Test 2

taxes bankruptcy adverse selection

Critics of the Modigliani-Miller theory argue which of the following are reasons why capital structure matters?

a range between 0.00 percent and 0.25, 2015

Currently, the FOMC;s target for the federal funds rate is ____ percent and is expected to remain at that level until ____

depreciate

Currently, the inflation rate in India has been running above what the bank of India indicates as their "tolerance" level such that foreign exchange traders expect the bank of india will increase interest rates. Suppose that the bank of India announces that it will leave interest rates unchanged. Everything else held constant, the announcement by the bank of india would cause the rupee to

both are heavily regulated

Hedge funds are like mutual funds in all of the following way except:

rise, $0.20

If a bank has $50 of rate sensitive assets and $60 in rate sensitive liabilities, and the interest rate falls from 5 percent to 3 percent, a bank's profits ____ by ____

fall, $0.10

If a bank has $50 of rate-sensitive assets and $45 in rate-sensitive liabilities, and the interest rate falls from 5% to 3%, a bank's profits ____ by ____.

look at the difference in foreign and US inflation rates

A good way to predict the expected change in the nominal exchange rate is to

the classical theory of asset prices, undervalued

According to the efficient-markets hypothesis, which is based on ____, ____ assets do not exist

12

According to the most recent Beige Book, ____ out of the 12 federal reserve districts reported some expansion in economic activity

The US dollar would appreciate against both the canadian dollar and the mexican peso

According to the purchasing power parity and everything else held constant, which of the following would we expect to happen? Country Annual Inflation Rate US 2% Canada 3% Mexico 4%

7.8, 8.1

According to the september employment situation report, the unemployment rate was ____ percent. In the august report the unemployment rate was ____ percent

has no physical location

An over-the-counter market differs from a stock exchange because it:

banking industry

Because of the McFadden Act, each state had its own:

Bank Holding Company Act

Because of the ____, Microsoft cannot merge with Bank of America

adverse selection, screens new borrowers

By forcing new banks to obtain a bank charter, the government is trying to minimize ____, much as a bank ____.

reputation, reduce uncertainty about

By using an investment bank to underwrite securities, firms are hoping to use the ____ of the investment bank to ____ the new firm

when the risk of bond default is high

Normally the bond market is less susceptible to adverse selection than the stock market, except ____

growth of mutual fund accounts

One of the reasons for the decline of checking deposits in the mid-1990s was the

people could buy credit default swaps on assets they did not own

One reason that the credit default swap market grew so rapidly from 2000 to 2007 is that:

separation of commercial banks and securities firms

The Gramm-Leach-Bliley Act, which fully repealed the ____ was passed in 1999

10

The Riegle-Neal Act prohibits banks from having more that ____ percent of all commercial bank deposits

Office of the Comptroller; Federal Reserve and state agencies

The ____ regulates commercial national banks, and the ____ regulate(s) commercial state banks.

Office of the Comptroller of the Currency, FDIC

When a national bank is closed down, the ____ calls in the ____, which becomes a receiver for the bank

declining at a slower rate

When looking at the ISM Index, a PMI (the "all-item" or "top-line" composite index) value that increased from one month to the next but is below 50 means that overall manufacturing activity is ____ when compared to the previous month

none of the above

Which of the following are functions of an investment bank?

fear of a run --> depositors withdraw --> banks sell assets --> capital falls below zero

the order of a bank run is

kept the loan on their own books; securitized

when banks made loans they traditionally _____; in recent years, they have _____ the loans

the weighted average to stock and bond returns

when determining returns to your asset allocation, you would use:

credit union

which of the following is a "thrift" institution?

in recent years, most banks have received grades of "outstanding" or "satisfactory" after CRA examinations

which of the following statements about the Community Reinvestment Act (CRA) of 1977 is true?

payroll employment has been stronger in the past three months because of very strong growth in all private sector industries even though public sector jobs have been declining

with regards to the Establishment Survey of the Employment situation report for february 2012, which of the following statements BEST describes the condition of nonfarm payroll employment?

airline stock prices are currently overvalued, stock price to fall

you are perusing the Reuters new Web page and read the following: "NEW YORK, Aug. 18 (Reuters) - Major US airlines will see a 6% drop in passengers during the eight day labor day holiday period as high oil prices continue to roil the industry, the airlines' trade organization predicted on Monday." Using the efficient markets hypothesis, you believe ____ and expect to see ____

1%

your grandparents give you $1,000 as a graduation gift; you decide to save 75% in bonds and 25% in Ford Stock. If the return on the bonds is 3% and the return to FOrd is -5%, then your overall return on wealth would be about

rise, $0.20

if a bank has $50 of rate sensitive assets and $60 in rate sensitive liabilities, and the interest rate falls from 5% to 3%, its profits ____ by ____

fall by 3%

if the euro-area rate of inflation is 3% and the US rate of inflation is 6%, the euro/US dollar exchange rate will:

Second Bank of the United States, Andrew Jackson

in 1836, congress passed legislation renewing the charter of the ____; it was vetoed by ____

giving triple A ratings to securities that were riskier than the ratings suggested

in the aftermath of the 07-09 financial crisis, the rating agencies were criticized for

the trades are made directly between buyer and seller, and other participants do not have information on the transaction

over the counter markets can create volatility in stock prices because:

appreciate

suppose it is expected that the US economy will grow at a faster rate when compared to the growth rates of its major trading partners. Everything else held constant, this expectation will cause the US dollar to ____

either appreciate, depreciate, or remain constant

suppose that CHile sees an increase in copper prices which is their major export. At the same time, the central bank of Chile decreases interest rates. Everything else held constant, these two events will cause the Chilean peso to ____

depreciate

suppose that both the bank of England and the european central bank stats to indicate that they will be raising interest rates very soon. Everything else held constant, this indication will cause the US dollar to ____.

depreciate

suppose that economic data is released that suggests that the inflation rate in japan is increasing. at the same time, the Central Bank of Vietnam announces an increase in interest rates. Everything else held constant, these two events will cause tha Japanese yen to ____ against the Vietnamese dong.

the canadian dollar will appreciate versus the mexican peso and depreciate versus the US dollar

suppose that the inflation rate in the IS is 2%, the inflation rate in Canada is 3%, and the inflation rate in Mexico is 5%. According to the theory of purchasing power parity, which of the following statements is true?

appreciate

suppose the governor of the bank of canada (equivalent of the federal reserve chairman) made comments suggesting that the bank of canada may hold off on expected interest rate increases because of a slowdown in canada's economy. Everything else held constant, these comments will cause the US dollar to ____ against the canadian dollar

depreciate

suppose there is speculation that Spain is moving towards asking the European Union for financial assistance. This speculation causes a decrease n the concern about the ongoing debt crisis in the euro area. Everything else held constant, this speculation would cause the US dollar to ____ against the Euro

borrowing from other banks

Money-center banks finance their lending primarily through

issue commercial paper

When a bank issues a letter of credit, it does all of the following except:

moral hazard

Deposit insurance increases which if the following

are relatively cheap and domestic goods are relatively expensive

If the real exchange rate is greater than one, foreign goods:

agent, principle

In asymmetric information, we call the party who has information about her actions the ____ and the other, imperfectly informed party, the ____

the Securities and Exchange Commission

In the US, financial markets are primarily regulated by:

appreciate

Recently, Hungary's government has made moves that make it seem more likely that it will be getting an emergency lean from the IMF. The loan talks have been up for months because Hungary's government had been stalling to make the necessary policy changes that were required by the IMF to get the emergency loan. Without the loan, Hungary's economy would most likely spiral into chaos in the near future. Everything else held constant, the signal that Hungary is moving closer to getting the loan will cause the Hungarian forint to ____ against the Euro.

they tend to own shares in companies that import raw materials

Stockholders tend to prefer a strong dollar to a weak dollar if:

depreciate

Suppose that during a scheduled two-day FOMC (the federal reserve committee that is responsible for setting monetary policy) meeting, traders on the foreign exchange market expect that the committee will announce a new round of monetary easing (IE policy that is supposed to decrease interest rates in the US). Further assume that, after the meeting concludes, the FOMC releases a statement that has no indication that any more monetary easing is going to happen. Everything else held constant, the release of the FOMC statement would immediately cause the euro to ____ against the dollar.

depreciate

Suppose the following announcements are made at the same time: 1. The Chinese government says that it will be reducing the amount of US Treasury bonds it is currently holding and replace them with euro dominated bonds and 2. The European Central Bank is raising the interest rate within the euro area. Everything else held constant, these announcements would cause the US dollar to ____ against the euro

appreciate, depreciate, or remain constant

Suppose, because of the continuing threat of a deepening debt crisis in Europe, that the European demand for US financial assets is increasing. At the same time, the federal reserve is in the middle of a third round of quantitative easing which is expected to decrease interest rates in the United States. Everything else held constant, these two events would cause the US dollar to ____ against the euro

Glass-Steagall Act

THe result of populists' belief that risky bank behavior helped cause the Great Depression was the:

1.3; downward

The final estimate of the 2nd quarter GDP growth rate was ____. This was revised ____ from the second estimate

Federal Deposit Insurance Corporation

The name of the government agency that insures commercial bank deposits is the

imports + capital outflows = exports + capital inflows net exports = net capital inflows exports - imports = capital outflows - capital inflows

The nominal exchange rate in the short run is determined by

managers

To reduce moral hazard after buying a stock or bond, individual savers examine a firm's:

12%

Your grandparents give you $1000 as a graduation gift; you decide to save 25% in bonds and 75% in the Apple stock. If the return to the bonds is 3% and the return the Apple is 15%, then your overall return on wealth would be about:

National, state, optional

_____ banks are required to join the Federal Reserve System; for _____ banks it is ______

3.0, upward

according to the second estimate, the GDP growth rate for the fourth quarter of 2011 was ____ percent and this was ____ revision from the advanced estimate of the 4th quarter of 2010

adverse selection, credit reports

banks are reluctant to lend to borrowers with weak credit histories because of ____; they rely on ____ to reduce this problem

including restrictive covenants monitoring borrowers; activities setting net worth requirements

banks; strategies designed to solve moral hazard problems include:

commercial banks accept deposits and finance companies do not

commercial banks and finance companies differ in that ____

$130, $120, A

suppose you have the same amount of information as the firms that are trying to raise funds to invest in a project. Your firm can issue a $100 bond that promises to pay 25 percent a year. Suppose there are two firms that are trying to raise funds to pay for a project. Firm As project is safe and is guaranteed to produce $130 in revenue. Firm Bs project is risky and has a two-thirds probability of producing $180 a year, and a one-third probability it produces nothing. THe expected return on Firm As project is _____. THe expected return on Firm Bs project is ____. Thus, ____ will receive financing.

McFadden Act's, interstate banking

the 1994 Riegle-Neal Act repealed the ____ ban on ____

8.3, 8.3

the February 2-12 employment situation reported that the unemployment rate for february was ____ percent compared to January's ____ percent.

Riegle-Neal; 10

the ____ act restricts banks from holding more than ___percent of all commercial bank deposits

insolvency risk, capital requirements

to ensure banks stay healthy and keep ___ low, regulators impose ____.

buy and sell securities for others, buy and sell securities for themselves

unlike brokers who ____, dealers ____

an agreement to trade a security at a specified price at some point in the future

what is a futures contract?