Econ 353 Final
U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. A) premium B) collateral C) discount D) default
C
U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called A) Atlantic dollars. B) foreign dollars. C) Eurodollars. D) outside dollars.
C
A 2-year T-note has an annual coupon rate of 3% and a face value of $1000. The rate of discount is 1%. The present value of the bond is A) $1039.41 approx. B) $1028 approx. C) $1004.38 approx. D) $999.23
A
A 2-year, $100 face value T-note pays 5% annually. If the yield to maturity on the bond is 4%, what is its market price? A) $101.89 approx. B) $98.23 approx. C) $100 approx. D) $121.23 approx.
A
A 2-year, $100 face value T-note pays 8% annually. If the market price of the bond is $90 A) the yield to maturity of the bond is greater than 8%. B) the yield to maturity of the bond is less than 8%. C) the yield to maturity of the bond is equal to 8%. D) none of the above is true.
A
A T-note should generally pay a higher interest than a T-bill. A) True B) False C) Impossible to say whether true or false
A
A bond issued by Toyota, a Japanese firm, sold in the UK and denominated in Pound Sterling is an example of A) a foreign bond B) a Eurobond C) neither A nor B
A
A consol paying $40 annually when the interest rate is 8 percent has a price of A) $500. B) $400. C) $320. D) $800.
A
A credit market asset that pays the holder a fixed coupon payment every year until the maturity date and then repays the face value is called a A) coupon bond. B) simple loan. C) fixed-payment loan. D) discount bond.
A
A debt instrument issued 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) a certificate of deposit. B) commercial paper. C) a municipal bond. D) federal funds.
A
A person gets a home equity loan from a bank and spend the amount on an expensive vacation. For the lending bank this poses a problem of A) moral hazard B) adverse selection C) both A) and B) D) neither A) nor B)
A
Bonds issued by state and local governments are called ________ bonds. A) municipal B) corporate C) Treasury D) commercial
A
Currency $800 Non-institutional (retail) MMMF $1000 Demand deposits $800 Institutional MMMF $600 Savings and MM deposit accounts $2100 Large time deposits $700 Small time deposits $1000 Traveler's checks $100 Deposits in NOW accounts $200 According to the table 1 above, M1 equals A) 1900 B) 1600 C) 1110 D) 1800
A
Currency $800 Non-institutional (retail) MMMF $1000 Demand deposits $800 Institutional MMMF $600 Savings and MM deposit accounts $2100 Large time deposits $700 Small time deposits $1000 Traveler's checks $100 Deposits in NOW accounts $200 According to the table 1 above, M2 equals A) 6000 B) 4210 C) 5210 D) 7530
A
Examples of discount bonds include A) U.S. Savings bonds B) Corporate bonds. C) U.S. Treasury notes. D) municipal bonds.
A
If a bank has excess reserves of $20,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has total reserves of A) $30,000. B) $35,000. C) $37,000. D) $40,000.
A
If the exchange rate of US $ to Japanese Yen moves from $1 US = 100 Yen to $1 US = 95 Yen, then, A) The Yen has appreciated against the Dollar B) The Yen has depreciated against the Dollar C) The Dollar has appreciated against the Yen D) None of the above is true
A
If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to A) its excess reserves. B) 10 times its excess reserves. C) 10 percent of its excess reserves. D) its total reserves.
A
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
A
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) five D) ninety
A
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten
A
Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________. A) remain unchanged; remains unchanged B) remain unchanged; increases C) decrease; increases D) decrease; decreases
A
When a $10 check written on Citibank is deposited in an account at the First National bank, then A) the liabilities of the First National Bank increase by $10. B) the reserves of the First National Bank decrease by $ 10. C) the liabilities of Citibank increase by $10. D) the assets of Citibank increase by $10.
A
When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
A
When you deposit $100 in your account at First National Bank and a $75 check you have written on this account is cashed at Chemical Bank, then A) the assets of First National rise by $25. B) the assets of Chemical Bank fall by $25. C) the reserves at First National fall by $50. D) the liabilities at Chemical Bank rise by $50.
A
Which of the following is a depository institution? A) a credit union B) a life insurance company C) a pension fund D) a mutual fund
A
Which of the following is a long-term financial instrument? A) a U.S. Treasury bond B) a negotiable certificate of deposit C) a repurchase agreement D) a U.S. Treasury bill
A
Which of the following properties must an object have in order to function well as a medium of exchange? I. It must be rare and in limited supply (like diamonds) II. Same units must have same value III. It must be universally acceptable as a means of payment IV. It must be made of paper V. It must be divisible. A. II, III and V B. I, II and III C. I, II, III and V D. all of the choices
A
Which of the following sequences accurately describes the evolution of the payments system? A) barter, coins made of precious metals, paper currency, checks, electronic funds transfers B) barter, coins made of precious metals, checks, paper currency, electronic funds transfers C) barter, checks, paper currency, coins made of precious metals, electronic funds transfers D) barter, checks, paper currency, electronic funds transfers
A
With a 20% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is A) $80. B) $100. C) $10. D) $20.
A
You are investing today, in a 4-year coupon bond which pays a coupon rate of 6% and has a face value of 1000. The market interest rate today is 6% also. You plan to sell of the bond after a year. Suppose the market interest rate next year is 7%. Then the market price of the bond next year is, A) 973.76 approx B) 1080 C) 948.46 approx. D) 1000
A
A 10-year Corporate bond should generally pay a lower interest rate than a 10-year T-note. A) True B) False C) Impossible to say whether true or false
B
A 2-year, $100 face value T-note pays 10% annually. What is its yield to maturity if it sells for $100? A) 8 percent B) 10 percent C) 2.8 percent approx. D) 5.3 percent approx.
B
A bank has no excess reserves and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 30 percent, the bank's excess reserves will now be A) -$5,000. B) -$10,000. C) $10,000. D) $5,000.
B
A bond issued by Toyota, a Japanese firm, sold in the UK and denominated in US $ is an example of A) a foreign bond B) a Eurobond C) neither a) nor b)
B
A consol paying $10 annually when the interest rate is 10 percent has a price of A) $400. B) $100. C) $200. D) $800.
B
A short-term debt instrument issued by well-known corporations to finance their working capital need is called A) corporate bonds. B) commercial paper. C) municipal bonds. D) commercial mortgages.
B
A simple deposit multiplier equal to two implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percent.
B
A state or the federal government issues charters to individuals or groups wanting to establish a bank primarily to A) increase the information available to investors. B) reduce chances of a financial panic C) improve monetary control. D) protect investors against financial losses.
B
Assume that you live in a world with financial markets, especially banks. What is the present value of $500.00 to be paid in two years if the interest rate is 3 percent? A) $546.36 approx. B) $471.30 approx. C) $485.44 approx. D) $511.01 approx.
B
Assume that you live in a world with financial markets, especially banks. You put $100,000 in a Savings Account for 4-years and get back $146,410. Then the interest rate on the Savings Account is A) 5 percent. B) 10 percent. C) 22 percent. D) 25 percent.
B
Currency $800 Non-institutional (retail) MMMF $1000 Demand deposits $800 Institutional MMMF $600 Savings and MM deposit accounts $2100 Large time deposits $700 Small time deposits $1000 Traveler's checks $100 Deposits in NOW accounts $200 If an individual moves money from a money market deposit account to a demand deposit account A) M1 stays the same and M2 increases. B) M1 increases and M2 stays the same. C) M1 stays the same and M2 stays the same. D) M1 increases and M2 decreases.
B
Currency $800 Non-institutional (retail) MMMF $1000 Demand deposits $800 Institutional MMMF $600 Savings and MM deposit accounts $2100 Large time deposits $700 Small time deposits $1000 Traveler's checks $100 Deposits in NOW accounts $200 If an individual moves money from a savings account to a money market deposit account A) M1 stays the same and M2 increases. B) M1 stays the same and M2 stays the same. C) M1 decreases and M2 stays the same. D) M1 increases and M2 decreases.
B
Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders. A) debtors B) residual claimants C) brokers D) underwriters
B
Financial markets improve economic welfare because A) they channel funds from investors to savers. B) they allow manufacturing firms to raise working capital. C) they weed out inefficient firms. D) they eliminate the need for middlemen.
B
I purchase a 10 percent coupon bond. Based on my purchase price, I calculate a yield to maturity of 8 percent. If I hold this bond to maturity, then my return on this asset is A) 10 percent. B) 8 percent. C) 12 percent. D) there is not enough information to determine the return.
B
If there are twenty goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another. A) 200 B) 190 C) 250 D) 30
B
If you get the same satisfaction from receiving $1.05 a year later as from receiving $1 today, then your present value of $10 received two years later is A) $8.62 approx. B) $9.07approx. C) $9.25 approx. D) $11.58 approx.
B
In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed A) sold $1,000 in government bonds. B) sold $100 in government bonds. C) purchased $1,000 in government bonds. D) purchased $100 in government bonds.
B
Insider trading is detrimental to the interests of the small shareholders because A) it is not fair that some shareholders will know more about the company than others B) insider trading can influence secondary market prices of securities C) most insiders are frauds D) none of the above
B
Lending companies must earn a higher interest rate on home mortgages than on consumer loans to buy appliances. A) True B) False C) Impossible to say whether true or false
B
Ranking assets from most liquid to least liquid, the correct order is A) savings bonds; house; currency. B) currency; savings bonds; house. C) currency; house; savings bonds. D) house; savings bonds; currency.
B
Refer to the bond in Q 38. If the yield to maturity on the bond is 8% instead, A) the market price of the bond is less than the answer to 8%. B) the market price of the bond is greater than the answer to 8%. C) the market price of the bond is the same as the answer to 8% D) none of the above is true.
B
Suppose that a medical insurance company is willing to insure a healthy person for $100 a month and a person with pre-existing conditions for $500 a month. A healthy person has no incentive to pay $100 for medical insurance as he/she has a very low probability of falling sick. Consequently, most healthy people do not apply to buy medical insurance. For the insurance company, this poses a problem of A) moral hazard B) adverse selection C) both A) and B) D) neither A) nor B)
B
The primary assets of money market mutual funds are A) stocks. B) money market instruments. C) bonds. D) deposits.
B
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet A) the assets at the bank increase by $800,000. B) the liabilities of the bank increase by $1,000,000. C) the liabilities of the bank increase by $800,000. D) reserves increase by $160,000.
B
Which one of the following financial transactions is an example of direct financing? A) You are provided a mortgage to buy a home by your local bank. B) You lend $3000 to a neighbor. C) You buy shares of Microsoft from a registered NASDAQ dealer. D) You buy shares of a mutual fund company.
B
A $1,000 coupon bond with a $100 coupon payment every year has a coupon rate of A) 5 percent. B) 8 percent. C) 10 percent. D) 40 percent.
C
A 2-year, $50 face value T-note pays 10% annually and has a market price of $55. The current yield on the bond is A) 7% approx. B) 6.7% approx. C) 9.09% approx. D) 11% approx.
C
A one year discount bond selling for $18,000 with a face value of $21,000 has a yield to maturity of A) 7.1 percent approx. B) 10.5 percent approx. C) 16.7 percent approx. D) 25 percent approx.
C
All of the following are examples of coupon bonds EXCEPT A) Corporate bonds. B) U.S. Treasury notes. C) U.S. Treasury bills. D) U.S. Treasury bonds.
C
Choose the appropriate combination to fill in the blanks. In the above example, Wells Fargo has converted some __________ assets into some __________ assets. A) risky; risky B) risky; safe C) safe; risky D) safe; safe
C
Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts. A) deposits; smaller B) deposits; larger C) currency; smaller D) currency; larger
C
Dennis notices that jackets are being sold for $99. He decides it is too expensive and does not buy it. In this case the dollar is functioning as a A) medium of exchange. B) store of value. C) unit of account. D) payments-system ruler.
C
If the price level triples, the value of money A) doubles. B) becomes three times of what it was C) becomes one third of what it was D) falls by 50 percent.
C
In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed A) sold $200 in government bonds. B) sold $500 in government bonds. C) purchased $200 in government bonds. D) purchased $500 in government bonds.
C
Reducing risk through the purchase of assets whose returns do not always move together is A) intermediation. B) intervention. C) diversification. D) discounting.
C
Refer to the bond 5%. If the yield to maturity on the bond is 6% instead, then the market price is A) greater than the answer to 5%. B) the same as the answer to 5%. C) less than the answer to 5%. D) none of the above.
C
The regulatory body that provides insurance for each deposit up to a maximum amount, at a commercial bank is A) the FED B) the Office of the Comptroller of the Currency C) the FDIC D) the SEC
C
The yearly payment on a 3-year fixed payment loan is $200. If the yield to maturity on the loan is 10%, what is the loan value? A) $468.19 approx. B) $487 approx. C) $497.37 approx. D) $500.53 approx.
C
The yield to maturity on a $1000 face value coupon bond is 7.13% when the market price of the bond is $1,200. If the market price of the bond is $1,300 instead, A) no conclusion can be drawn about the yield to maturity - it can be any number. B) the yield to maturity is still equal to 7.13%. C) the yield to maturity is lower than 7.13%. D) the yield to maturity is higher than 7.13%.
C
Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called A) moral selection. B) risk sharing. C) asymmetric information. D) adverse hazard.
C
Wells Fargo allows households to invest in savings accounts and small CDs and then uses the funds thus acquired to invest in a variety of T-notes and bonds and business and consumer loans. Wells Fargo is doing which of the following: A) sharing risks through asset transformation B) sharing risks through asset diversification C) both A) and B) D) none of the above
C
When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
C
Which of the following are investment intermediaries? A) life insurance companies B) pension funds C) mutual funds D) state and local government retirement funds
C
Which of the following is a contractual savings institution? A) a credit union B) a savings and loan association C) a life insurance company D) a mutual fund
C
Which one of the following financial transactions is an example of indirect financing? A) A corporation buys a share of common stock issued by another corporation in the primary market. B) You buy a newly issued U.S. Treasury bill from a registered dealer of new Treasuries. C) You deposit $1000 into your savings account at a bank. D) You buy shares of Microsoft from a registered NASDAQ dealer.
C
You are investing today, in a 4-year coupon bond which pays a coupon rate of 6% and has a face value of 1000. The market interest rate today is 6% also. You plan to sell of the bond after a year. Your one period rate of return is, A) 0.846% approx B) 4.512% approx. C) 3.376% approx. D) 2% approx.
C
________ are loans in which Treasury bills serve as collateral. A) Negotiable certificates of deposit B) Federal funds C) Repurchase agreements D) U.S. government agency securities
C
A 2-year, $100 face value T-note pays 5% annually. If the yield to maturity on the bond is 5%, what is its market price? A) $108 B) $116 C) $95 D) $100
D
A 2-year, $100 face value T-note pays 8% annually. If the yield to maturity on the bond is 8%, what is its market price? A) $108 B) $116 C) $95 D) $100
D
A 2-year, $400 face value T-note pays 10% annually. If the yield to maturity on the bond is 10%, what is its market price? A) $350 B) $378 C) $395 D) $400
D
A 2-year, $400 face value T-note pays 8% annually and has a market price of $404. The current yield on the bond is A) 9% approx. B) 7.5% approx. C) 8.2% approx. D) 7.92% approx.
D
A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.
D
A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A) simple loan. B) coupon bond. C) discount bond. D) fixed-payment loan.
D
Federal funds are A) funds raised by the federal government in the bond market. B) loans made by the Federal Reserve System to banks. C) loans made by banks to the Federal Reserve System. D) loans made by banks to each other.
D
If reserves in the banking system increase by $200, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is A) 0.10. B) 0.25. C) 0.35. D) 0.40.
D
In the simple deposit expansion model, if the banking system has excess reserves of $100, and the required reserve ratio is 10%, the potential expansion of checkable deposits is A) $100. B) $400. C) $500. D) $1,000.
D
Mortgage-backed securities are similar to ________ but the interest and principal payments are backed by the individual mortgages within the security. A) stock B) repurchase agreements C) negotiable CDs D) bonds
D
Patrick places his pocket change into his piggy bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a A) medium of exchange. B) unit of account. C) unit of specialization. D) store of value.
D
Riskier assets are generally less liquid than safer assets. Which of the following best orders assets from highest to lowest liquidity? A) US T-notes, Municipal Bonds, US T-bills, Corporate Bonds B) US T-bills, Municipal Bonds, US T-notes, Corporate Bonds C) US T-notes, US T-Bills, Municipal Bonds, Corporate Bonds D) US T-Bills, US T-notes, Municipal Bonds, Corporate Bonds
D
The time and money spent in carrying out financial transactions are called A) economies of scale. B) financial intermediation. C) liquidity services. D) transaction costs.
D
The yearly payment on a 3-year fixed payment loan is $200. If the yield to maturity on the loan is 5%, what is the loan value? A) $600 approx. B) $590 approx. C) $550.94 approx. D) $544.65 approx.
D
When a $10 check written on Citibank is deposited in an account at the First National bank, then A) the liabilities of the First National Bank decrease by $10. B) the reserves of the First National Bank decrease by $10. C) the liabilities of Citibank increase by $10. D) the assets of Citibank decrease by $10.
D
Which of the following $5,000 face-value securities has the highest yield to maturity? A) a 6 percent coupon bond selling for $5,000 B) a 6 percent coupon bond selling for $5,500 C) a 10 percent coupon bond selling for $5,000 D) a 12 percent coupon bond selling for $4,500
D
Which of the following are short-term financial instruments? A) a share of Walt Disney Corporation stock B) a Treasury note with a maturity of four years C) a residential mortgage D) a repurchase agreement
D
Which of the following characteristics does the US $1 bill possess? I. It is unbacked by gold or silver. II. It is a debt of the Federal Reserve. III. It pays an annual interest. IV. It is legal tender. V. It is a debt of the Federal Reserve which has a maturity period just like T-bonds. A. I, II, III and V B. II and IV C. II and V D. I, II, and IV
D
Which of the following is NOT a goal of financial regulation? A) ensuring the soundness of the financial system B) reducing moral hazard C) reducing adverse selection D) ensuring that investors never suffer losses
D
You are investing today, in a 4-year coupon bond which pays a coupon rate of 6% and has a face value of 1000. The market interest rate today is 6% also. You plan to sell of the bond after a year. Suppose that the market interest rate next year is 3%. Then the market price of the bond next year is, A) 985.12 approx. B) 1113.20 approx. C) 1000 D) 1084.86 approx.
D
Which of the following best explains why a company CEO may pay attention to prices of stocks and bonds in secondary markets? A) These prices determine the market value of the assets he/she owns. B) By following stock and bond prices closely, he/she can time his/her purchase and sale of these assets better. C) The price of a security in the secondary market is a good indicator of the price the firm may get if it were to issue new securities and sell them in primary markets. D) A) and B) above E) All of the above.
E
