Quiz1-6
Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)Every financial market has the following characteristic:
1)
A)It allows loans to be made.
B)It channels funds from lenders-savers to borrowers-spenders.
C)It allows common stock to be traded.
D)It determines the level of interest rates.
2)
2)Channeling funds from individuals with surplus funds to those desiring funds when the saver
does not purchase the borrower?s security is known as
A)barter.B)financial intermediation.
C)taxation.D)redistribution.
3)A security is a claim on a corporation?s
3)
A)debt.B)expenses.
C)liabilities.D)earnings and assets.
4)Financial institutions that accept deposits and make loans are called ________.
4)
A)finance companies B)exchanges
C)banks D)over-the-counter markets
5)Which of the following statements about the characteristics of debt and equity is false?
5)
A)They can both be long-term financial instruments.
B)They both enable a corporation to raise funds.
C)They can both be short-term financial instruments.
D)They both involve a claim on the issuer?s income.
6)A corporation acquires new funds only when its securities are sold in the
6)
A)primary market by an investment bank.
B)secondary market by a securities dealer.
C)primary market by a stock exchange broker.
D)secondary market by a commercial bank.
7)Federal funds are
7)
A)loans made by the Federal Reserve System to banks.
B)funds raised by the federal government in the bond market.
C)loans made by banks to each other.
D)loans made by banks to the Federal Reserve System.
8)Which of the following is not a goal of financial regulation?
8)
A)Reducing adverse selection
B)Ensuring that investors never suffer losses
C)Ensuring the soundness of the financial system
D)Reducing moral hazard
9)The difference between money and income is that
9)
A)money is a flow and income is a stock.
B)there is no difference money and income are both flows.
C)money is a stock and income is a flow.
D)there is no difference money and income are both stocks.
10)Of money?s three functions, the one that distinguishes money from other assets is its function as a
10)
A)store of value.B)medium of exchange.
C)unit of account.D)standard of deferred payment.
11)Which of the following statements best explains how the use of money in an economy increases
11)
economic efficiency?
A)Money increases economic efficiency because it is costless to produce.
B)Money cannot have an effect on economic efficiency.
C)Money increases economic efficiency because it discourages specialization.
D)Money increases economic efficiency because it decreases transactions costs.
12)Which of the following sequences accurately describes the evolution of the payments system?
12)
A)Barter, coins made of precious metals, paper currency, checks, electronic funds transfers
B)Barter, checks, paper currency, electronic funds transfers
C)Barter, checks, paper currency, coins made of precious metals, electronic funds transfers
D)Barter, coins made of precious metals, checks, paper currency, electronic funds transfers
13)When money prices are used to facilitate comparisons of value, money is said to function as a
13)
A)store of value.B)payments-system ruler.
C)unit of account.D)medium of exchange.
14)Which of the following is included in M2 but not in M1?
14)
A)NOW accounts
B)Currency
C)Demand deposits
D)Money market mutual fund shares (retail)
15)If an individual moves money from a demand deposit account to a money market deposit account,
15)
A)M1 increases and M2 decreases.
B)M1 decreases and M2 stays the same.
C)M1 stays the same and M2 stays the same.
D)M1 stays the same and M2 increases.
Answer Key Testname: QUIZ1
1)B
2)B
3)D
4)C
5)C
6)A
7)C
8)B
9)C
10)B
11)D
12)A
13)C
14)D
15)B
Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)The concept of ________ is based on the common-sense notion that a dollar paid to you in the
1) future is less valuable to you than a dollar today.
A)deflation B)interest C)future value D)present value
2)Economists consider the ________ to be the most accurate measure of interest rates.
2)
A)current yield.B)yield to maturity.
C)simple interest rate.D)real interest rate.
3)
3)For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is
A)$10,030.B)$10,300.C)$13,000.D)$13,310.
4)
4)An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
A)5 percent.B)8 percent.C)10 percent.D)40 percent.
5)A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity
5) of
A)3 percent.B)20 percent.C)25 percent.D)33.3 percent.
6)A credit market instrument that requires the borrower to make the same payment every period
6) until the maturity date is known as a
A)discount bond.B)fixed-payment loan.
C)coupon bond.D)simple loan.
7)Which of the following $1,000 face-value securities has the highest yield to maturity?
7)
A)A 5 percent coupon bond with a price of $600
B)A 5 percent coupon bond with a price of $800
C)A 5 percent coupon bond with a price of $1,200
D)A 5 percent coupon bond with a price of $1,000
8)Which of the following are true for a coupon bond?
8)
A)The yield to maturity is greater than the coupon rate when the bond price is above the face
value.
B)The yield is less than the coupon rate when the bond price is below the face value.
C)The price of a coupon bond and the yield to maturity are positively related.
D)When the coupon bond is priced at its face value, the yield to maturity equals the coupon
rate.
9)If a security pays $110 next year and $121 the year after that, and its yield to maturity is 10 percent,
9) what is its price?
A)$100B)$200C)$210D)$231
10)If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to
10)
maturity of 7 percent, then the real interest rate on this bond is
A)-5 percent.B)-2 percent.C)2 percent.D)12 percent.
Answer Key Testname: QUIZ2
1)D
2)B
3)D
4)A
5)D
6)B
7)A
8)D
9)B
10)A
Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)If wealth increases, the demand for stocks ________ and that of long-term bonds ________,
1) everything else held constant.
A)increases; increases B)decreases; increases
C)increases; decreases D)decreases; decreases
2)If housing prices are suddenly expected to shoot up, then, other things equal, the demand for
2) houses will ________ and that of Treasury bills will ________.
A)decrease; increase B)decrease; decrease
C)increase; decrease D)increase; increase
3)Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7
3) percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected
return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate
bonds ________.
A)rises; rises B)falls; falls C)falls; rises D)rises; falls
4)When the price of a bond is above the equilibrium price, there is an excess ________ bonds and
4) price will ________.
A)demand for; fall B)supply of; fall
C)demand for; rise D)supply of; rise
5)A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is
5) called a condition of excess supply; because people want to sell ________ bonds than others want
to buy, the price of bonds will ________.
A)more; fall B)more; rise C)fewer; rise D)fewer; fall
6)
6)A movement along the bond demand or supply curve occurs when ________ changes.
A)income B)wealth C)expected return D)bond price
7)Holding the expected return on bonds constant, an increase in the expected return on common
7) stocks would ________ the demand for bonds, shifting the demand curve to the ________.
A)decrease; left B)increase; right C)increase; left D)decrease; right
8)Everything else held constant, when stock prices become less volatile, the demand curve for bonds
8) shifts to the ________ and the interest rate ________.
A)right; rises B)right; falls C)left; rises D)left; falls
9) 9)Everything else held constant, an increase in the riskiness of bonds relative to alternative assets
causes the demand for bonds to ________ and the demand curve to shift to the ________.
A)fall; left B)rise; left C)fall; right D)rise; right
10) 10)Higher government deficits ________ the supply of bonds and shift the supply curve to the
________, everything else held constant.
A)decrease; left B)increase; right C)increase; left D)decrease; right
11)In Keynes?s liquidity preference framework, individuals are assumed to hold their wealth in two
11)
forms:
A)money and gold.B)money and bonds.
C)real assets and financial assets.D)stocks and bonds.
12) 12)In the Keynesian liquidity preference framework, an increase in the interest rate causes the
demand curve for money to ________, everything else held constant.
A)stay where it is B)shift right C)invert D)shift left
13) 13)In the Keynesian liquidity preference framework, a rise in the price level causes the demand for
money to ________ and the demand curve to shift to the ________, everything else held constant.
A)increase; right B)decrease; left C)increase; left D)decrease; right
14) 14)When the Fed decreases the money stock, the money supply curve shifts to the ________ and the
interest rate ________, everything else held constant.
A)right; rises B)left; rises C)left; falls D)right; falls
15)In the figure above, one factor not responsible for the decline in the demand for money is
A)a decline the price level.B)a decline in the expected inflation rate.
C)an increase in income.D)a decline in income.15)
Answer Key Testname: QUIZ3
1)A
2)C
3)B
4)B
5)A
6)D
7)A
8)C
9)A
10)B
11)B
12)A
13)A
14)B
15)C
Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)The risk structure of interest rates is
1)
A)the relationship among interest rates on bonds with different maturities.
B)the structure of how interest rates move over time.
C)the relationship among the term to maturity of different bonds.
D)the relationship among interest rates of different bonds with the same maturity.
2)
2)Which of the following bonds are considered to be default-risk free?
A)U.S. Treasury bonds B)municipal bonds
C)junk bonds D)investment-grade bonds
3)If a corporation begins to suffer large losses, then the default risk on the corporate bond will
3)
A)increase and the bond?s return will become more uncertain, meaning the expected return on
the corporate bond will fall.
B)increase and the bond?s return will become less uncertain, meaning the expected return on
the corporate bond will fall.
C)decrease and the bond?s return will become less uncertain, meaning the expected return on
the corporate bond will rise.
D)decrease and the bond?s return will become less uncertain, meaning the expected return on
the corporate bond will fall.
4)
4)Bonds with relatively high risk of default are called
A)junk bonds.B)investment grade bonds.
C)Brady bonds.D)zero coupon bonds.
5)Corporate bonds are not as liquid as government bonds because
5)
A)fewer corporate bonds for any one corporation are traded, making them more costly to sell.
B)corporate bonds cannot be resold.
C)corporate bonds are not callable.
D)the corporate bond rating must be calculated each time they are traded.
6)The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default
6) risk and are ________ U.S. Treasury bonds.
A)less liquid than B)lower-yielding than
C)tax-exempt unlike D)less speculative than
7)Municipal bonds have default risk, yet their interest rates are lower than the rates on default-free
7) Treasury bonds. This suggests that
A)the benefit from the tax-exempt status of municipal bonds exceeds their default risk.
B)the benefit from the tax-exempt status of municipal bonds is less than their default risk.
C)the benefit from the tax-exempt status of municipal bonds equals their default risk.
D)Treasury bonds are not default-free.
8)A plot of the interest rates on default-free government bonds with different terms to maturity is
8) called
A)a default-free curve.B)a risk-structure curve.
C)a yield curve.D)an interest-rate curve.
9)
9)Typically, yield curves are
A)flat.B)mound shaped.
C)bowl shaped.D)gently upward sloping.
10)When yield curves are downward sloping,
10)
A)short-term interest rates are about the same as long-term interest rates.
B)short-term interest rates are above long-term interest rates.
C)long-term interest rates are above short-term interest rates.
D)medium-term interest rates are above both short-term and long-term interest rates.
11) 11)Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1 percent. The
expectations theory of the term structure predicts that the current interest rate on 3-year bond is
A)1 percent.B)2 percent.C)3 percent.D)4 percent.
12)According to the segmented markets theory of the term structure
12)
A)investors? strong preferences for short-term relative to long-term bonds explains why yield
curves typically slope downward.
B)the interest rate for each maturity bond is determined by supply and demand for that
maturity bond.
C)because of the positive term premium, the yield curve will not be observed to be
downward-sloping.
D)bonds of one maturity are close substitutes for bonds of other maturities, therefore, interest
rates on bonds of different maturities move together over time.
13)If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year
13)
term premium is 1 percent, than the 3-year bond rate will be
A)1 percent.B)2 percent.C)3 percent.D)4 percent.
14)The expectations theory and the segmented markets theory do not explain the facts very well, but
14)
they provide the groundwork for the most widely accepted theory of the term structure of interest rates,
A)liquidity premium theory.B)the Keynesian theory.
C)separable markets theory.D)the asset market approach.
15)The ________ of the term structure of interest rates states that the interest rate on a long-term bond
15)
will equal the average of short-term interest rates that individuals expect to occur over the life of
the long-term bond, and investors have no preference for short-term bonds relative to long-term
bonds.
A)separable markets theory B)expectations theory
C)liquidity premium theory D)segmented markets theory
Answer Key Testname: QUIZ4
1)D
2)A
3)A
4)A
5)A
6)A
7)A
8)C
9)D
10)B
11)B
12)B
13)D
14)A
15)B
Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)Which of the following statements concerning external sources of financing for nonfinancial
1) businesses in the United States are true?
A)Since 1970, more than half of the new issues of stock have been sold to American households.
B)Stocks and bonds, combined, supply less than one-half of the external funds.
C)Stocks are a far more important source of finance than are bonds.
D)Financial intermediaries such as banks are the least important source of external funds for
businesses.
2)One purpose of regulation of financial markets is to
2)
A)increase competition among financial institutions.
B)guarantee that the maximum rates of interest are paid on deposits.
C)promote the provision of information to shareholders, depositors and the public.
D)limit the profits of financial institutions.
3)The reduction in transactions costs per dollar of investment as the size of transactions increases is
3)
A)discounting.B)diversification.
C)economies of trade.D)economies of scale.
4)Which of the following is not a benefit to an individual purchasing a mutual fund?
4)
A)diversification B)reduced risk
C)lower transactions costs D)free-riding
5)A borrower who takes out a loan usually has better information about the potential returns and
5) risk of the investment projects he plans to undertake than does the lender. This inequality of
information is called
A)moral hazard.B)adverse selection.
C)asymmetric information.D)noncollateralized risk.
6)If bad credit risks are the ones who most actively seek loans and, therefore, receive them from
6) financial intermediaries, then financial intermediaries face the problem of
A)free-riding.B)costly state verification.
C)adverse selection.D)moral hazard.
7)The free-rider problem occurs because
7)
A)it is never profitable to produce information.
B)people who pay for information use it freely.
C)information can never be sold at any price.
D)people who do not pay for information use it.
8)A lesson of the Enron collapse is that government regulation
8)
A)always fails.
B)increases the problem of asymmetric information.
C)can reduce but not eliminate asymmetric information.
D)should be reduced.
9)The principal-agent problem
9)
A)would not arise if the owners of the firm had complete information about the activities of the
managers.
B)explains why direct finance is more important than indirect finance as a source of business
finance.
C)occurs when managers have more incentive to maximize profits than the
stockholders-owners do.
D)in financial markets helps to explain why equity is a relatively important source of finance
for American business.
10)The recent Enron and Tyco scandals are an example of
10)
A)the principal-agent problem.B)the ?lemons problem.?
C)the adverse selection problem.D)the free-rider problem.
11)Government regulations designed to reduce the moral hazard problem include
11)
A)state verification subsidies.
B)light sentences for those who commit the fraud of hiding and stealing profits.
C)state licensing restrictions.
D)laws that force firms to adhere to standard accounting principles.
12)Solutions to the moral hazard problem include
12)
A)monitoring and enforcement of restrictive covenants.
B)low net worth.
C)greater reliance on debt contracts than financial intermediaries.
D)greater reliance on equity contracts and less on debt contracts.
13)In a bank panic the source of contagion is the
13)
A)too-big-to-fail problem.B)free-rider problem.
C)transactions cost problem.D)asymmetric information problem.
14)A bank panic can lead to a severe contraction in economic activity due to
14)
A)a decline in lending for productive investment.
B)a decline in international trade.
C)the losses of bank depositors.
D)the losses of bank shareholders.
15)As information technology improves, the lending role of financial institutions such as banks
15)
should ________.
A)decrease B)increase significantly
C)stay the same D)increase somewhat
Answer Key Testname: QUIZ5
1)B
2)C
3)D
4)D
5)C
6)C
7)D
8)C
9)A
10)A
11)D
12)A
13)D
14)A
15)A
Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)Which of the following statements is false?
1)
A)Bank capital is recorded as an asset on the bank balance sheet.
B)A bank issues liabilities to acquire funds.
C)A bank?s assets are its uses of funds.
D)The bank?s assets provide the bank with income.
2)Which of the following are reported as liabilities on a bank?s balance sheet?
2)
A)U.S. Treasury securities B)Reserves
C)Discount loans D)Loans
3)Bank capital is listed on the ________ side of the bank?s balance sheet because it represents a
3) ________ of funds.
A)asset; source B)liability; use C)asset; use D)liability; source
4)Bank reserves include
4)
A)deposits at the Fed and short-term treasury securities.
B)vault cash and short-term Treasury securities.
C)deposits at other banks and deposits at the Fed.
D)vault cash and deposits at the Fed.
5)Which of the following bank assets is the most liquid?
5)
A)Cash items in process of collection B)Reserves
C)U.S. government securities D)Consumer loans
6)When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brown?s
6) bank ________ assets of $100 and ________ liabilities of $100.
A)gains; loses B)gains; gains C)loses; gains D)loses; loses
7)When a $10 check written on the First National Bank of Chicago is deposited in an account at
7) Citibank, then
A)the reserves of the First National Bank increase by $ 10.
B)the liabilities of the First National Bank increase by $10.
C)the assets of Citibank fall by $10.
D)the liabilities of Citibank increase by $10.