Download Exam 1A Questions for Money and Banking | FIN 3313 and more Exams Banking and Finance in PDF only on Docsity!
NAME ______________________________
Money and Banking Fall 2007 Exam # Test Form A Clear your desktop of all items except: this exam sheet, your ParScore Scantron, your photo ID and #2 pencils. Turn off and put away electronic devices, including cell phones, ipods, pagers, calculators, computers, and pdas. THESE ITEMS MAY NOT BE USED DURING THE EXAM. Place your name on this exam paper and on your ParScore Scantron. Bubble in you Banner ID on your Scantron. Bubble in the test form letter under test form. Leave exam number blank. Select the best answer for each of the following questions. You may write on this exam
but you must place your final responses on your ParScore Scantron.
___________ 1. Which of the following would be considered a function of money? a. Money is used as the measure of inflation. b. Money is used as the primary measure of economic growth. c. Money serves as a means of borrowing in the debt markets. d. Money serves as a claim against gold reserves. e. Money serves as a means of payment. ___________ 2. Demanders of loanable funds a. Demand a smaller quantity of funds at higher interest rates b. Demand a smaller quantity of funds at lower bond prices c. Are borrowers d. Are lenders e. a, b, and c ___________ 3. If the rate of inflation is 6% and the nominal interest rate is 8%, then the real rate of interest is
a. 6/8%
b. 2%
c. 14%
d. 48%
e. None of the above ___________ 4. The primary market is the market in which a. Securities yielding the risk-free rate of return are traded. b. Investment grade bonds are traded. c. Securities that mature in one year or less are traded. d. Securities that mature in more than one year are traded.
e. Corporations sell securities and raise funds.
___________ 5. Money allows me to work and earn an income today, but be able to make purchases with my earnings at some future date instead consuming all of my income today. Thus, money serves as a a. Hedge against default risk b. Demand for loanable funds c. Store of value d. Hedge against inflation e. Interest rate hedge ___________ 6. An important function of secondary markets is to a. create a market for newly constructed houses. b. make it easier for governments to raise taxes. c. raise funds for corporations through the sale of securities. d. provide liquidity e. create a market for bank demand deposits. ___________ 7. Over the past 25 years, households have a. significantly decreased their holdings of financial assents in financial intermediaries. b. substantially increased their holdings in corporate equities, so that corporate equities now represent over 50% of household holdings of financial assets. c. shifted their holdings of financial assets from financial assets in financial intermediaries to financial assets in financial markets.
d. substantially increased the percentage of their savings placed in mutual funds and pension
funds. e. substantially reduced the amount of funds placed in money market mutual funds. ___________ 8. Which of the following assets is most liquid?
a. a $10 bill
b. a plot of land
c. a Treasury bill
d. a share of stock
e. a corporate bond
___________ 9. Diversification will not reduce the risk on a portfolio of assets when
a. the assets are highly liquid.
b. the returns are perfectly negatively correlated.
c. the assets are highly illiquid.
d. the returns are perfectly positively correlated.
e. Both a and b
___________ 10. Which of the following would cause the quantity of an asset in an individual’s portfolio to rise?
a. a decrease in the expected variability in the asset’s returns
b. an increase in the information costs associated with the asset
c. a decrease in the liquidity of the asset
d. a decrease in the expected return on the asset relative to the expected returns on
other assets.
e. Both c and d
e. To be as risky as federal treasury “debt” bonds.
___________ 19. Which of the following can be described as direct finance? a. You take out a mortgage from your local bank. b. You borrow $2500 from a friend. c. A pension fund lends money to General Motors. d. You buy shares in a mutual fund. e. None of the above ___________ 20. The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the a. default risk premium. b. interest rate. c. exchange rate. d. inflation rate. e. aggregate price level. ___________ 21. Typically, yield curves are a. mound shaped. b. flat. c. bowl shaped. d. gently downward sloping. e. gently upward sloping. ___________ 22. The risk premium is the a. Spread between bond interest rates and bond yields. b. Spread between the discount rate and the liquidity rate. c. Spread between bond prices and bond yields. d. Spread between the interest rates on bonds with default risk and default-free bonds. e. Yield on discount securities. ___________ 23. An advantage of buying municipal bonds is that a. They have zero default risk b. They have a downward sloping yield curve c. They are more liquid than U.S. treasury bonds d. They are exempt from federal income taxes e. They are speculative in nature ___________ 24. If interest rates rise, then we know that a. GDP rises b. Bond prices fall c. Inflation rises d. Employment rises e. All of the above ___________ 25. If I buy a U.S T-bill, I am lending money to a. The federal funds market b. The banking reserve system c. The federal reserve system d. The commercial banking system
e. The U.S. government ___________ 26. According to the loanable funds theory, the demander of loanable funds are a. The lenders
b. The individuals buying bonds
c. The borrowers d. Both a and b e. Both b and c ___________ 27. A yield curve is a. A plot of the inverse relationship of bond prices and bond yields. b. A plot of the risk premium yield. c. A plot of the historic yield of U.S. treasury securities.
d. A plot of the interest rates on default-free government bonds with different terms to
maturity. e. A plot of the interest rates on investment grade and speculative grade bonds. ___________ 28. If the supply of bonds decreases a. interest rates will fall b. interest rates will rise c. bond prices will fall d. both a and c e. both b and c ___________ 29. If the U.S. government runs a larger deficit, then you would expect a. The supply of loanable funds to fall and interest rates to fall b. The demand for loanable funds to increase and interest rates to rise c. The demand for loanable funds to decrease and interest rates to rise d. The demand for loanable fund to increase and interest rates to fall e. Both a and d ___________ 30. Financial markets a. Are risk-free markets. b. Include only supplier of loanable funds and commodity markets include only the demanders of loanable funds. c. Are considered primary markets if securities from the top 30 companies are being traded in them. d. Are considered money markets if the securities traded are denominated in U.S. currency. e. Are markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds. ___________ 31. Our paper currency is called “fiat money” because
a. It is backed by the U.S. stock market.
b. It was used to bail out major automobile manufacturers in the 1980’s c. Paper currency was first issued by Queen Fiatonnia of Portugal to finance exploration. d. It is backed by gold stored at Fort Knox in Fiat County, Kentucky. e. It has little value as a commodity and it has value to purchase items because everyone believes it has value.
___________ 38. According to the preferred habitat theory, the fact that the yield curve normally slopes upward indicates that
a. expected inflation is higher than current inflation.
b. people prefer longer-term securities.
c. people’s preferences have shifted toward long-term bonds.
d. people prefer securities with high risk premiums.
e. people prefer shorter-term securities.
___________ 39. A yield curve will slope downward when
a. bond prices and yields are positively correlated.
b. short-term rates are above long-term rates.
c. long-term rates are above short-term rates.
d. inflation rates are high.
e. None of the above. The yield curve never slopes downward.
___________ 40. Suppliers of loanable funds are a. Borrowers b. Demanders of bonds
c. Considered dealers if they are involved in market intermediation
d. Considered brokers if they are involved in market intermediation e. Both a and b ___________ 41. At its most recent meeting the Federal Open Market Committee
a. Increased the target Fed Funds rate by 50 basis points to 4.75%
b. Decreased the target Fed Funds rate by 50 basis points to 4.75%
c. Decreased the target Fed Funds rate by 25 basis points to 4.5%
d. Increased the discount rate by 25 basis points to 4.75%
e. Decreased the discount rate by 50 basis points but left the Fed Funds target rate
unchanged.
