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36 Cards in this Set
- Front
- Back
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An Economy with a widely used form of money is better than a barter economy because money fulfills the ______ function.
a) Medium of exchange b) Standard of value c) Store of value d) Both a and b are correct e) Answers a, b, and c are all correct |
a) Medium of exchange
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Price risk refers to ___________.
a) the risk of non-payment of the fair price for an asset b) the risk of being unable to sell an asset for a fair price in a short period of time c) changes in the present values of the market values of financial assets changed by changes in interest rates d) changes in your future income caused by changes in the reinvestment rate available to you e) None of the above |
c) changes in the present values of the market values of financial assets changed by changes in interest rates
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Which of the following financial institutions are “depository institutions” in the U.S.?
a) Commercial Banks b) Savings and Loan Associations c) Investment Companies (mutual funds) d) Both a and b are correct e) Answers a, b, and c are all correct |
d) Both a and b are correct
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If the gold price in New York is $400 an ounce and the gold price in London is $300 an ounce arbitragers will enter the market and exploit the opportunity. As the market prices adjust, what will be the major impact on supply in New York as the prices adjust?
a) The supply curve will shift to the right and the price will rise b) The supply curve will shift to the left and the price will rise c) The supply curve will shift to the right and the price will fall d) The supply curve will shift to the left and the price will fall e) None of the above |
c) The supply curve will shift to the right and the price will fall
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Which of the following is the best definition of hedging?
a) a commitment of money to an asset from which you expect to receive an appropriate return for a given level of risk b) the attempt to profit over the short term from fluctuating prices c) taking an opposite position from an existing risky position so the two cancel out and you lower your overall risk d) simultaneously buying and selling the same asset in two different markets at two different markets at two different prices in order to exploit pricing inefficiencies across markets and earn riskless profits e) none of the above |
c) taking an opposite position from an existing risky position so the two cancel out and you lower your overall risk
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A bond would be considered _____.
a) A tangible asset b) An intangible asset c) An equity asset d) A derivative asset e) None of the above |
b) An intangible asset
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Which of the following is not one of the four financial market functions?
a) Transfer of funds from DSU's to SSU's b) Providing of liquidity to investors c) Securities pricing through supply and demand forces in the markers d) Resource allocation of scarce capital e) None of the above (all ARE financial market functions) |
a) Transfer of funds from DSU's to SSU's
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If you owe and liability and interest rates go down, which of the following is true?
a) Price risk works for you and reinvestment rate risk works risk against you. b) Price risk works against you and reinvestment rate risk works for you. c) Price risk works for you reinvestment reinvestment rate risk works for you. d) Price risk works against you and reinvestment rate risk works against you. |
b) Price risk works against you and reinvestment rate risk works for you.
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The Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange are examples of what types of markets? (note: this question is based on the terms at the end of the Basic Concept notes you were to memorize)
a) Equity markets b) Bond markets c) Options markets d) Real Estate markets e) None of the above |
c) Options markets
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Which of the following is the risk of the inability to sell an asset at fair market value on short notice?
a) Default risk b) Inflation risk c) Interest rate price risk d) FOREX risk e) Liquidity risk |
e) Liquidity risk
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If inflationary expectations fall and investors do not change their desired real rates of return, which of the following will happen?
a) investors will decrease desired inflation premiums b) investors will increase they ex-ante nominal interest rates demanded c) investors will decrease their ex-ante nominal interest rates demanded d) investors will not notice until it is too late |
b) investors will increase they ex-ante nominal interest rates demanded
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Given the expectation of a 5.25% inflation rate and a desired real rate of interest of 3.50%, what is the ex-ante nominal rate of interest demanded? Round answer to 2 significant decimals in % format.
a) 8.00 % b) 8.14 % c) 8.75 % d) 8.93 % e) none of the above |
d) 8.93%
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If you were expecting a 6% inflation rate and demanded a 2.0% positive real return for the year, your ex-ante desired nominal rate would be 8.12%. If, at the end of the year, actual inflation was 12%, what would your ex-post real return be? Round to 4 significant decimals.
a) +8.1200 % b) -4.1200 % c) -3.4643 % d) -3.8800 % e) None of the above |
c) -3.4643
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What if the investor's ex-ante inflationary expectations are higher than the actual ex-post rate of inflation? What is the implication for the relationship between the ex-ante desired real rate of return and the ex-post realized rate of return?
a) Ex-ante desired real rate of return is greater than the ex-post realized rate of return. b) Ex-ante desired real rate of return is less than the ex-post realized rate of return. c) Ex-ante desired real rate of return is equal to the ex-post realized rate of return. |
a) Ex-ante desired real rate of return is greater than the ex-post realized rate of return.
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You have the following one year interest rate forecast for each of the next 4 years. Based on the pure expectations theory relationship, what is the annual rate on a four year bond selling in the market today? Round answer to 4 significant decimals in % format.
Year: 2013: 1.5000 % 2014: 2.7500 % 2015: 3.0000 % 2016: 4.5000 % a) 1.0293 % b) 2.6875 % c) 2.9320 % d) 2.9375 % e) 4.500 % |
c) 2.9320 %
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Which of the following involves the attempt to profit over the short term from fluctuating prices?
a) Investment b) Speculation c) Hedging d) Arbitrage |
b) Speculation
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If our economy is growing very fast and we are at the top of the business cycle curve but economic activity has not started to slow yet, what shape would you expect the yield curve to have?
a) upsloping b) downsloping c) flat shape (or in the process of inverting) d) humped shape e) none of the above |
b) downsloping
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If liquidity goes up, what happens to the liquidity risk premium?
a) Goes up b) Goes down c) No change |
b) Goes down
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Normally, if everything else is held constant, the yield curve is generally upsloping due to investor's ______.
a) Risk tolerances b) Investing philosophy c) Liquidity preferences d) Political affiliation e) None of the above |
c) Liquidity preferences
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Which of the following is true about Open Market Operations (OMO)?
a) They are carried out by the Open Market Deskb) Historically, the OMD bought and sold only Treasury Securities c) They act independently of the Federal Open Market Committee d) a and b e) a, b, and c |
d) a and b
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If the OMD is a net buyer of treasury securities, all other things held constant, the legal reserves in the banking system will _____.
a) Increase b) Decrease c) Remains the same |
a) Increase
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In a highly inflationary environment, fiat money usually fulfills which of the following money functions over time?
a) Medium of exchange b) Standard of value c) Store of value d) Both a and b are correct e) Answers a, b, and c are all correct |
d) Both a and b are correct
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If the Fed OMD is a net seller of $100 million of T-bills and the reserve requirement is 20%, what will happen to the Money Supply? (Assuming the expansion / contraction process reaches its theoretical limit and all other things held constant).
a. Increase by $500 million b. Decrease by $500 million c. Increase by $20 million d. Decrease by $20 million e. Nothing |
b) Decrease by $500 million
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Which Federal Reserve District are we located in?
a) New York b) Jacksonville c) New Orleans d) Tampa e) Atlanta |
e) Atlanta
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Which Federal Reserve Bank is always represented on the Board of Governors?
a) New York b) Jacksonville c) New Orleans d) Tampa e) Atlanta |
a) New York
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In 1980, the Depository Institutions Deregulations and Monetary Control Act was passed. This Act required that____.
a. All nationally commercial chartered banks must meet the Fed's reserve requirements b. All state chartered commercial banks must meet the Fed's reserve requirements c. National banks could chose meet the reserve requirements but state chartered banks had to meet those requirements d. All depository institutions must meet the Fed's reserve requirements |
d. All depository institutions must meet the Fed's reserve requirements
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What happened to the Continental Bank Notes issued in 1775 to finance the Revolutionary War?a) They were redeemed for gold and silver coinsb) They were redeemed at full face value for government bonds
c) They lost almost all of their value within 5 years of issue d) They were redeemed for Federal Reserve Notes e) None of the above |
c) They lost almost all of their value within 5 years of issue
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In 1837 Congress changed official price of gold to ___?
a) $19.39 per ounce b) $20.67 per ounce c) $35.00 per ounce d) $38.00 per ounce e) $44.00 per ounce |
b) $20.67 per once
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Thomas Jefferson argued in favor of which of the following?
a) federal government control of banking and the granting of bank charters b) weak State governments c) State's rights of self determination d) A loose interpretation of the Constitution e) A Central Bank and nationwide system of nationally chartered banks |
c) State's rights of self determination
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Which of the following is true?
a) Rural states in the Midwest and South supported the Alexander Hamilton view b) Northeastern seaboard states with large cities supported the Thomas Jefferson view c) Farmers generally supported the Alexander Hamilton view d) Bankers and Industrialist supported the Thomas Jefferson view e) None of the above |
e) None of the above
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Which of the following were characteristics of the "Free Banking Era" during 1837-1863?
a) The Federal Reserve regulated reserve requirements the money supply b) Both national banks and state banks existedc) The Second Bank of the United States issued paper money backed by gold d) Legitimate State banks issued gold coins, silver coins, and paper money backed by golde) National banks issued gold coins, silver coins, and paper money backed by gold |
d) Legitimate State banks issued gold coins, silver coins, and paper money backed by gold
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The decade of the 1970's was characterized by _____.
a) declining nominal interest rates b) strong economic growth c) stable oil prices d) stagflation e) none of the above |
d) stagflation
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What does it mean when we say the Fed is "injecting liquidity" into the financial system?
a) increase the money supply in the system b) decrease the money supply in the system c) gets a giant Cajun flavor injector d) none of above |
a) increase the money supply in the system
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If real GNP growth averages 2% and we expand the money supply at 12% per year, what happens over the long term if velocity remains constant?
a) we get 4% inflation b) we get 8% inflation c) we get 10% inflation d) we require a 10% risk free rate of return |
c) we get 10% inflation
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Who is the current Chairman of the Board of Governors of the Federal Reserve System?
a) Ben Bernanke b) Alan Greenspan c) Paul Volcker d) Janet Yellen e) Mick Jagger |
d) Janet Yellen
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Between 1913 and 1920 what happened to consumer prices once the Fed was in control of the money supply?
a) Prices remained stable b) Prices decreased resulting in deflation c) Prices doubled, resulting in consumers losing 1/2 of their money's buying power |
c) Prices doubled, resulting in consumers losing 1/2 of their money's buying power
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