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