Financial markets exam review

Americans' fear of centralized power and their distrust of moneyed interests explain why the U.S. did not have a central bank until the 19th century. 18th century. 20th century. 17th century.

20th century.

Currently about 38% of the commercial banks in the United States are members of the Federal Reserve System, having declined from a peak figure of ________ in 1947. 49% 63% 42% 55%

49

The Baa-U.S Treasury spread was about 2% at the beginning of 1929. By december 1932, the Dow Jones industrial Average reached a low, and the spread had increased to how much. 10% 4% 8% %

8%

From its peak in 1929 to the trough in December 1932, the Dow Jones Industrial Average fell how much? 90% 80% 70% 60%

90%

Most financial crises in the United States have begun with an increase in uncertainty resulting from the failure of a major firm. a steep stock market decline. a steep decline in interest rates. all of the above. only A and B of the above.

only A and B of the above.

Which of the following is NOT considered one of the four groups in the Federal Reserve System? Federal Reserve banks Federal Deposit Insurance Corporation Board of Governors Federal Open Market Committee

Federal Deposit Insurance Corporation

The national economic forecast for the next two years prepared by the staff of the Board of Governors is published in the Green Book Beige Book Blue Book Fed Book

Green Book

Which of the following does not weaken the efficient markets hypothesis? Success of buy-and-hold strategy Mean reversion January effect Excessive volatility

Success of buy-and-hold strategy

Factors that can lead to worsening conditions in financial markets include increasing interest rates and asset price booms. True False

True

Housing prices boomed from 2002 to 2006, fueling the market for subprime mortgages and forming an asset-price bubble. Housing prices began declining in 2006, falling by more than 30%, which led to defaults by subprime mortgage holders. True False

True

Technical analysis is a popular technique used to predict stock prices by studying past stock price data and searching for patterns such as trends and regular cycles. True False

True

The impact of the 2009-2009 financial crisis was widespead, including The first major bank failure in the UK in over 100 years the failure of bear stearns, the firth-largest U.S. investment bank. The bailout of fannie Mae and Freddie Mac by the U.S. Treasury All the about

all of the above

An unusual feature of the "Great Recession" in the U.S. from 2007-2009 was that the crisis did not spread to European nations. True False

False

Evidence that a mutual fund has performed extraordinarily well in the past contradicts the efficient market hypothesis. True False

False

Evidence that stock prices sometimes fall when a firm announces good news contradicts the efficient market hypothesis. True False

False

The ________ of the Board of Governors is the spokesperson for the Fed. president chairman either of the above can be the spokesperson neither of the above

chairman

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings. This phenomenon is consistent with the efficient market hypothesis if the earnings were not as low as anticipated. clearly inconsistent with the efficient market hypothesis. consistent with the efficient market hypothesis if the earnings were not as high as anticipated. the result of none of the above.

consistent with the efficient market hypothesis if the earnings were not as low as anticipated.

The process of deleveraging refers to a reduction in debt owed by banks cutbacks in lending by financial institutions both A and B None of the above

cutbacks in lending by financial institutions

The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst. will always mean lower returns than if you had made selections by throwing darts at the financial page. will certainly mean higher returns than if you had made selections by throwing darts at the financial page. is not likely to prove superior to a strategy of making selections by throwing darts at the financial page. is good for the economy

is not likely to prove superior to a strategy of making selections by throwing darts at the financial page.

The advantage of a "buy and hold strategy" is that net profits will tend to be higher because there will be fewer brokerage commissions. losses will eventually be eliminated. the longer a stock is held, the higher its price will be. only B and C of the above are true.

net profits will tend to be higher because there will be fewer brokerage commissions.

According to the efficient market hypothesis information in newspapers and in the published reports of financial analysts is already reflected in market prices. one cannot expect to earn an abnormally high return by purchasing a security. unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities. all of the above are true. only A and B of the above are true.

only A and B of the above are true.

Factors that provide the Federal Reserve with a high degree of independence include 14-year terms for members of the Board of Governors. a four-year term for the chairman of the Board of Governors that is not coincident with the president's term of office. constitutional independence from Congress and the president. all of the above. only A and B of the above

only A and B of the above.

Evidence in favor of market efficiency does not include technical analysis. random-walk behavior. performance of investment analysts and mutual funds. the January effect.

the January effect.

The Federal Open Market Committee consists of the seven members of the Board of Governors and seven presidents of the regional Fed banks. the seven members of the Board of Governors and five presidents of the regional Fed banks. the twelve regional Fed bank presidents and the chairman of the Board of Governors. the five senior members of the seven-member Board of Governors.

the seven members of the Board of Governors and five presidents of the regional Fed banks.

Which of the following statements regarding member banks is TRUE? A majority of banks are part of the Federal Reserve System, and they hold a majority of all bank deposits. A minority of banks are part of the Federal Reserve System, but they hold a majority of all bank deposits. A majority of banks are part of the Federal Reserve System, but they hold a minority of all bank deposits. A minority of banks are part of the Federal Reserve System, and they hold a minority of all bank deposits.

A minority of banks are part of the Federal Reserve System, but they hold a majority of all bank deposits.

Which of the following banks are required to be members of the Federal Reserve System? State-chartered banks Banks having over $500 million in assets Insured banks None of the above

None of the above

Which of the following types of information will most likely enable the exploitation of a profit opportunity? Financial analysts' published recommendations Hot tips from a stockbroker Technical analysis None of the above

None of the above

Instrument independence means the central bank is free from political pressure regarding how it uses the tools of monetary policy. political pressure regarding the goals it pursues. both A and B of the above. neither A nor B of the above.

political pressure regarding how it uses the tools of monetary policy.