FIN 330 Exam 1

If the interest rates on all bonds rise from 5 percent to 6 percent over the course of the year, which bond would you prefer to have been holding? a bond with five years to maturity a bond with twenty years to maturity a bond with one year to maturity a bond with ten years to maturity

a bond with one year to maturity

Which of the following is a depository institution? a credit union a life insurance company a finance company a pension fund

a credit union

Mandy goes to the grocery store to buy groceries, and at the checkout counter she pays cash. This is an example of money being used as barter a medium of exchange a store of value a unit of account

a medium of exchange

Which of the following is an example of an intermediate-term debt? a sixty-month car loan a fifteen-year mortgage a thirty-year U.S. Treasury bond a six-month loan from a finance company

a sixty-month car loan

300 basis points is: 0.300% 30% 3.00% 300%

3.00%

A friend pitches you a business investment idea. He is looking for $30K of seed money and projections which assume a 15% return. You have the $30K in a bank account earning 10 basis points and had been looking at buying some Intel shares trading at $55, thus yielding 2.52%. You start thinking about how long it might take to double your $30,000. How long would it take if your buddy's projections hold? 2 years 5 years 3 years 7 years

5 years

The most liquid securities traded in the capital market are mortgage-backed securities. corporate bonds. U.S. Treasury bonds. municipal bonds.

U.S. Treasury bonds.

A short-term debt instrument issued by well-known corporations is called commercial mortgages. corporate bonds. commercial paper. municipal bonds.

commercial paper.

Sue uses a credit card to purchase a new pair of jeans. Sue is: using an electronic payment form of money. creating a liability that she will ultimately have to pay with money. using money to buy her jeans since credit cards is money. using a form of money included in M2.

creating a liability that she will ultimately have to pay with money.

Higher expected interest rates in the future ________ the demand for long-term bonds and shift the demand curve to the ________. increase; right increase; left decrease; left decrease; right

decrease; left

Life insurance companies and fire and casualty insurance companies are both examples of contractual savings institutions. Because fire and casualty insurance companies have a greater possibility of loss of funds if disasters occur, they tend to hold more ________ assets than life insurance companies. consumer loans long-term real liquid

liquid

I suggested government-mandated forbearance put the most strain on which stakeholder? borrower loan servicer loan originator mortgage pool that held loan

loan servicer

An important function of secondary markets is to create a market for newly constructed houses. raise funds for corporations through the sale of securities. make it easier for governments to raise taxes. make it easier to sell financial instruments to raise funds.

make it easier to sell financial instruments to raise funds.

What can you access from FRED? (mark all that apply) price indexes interest rates population data exchange rates unemployment rate

price indexes interest rates population data exchange rates unemployment rate

The risk structure of interest rates refers to the: relationship among the interest rates of bonds from different issuers with the same maturities. relationship among the interest rates of bonds from the same issuer but different maturities. relationship among the interest rates of bonds with different maturities. additional interest required to compensate the buyer for the longer maturity of the bond.

relationship among the interest rates of bonds from different issuers with the same maturities.

During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________. rises; left rises; right falls; right falls; left

rises; right

A financial market in which previously issued securities can be resold is called a ________ market. primary secondary tertiary used securities

secondary

The risk that financial problems could spread among financial institutions and across financial markets, causing a collapse of the financial system, is known as: rub of the green. financial meltdown risk. credit risk. systemic risk. leverage risk.

systemic risk.

The country whose banks are the most restricted in the range of assets they may hold is Canada. the United States. Japan. Germany.

the United States.

Hot tips from a stockbroker will most likely enable the exploitation of a profit opportunity. True False

False

If financial markets are efficient, this implies that all securities should earn the same return. True False

False

In an efficient market, abnormal returns are not possible, even if using inside information. True False

False

FRED. What does it stand for?

Federal Reserve Economic Data

Which of the Federal Reserve's measures of the monetary aggregates—M1 or M2—is the larger measure? M1 M2

M2

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase a portfolios of assets. Finance companies Mutual funds Investment banks Credit unions

Mutual funds

Which Federal Reserve Bank maintains FRED? St Louis Dallas San Francisco New York

St Louis

When Welch Ave lists cans of Busch Light on special for $2.00, the bar is using money as a source of profit unit of account medium of exchange store of value

unit of account

By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions. True False

False

Economies compete against each other; currencies do not. True False

False

The money aggregate M2 includes: M1. savings deposits but not money market deposit accounts. large denomination time deposits. stock and bond mutual fund shares.

M1.

A corporation acquires new funds only when its securities are sold in the primary market. True False

True

A plot of the interest rates on default-free government bonds with different terms to maturity is called a yield curve and it is normally upsloping. True False

True

Another way to state the efficient market condition is this: in an efficient market, all unexploited profit opportunities will be eliminated. True False

True

Asset pricing bubbles, where the prices of assets rise well above their fundamental values, casts serious doubt on the stronger view that financial markets are efficient. True False

True

Cash use is material for small-value payments across all age groups. True False

True

Most people's involvement with the financial system is through financial intermediaries rather than financial markets. True False

True

The difference between the real and nominal rates of interest results in the contractual rate. can never result in a negative number. is the default risk. the rate of inflation.

the rate of inflation.

Bonds issued by the U.S. Treasury are referred to as benchmark bonds because: all bonds from the U.S. government have the same rate of interest. they are always purchased for a premium. they are highly liquid and virtually free of default risk. all bonds from national governments are labeled as benchmark bonds.

they are highly liquid and virtually free of default risk.

Which of the following financial intermediaries commonly invests in stocks and bonds? insurance companies pension funds mutual funds All of these are correct

All of these are correct

Financial market participants who provide funds are called deficit units. surplus units. secondary units. primary units.

Surplus units

The efficient market hypothesis states that prices of securities in financial markets fully reflect all available information. True False

True

The value of U.S. currency, as fiat money, is derived from the government deeming it is legal tender, as well as consumers' willingness to accept it. True False

True

Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them. liabilities; assets nonnegotiable; negotiable negotiable; nonnegotiable assets; liabilities

assets; liabilities

Wealth, either financial or physical, that is employed to produce more wealth is referred to as assets. funding. the market. capital.

capital.

An increase in the time to the promised future payment ________ the present value of the payment. has no effect on increases is irrelevant to decreases

decreases

When the economy slips into a recession, normally the demand for bonds __________, the supply of bonds __________, and the interest rate __________. decreases; increases; rises increases; decreases; falls decreases; decrease; falls increases; increases; rises

decreases; decrease; falls

The risk that interest payments will not be made, or that the face value of a bond is not repaid when a bond matures is default risk interest rate risk liquidity risk inflation risk

default risk

Financial intermediaries: exist because there are substantial information and transaction costs in the economy. do all of these. improve the lot of the small saver. are involved in the process of indirect finance.

do all of these.

The government regulates financial markets for two main reasons: ensure soundness of the financial system; increase information available to investors. improve control of monetary policy; increase the information available to investors. to ensure soundness of financial intermediaries and to prevent financial intermediaries from earning less than the normal rate of return. to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy.

ensure soundness of the financial system; increase information available to investors.

An inverted yield occurs when: long-term interest rates are the same as short-term interest rates. long-term interest rates are higher than short-term interest rates. long-term interest rates are lower than short-term interest rates. short-term interest rates are lower than mid-term interest rates, which are higher than long-term interest rates.

long-term interest rates are lower than short-term interest rates.

The use of a credit card to purchase goods or services on the Internet affects: neither M1 or M2. M2 money supply. M1 money supply. both M1 and M2.

neither M1 or M2.

The sum of the current yield and the rate of capital gain is called the perpetuity yield. discount yield. rate of return. par value.

rate of return.

When prices in the stock market become more uncertain, the demand curve for bonds shifts to the ________ and the interest rate ________. right; falls right; rises left; rises left; falls

right; falls

Taxes play an important role in bond returns because: only U.S. Treasury bonds are tax-exempt, so investors should always seek higher returns from other bonds. all interest from owning bonds is taxed. all governments (federal, state, municipal) tax bonds similarly. some bond interest is exempt from some government taxation, so after tax returns across bonds can vary considerably.

some bond interest is exempt from some government taxation, so after tax returns across bonds can vary considerably.

When the price of a bond is above the equilibrium price, there is excess __________ in the bond market and the price will __________. demand; rise supply; rise supply; fall demand; fall

supply; fall

Long-term debt has a maturity that is: between one and ten years. ten years or longer. less than a year. between five and ten years

ten years or longer.

The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the market premium. tax premium. risk premium. term premium.

term premium.

The currency component includes paper money and coins held in bank vaults. ATMs. the hands of the nonbank public. the central bank.

the hands of the nonbank public.

A major advantage that municipal bonds have over corporate bonds for investors is that municipal bonds have a shorter term to maturity. municipal bonds have a lower default risk. corporate bonds are not as readily available as municipal bonds. the income earned on municipal bonds is not subject to federal income tax.

the income earned on municipal bonds is not subject to federal income tax.