smaller than bid ask spread on treasury bonds for the same maturity because of preferential tax status on municipal in the default insurance used by many issues
Falls - bid ask spread on treasury bonds will be much smaller because of the risk of them is much smaller
Exchange traded funds allow investors to purchase or redeem shares directly from the fund at the net asset value anytime during trading hours
Falls - there is sometimes a difference between the price and the net asset value
A policy of issuing mostly Treasury Bills would tend to lower interest rates on Treasury Bills relative to long-term bonds because of its improved liquidity resulting from greater supply file
False
According to the Quantity theory of money, quantitative easing by the Fed Reserve must lead to inflation in the very near future
False
The bid-ask spreads are larger for US treasury bonds than for corporate bonds from the same maturity because of their greater trading volume, which creates difficulty in finding buyers
False- the bid asks for US treasury bonds are much shorter than for corporate bonds because treasury bonds have a very active market and are traded very frequently
Mutual funds with front end loads have been shown to be better performers than other varieties of funds
False- the load preference truly depends on the situation
When an underwriter makes a firm commitment for a bond issue, the issuer bears most of the risk of resale
False- the underwriter buys the securities and bears all the risk
Exchange traded funds allow investors to purchase or redeem shares directly from the fund at the net asset value
False- there can be differences between the net asset value of the assets and the price
The assets purchased through the Federal Reserve quantitative easing are primarily corporate bonds
False- they are primarily short term securities
A corporation defined contribution pension plan that requires investment of 50% of the pension in the company's stick is quite appealing to risk averse investors
False- this is a much risker move because if the company does poorly than your retirement is at risk
Brokers charge lower bid-ask spreads for short maturity securities compared to long maturity securities
False- while there are lower bid asks for short maturities this refers to dealers, brokers just act as agents and don't have any inventory
A no-load mutual fund does not charge any sales fee
True
If a business that needs to borrow a large amount of money for a long-term investment believes that interest rates will rise in the future, issuing long term maturity bonds is a far better strategy than issuing short maturity bonds
True- if interest rates are lower, then the company will have to pay back to investor with less interest
The money supply increases if the Fed engages in Quantitative easing
True- supply curve falls to the right and interest rate falls
The repeal of the Glass-Steagall Act allowed commercial banks to engage in other activities besides taking deposits and making commercial loans
True- the Glass-Steagall act does not allow banks to engage in other activities besides taking deposits and making commercia loans
In the loanable funds framework, an increase in the money supply will have minimal impact upon the level of economic activity if business and consumer borrowing are not affected by low interest rates
True- while an increase in the money supply will decrease the interest rates, it wont have an impact if business and consumer borrowing are not affected by it
The original passage of the glass Steagall act allowed commercial banks to engage in other activities besides taking deposits and making commercial loans
True/false
Fisher model in the quantity theory of money fit together perfectly and provide a thorough explanation of the link between inflation and interest rates
false
High-yield corporate bonds are especially attractive to some groups of investors and consequently have much lower underwriter fees than lower yield corporate bonds
false
The revolving door has been used to explain one of the reasons why regulars serve for very long periods of time
false
The treasury tips program does not provide investors in low tax brackets protection against anticipated inflation
false
all of the evidence indicates that security markets are efficient in both the short run and the long run
false
because of the current low interest rates the total interest on treasury debt is less than half of the US federal budget deficit
false
in the quantity theory of money, an increase in the money supply that is less than the increase in the growth of output can result in inflation
false
most of the time, bank loans have fewer restrictive covenants dealing with the resale of the loan in the bond market
false
only in very rare circumstances do financial regulators work in the finance industry after their public service
false
regulators are virtually always chosen because of their independent thinking in their lack of contact with the industry to be regulated
false
while an industry has the legal right to lobby the government concerning the creation of regulatory agencies the industry is strictly for bidden to lobby regulatory agencies concerning the development of regulatory rules
false
if consumer borrowing increases, government borrowing must increase in tandem to avoid dominance of the market by consumers
false - Government borrowing is not affected by interest rates and can be added as a constant to business and consumer borrowing
high-yield corporate bonds are especially attractive to some groups of investors in consequently have much lower underwriter fees than lower yield corporate bonds
false - a high-yield corporate bond does not guarantee a lower underwriting fee
A number of experts have argued that pension benefit guarantee corporation charges excessively high insurance premiums to contributing employer
false - a number of experts think that they don't charge enough because of the under funding and that they can't in fact cover all problems that may arise
an increase in government borrowing increases the growth rate of productivity in the private sector because of the crowding out of business investments
false - an increase in government borrowing reduces some consumer expenditures in business capital expenditures in the private economy
an increase in the money supply increases interest rates except in the case where the increase is so large as to be inflationary
false - an increase in the money supply reduces interest rates
Brokers charge lower bid ask spread for maturity securities compared to long maturity securities
false - brokers don't charge bid ask spread dealers do
according to the quantity theory of money, quantitative easing by the federal reserve must lead to inflation in the very near future
false - don't think it's in the very near future
all defined benefit pension plans in the United States are backed by the pension benefit guarantee Corporation
false - government workers such as state and local municipality workers are not covered
The Treasury TIPS program provides better protection against fully anticipated inflation than tax-free municipal bonds for highly taxed individuals
false - highly taxed individuals are subject to taxes on the inflation protection
The bid asked spreads are larger for US treasury bonds than for corporate bonds from the same maturity because of their greater trading volume, which creates difficult finding buyers
false - the bid ask spread should be smaller for US treasury bonds then for corporate bonds because treasury bonds have a very active market and are traded very frequently
The interest rate on a 10 year US treasury securities has been more variable than the interest rate on US treasury bills
false - the interest rate on US treasury bills are more variable because they are less than one year while US treasury bonds are longer
The money supply decreases if the Federal Reserve engages in quantitative easing
false - the money supply will increase because they inject more money into the economy
The trough in interest rates in the post World War II time period was reached during the recession of 1981 to 1982
false - the peak of interest rates was reached during the recession of 1981 to 1982
The availability of multiple classes of mutual funds guarantees that investment advisors will recommend a class that is best for individual investors
false - there is no guarantee
in the capital asset pricing model, the bid ask spread's are smaller for the securities with larger Betas
false - they should be larger for securities with larger Betas
A corporate defined contribution pension plan that requires investment of 50% of the pension in the company stock is quite appealing to risk adverse investors
false - this is extremely risky and most people like to have a variety of investments for their pension plan. if the company goes under then your retirement is at risk
municipal general obligation bonds are backed by full taxing authority of the municipality and consequently have higher default
false - while general obligation bonds are backed by full taxing authority they have a lower default risk than revenue bonds
The repeal of the McLaren act helped to reduce the excessive concentration in the banking industry in the United States
false Dash the McLaren act helped to reduce the excessive concentration in the banking industry so repealing it would do the opposite
if a business that needs to borrow a large amount of money for a long-term investment believes that interest rates will rise in the future issuing short maturity bonds is a far better strategy than issuing long maturity bonds
false it would be more smart to issue long maturity bond while interest rates are lower
in the loanable funds framework, an increase in the money supply will have a maximum impact upon the level of economic activity if business in consumer borrowing are not affected by low interest rates
false it would only have maximum impact if they are affected
if the federal reserve engages in quantitative easing, the US treasury must assist the fed by issuing more securities than otherwise necessary
false the US treasury does not assist to the Fed ever
The total debt of the US is larger than the total debt of Japan as a percentage of gross domestic product
false- Japan is the leading dead country as a percentage of gross domestic product
the treasury tips program must always provide better protection against fully anticipated inflation compared to US treasury bonds
false- US treasury bonds also provide protection against fully anticipated inflation
the treasury tips program provides a perfect protection from unanticipated inflation for entities with a high tax bracket
false- idek anymore
A policy of issuing mostly treasury bills would tend to lower interest rates on treasury bills relative to long-term bonds because of this improved liquidity resulting from greater supply file
false- if only treasury bills were issued they would be closely tied to fluctuating interest rates and if interest rates were high then the policy would cause the government to lose money
The treasury TIPS program does not provide protection from unanticipated inflation forzero entities with zero tax brackets
false- it does provide protection
municipal government debt has increased as a percentage of GDP consistently and at a rapid rate since 1990
false- it has remained relatively constant
lowering interest rates by the Federal Reserve will be especially effective in stimulating economy when there is a liquidity trap
false- liquidity trap means that no matter what the federal reserve does the interest-rate is already so low that it cannot be lowered anymore
The commercial banking industry in the United States is strongly in favor of having over the counter derivative securities traded on organized exchanges with cleaning houses that guarantee performance
false- over the counter trading is not an organized exchange
Rule 144a offerings are a type of shelf registration and therefore have much lower interest rates
false- rule 144 a offerings are not a type of shelf registration they are a type of bond for qualified buyers and tend to have higher interest-rate's
Mutual funds are attractive to individual investors because studies have shown that the average mutual fund significantly and consistently outperforms indexes of returns
false- studies have shown that mutual funds significantly and consistently under performed indexes of returns
when an underwriter makes a firm commitment for a bond issue, the issuer bears most of the risk of the resale
false- the underwriter will bear all the risk of the resale
The assets purchased through the federal reserve quantitative easing are primarily corporate bonds
false- they are primarily short term securities
