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10 Cards in this Set

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  • Back
Recall the supply and demand curves for federal funds (FF). Holding everything else constant, if the federal funds rate increases, then the demand for
a. reserves will not change because the Fed sets the level of required reserves.
b. excess reserves rises because they have a higher return to the banks that are borrowing FF.
c. required reserves falls because the cost of borrowing from the Fed is relatively lower.
d. excess reserves falls because they have a higher cost to the banks that are borrowing FF.
e. required reserves rises because the cost of borrowing from the Fed is relatively higher.
d. excess reserves falls because they have a higher cost to the banks that are borrowing FF.
Which of the following observations were not made by the World Economic Forum in its Sept. 2006 country rankings (as covered in class)?
a. The U.S., since the events of Sept. 11, 2001, has increasingly taken advantage of the "brain drain".
b. The U.S. has an edge on other countries due to its sophisticated financial markets.
c. New businesses in the U.S. have ready access to capital including bank loans, equity offerings, and venture capital.
d. The U.S. is a country with good intellectual property protection.
e. All of the above observations were made.
a. The U.S., since the events of Sept. 11, 2001, has increasingly taken advantage of the "brain drain".
The OCC, when examining nationally chartered commercial banks, assigns ratings to each of the CAMELSI (pronounced "camels eye") areas. Which of the following is not one of the CAMELSI areas?
a. Asset Quality
b. Management
c. Information Technology
d. Expected Risk
e. Capital Adequacy
d. Expected Risk
Which of the following observations or arguments was not discussed in the video clip from Kudlow & Company (discussed whether Sarbanes-Oxley regulation was too costly for the benefits it generated)?
a. U.S. FIs are becoming less internationally competitive as a result of Sarb-Ox regulation.
b. Sarb-Ox compliance cost was estimated at $6b per year for U.S. companies.
c. Sarb-Ox compliance was undermining the efforts of private equity firms.
d. The European Union is hitchhiking on the tails of Sarb-Ox by, for example, requiring mandatory audit partner rotation.
e. 700 instances of corporate convictions were all prosecuted under pre Sarb-Ox regulation.
c. Sarb-Ox compliance was undermining the efforts of private equity firms.

Private equity firms were discussed as being aided by Sarb-Ox. New equity issuers were avoiding compliance costs associated with issuing equity in public markets.
For the 2005 results of Union Bank of California (UB), which one of the following observations are correct?
a. UB had both a positive ROE and a positive ROA. The ROA was many times greater than the ROE, due to financial leverage.
b. UB had both a negative ROE and a negative ROA. The ROA was many times greater in size than the ROE, due to financial leverage.
c. UB had both a negative ROE and a negative ROA. The ROE was many times greater in size than the ROA, due to financial leverage.
d. UB had both a positive ROE and a positive ROA. The ROE was many times greater than the ROA, due to financial leverage.
e. None of the above observations is correct.
d. UB had both a positive ROE and a positive ROA. The ROE was many times greater than the ROA, due to financial leverage.
Which of the following statements is true?
a. The duration of all floating rate debt
instruments is equal to the time to
maturity.
b. The optimal duration gap is zero
c. The shorter the maturity of the FI's securities, the greater the FI's interest rate risk exposure.
d. The duration of equity is equal to the duration of assets minus the duration of liabilities.
e. Duration gap measures the impact of unanticipated changes in interest rates on the market value of equity.
e. Duration gap measures the impact of unanticipated changes in interest rates on the market value of equity.
In the U.S., there are advantages of owning assets subject to the capital gains tax. Which one of the following is not such an advantage?
a. capital gains can be offset by capital losses, in the same year in which they occur.
b. capital gains tax rates are typically lower than the rate on ordinary income.
c. capital gains can be offset by prior year’s capital losses, to some extent.
d. capital gains on assets owned by mutual funds can be deferred at the discretion of the mutual fund shareholder.
e. All of the above are advantages of owning assets subject to the capital gains tax.
d. capital gains on assets owned by mutual funds can be deferred at the discretion of the mutual fund shareholder.
Assets on the Fed’s balance sheet include
a. government securities and discount loans.
b. currency in circulation and reserves.
c. discount loans and reserves.
d. government securities and currency in circulation
e. none of these choices properly describe the assets on the Fed’s balance sheet.
a. government securities and discount loans.

Currency in circulation is a liability to the Fed, as are reserves held by banks.
If the inflation rate has an unexpected increase, what are the economic effects on the borrower and lender of a fixed-rate loan?
a. the borrower loses and the lender wins
b. the borrower loses and the lender loses
c. the borrower wins and the lender is not affected
d. the borrower wins and the lender wins
e. the borrower wins and the lender loses
e. the borrower wins and the lender loses
Consider a twenty-year maturity, $100,000 face value bond that pays a 6 percent fixed coupon annually.
What is the price of the bond (P) if market interest rates (i.e. the yield on this bond) are 6 percent?
a. P < $95,000
b. $95,000 <= P < $100,000
c. P = $100,000
d. $100,000 < P <= $105,000
e. P > $105,000
c. P = $100,000