1.(TCO
1) One sign of an efficient financial system is one that (Points
: 4)
eliminates search
and transactions costs.
is a mere
theoretical possibility.
promotes economic
growth and social progress.
depends on high
volumes of “direct” transactions.
Question 2.2.(TCO
1) Financial intermediaries are able to be profitable due to (Points
: 4)
economies of scale.
the ability to
manage credit risk.
good control of
transactions costs.
All of the above
Question 3.3.(TCO
1) An example of a notâforâprofit financial institution are (Points
: 4)
thrift
institutions.
credit unions.
pension funds.
commercial banks.
Question 4.4.(TCO
1) Money market instruments and capital market instruments differ
appreciably in (Points : 4)
size.
liquidity.
issuers.
All of the above
Question 5.5.(TCO
1) Financial markets give financial institutions (Points :
4)
a place to
securitize assets.
a source of
generating fee income from trading.
a source of funding.
All of the above
Question 6.6.(TCO
2) One of the more important goals of the Federal Open Market Committee
(FOMC) is to (Points : 4)
set monetary
policy.
supervise and
examine member banks.
guarantee excess
reserves to National Banks.
enforce margin
requirements.
Question 7.7.(TCO
2) If the Fed buys government securities, this action will (Points
: 4)
not change the
money supply.
increase security
prices.
increase interest
rates.
decrease credit
availability.
Question 8.8.(TCO
2) The modern objectives of the Fed include which goals? (Points
: 4)
To coordinate an
efficient payments mechanism
To provide an
elastic money supply
To regulate the
financial system
All of the above
Question 9.9.(TCO
2) Using the data below, what is the level of excess reserves?
Total Reserves $100,000,000
Reserve Requirement 6%
Total Deposits $750,000,000 (Points : 4)
$ 55,000,000
$ 45,000,000
$ 100,000,000
Not ascertainable
Question 10.10.(TCO
3) Business investment and consumption spending should increase if (Points
: 4)
financial wealth
decreases.
reserve
requirements decrease.
interest rates
increase.
credit availability
decreases.
Question 11.11.(TCO
4) What factors influence the real rate of interest? (Points
: 4)
Investor’s positive
time preference
The gold supply
Return on capital investments
Both investor’s
positive time preference and return on capital investments
Question 12.12.(TCO
4) What affects the supply of loanable funds? (Points :
4)
The level of income
The savings rate
Federal Reserve
monetary policy actions
All of the above
Question 13.13.(TCO
4) We can associate the flow of funds approach to interest rate forecasting
with (Points
: 4)
the Flow of Funds
Accounts.
the loanable funds
theory of interest rate determination.
the Federal Reserve
System.
All of the above
Question 14.14.(TCO
4) The ______ equation indicates that nominal interest rates are influenced
by changes in price levels and the real rate of interest. (Points
: 4)
Fisher
Loanable funds
Nominal rate
Rate
Question 15.15.(TCO
4) An investor received a 5% coupon rate last year on a $1,000 bond
purchased at par. The inflation rate during the year was 4% and is expected
to be 5% next year. The realized real rate earned by the investor last year
was (Points
: 4)
5%
1%
4%
-1%
Question 16.16.(TCO
5) Which of the following statements is true? (Points :
4)
Bond prices and
interest rates move together.
Coupon rates are
fixed at the time of issue.
Short-term
securities have large price swings relative to long-term securities.
The higher the
coupon, the lower the price of a bond.
Question 17.17.(TCO
5) When a bond’s coupon rate is equal to the market rate of interest, the
bond will sell for (Points : 4)
a discount.
a premium.
par.
a variable rate.
Question 18.18.(TCO
5) Interest rate risk is (Points : 4)
duration.
the extent that
coupon rates vary with time.
the potential
variability in the realized rate of return caused by changes in market rates.
the potential
variability in the bond maturity caused by changing discount rates.
Question 19.19.(TCO
5) Bond A has a duration of 5.6 while bond B has a duration of 6.0. Bond B (Points
: 4)
will have greater
price variability, given a change in interest rates, relative to bond A.
will have a longer
maturity than bond A.
will have a higher
coupon rate than bond A.
will have less
price variability, given a change in interest rates, relative to bond A.
Question 20.20.(TCO
5) The yield to maturity measure assumes that coupon interest is reinvested
at (Points
: 4)
the yield to
maturity.
the changing market
rates.
the coupon rate.
the treasury bond
rate.
1.(TCO 5) The
source of data for a yield curve might be(Points
: 4)
bond yield by issuers over time.
historical Treasury security
yields.
realized Treasury security yields
by time.
outstanding Treasury security
yields by maturity.
Question 2.2.(TCO 5)
According to the expectations theory of the term structure of interest
rates, if the yield curve slopes _______, the markets expect short-term
interest rates to _______ in the future.(Points
: 4)
upward; increase
downward; decrease
upward; decrease
Both â upward; increase and
downward; decrease
Question 3.3.(TCO 5)
According to the expectations theory, what is the one-year forward rate
three years from now if three- and four-year spot rates are 5.50% and
5.80%, respectively?(Points
: 4)
The rate cannot be calculated from
the information above
6.2%
6.7%
5.6%
Question 4.4.(TCO 5) The
major determinant of the bond ratings assigned by Moody’s, Standard and
Poor’s, or Fitch is(Points
: 4)
marketability.
tax treatment.
term to maturity.
default risk.
Question 5.5.(TCO 5)
Borrowers that seek long-term funds to finance capital projects must pay
lenders a _____ premium.(Points
: 4)
liquidity
default
interest
market
Question 6.6.(TCO 6) Money
market securities have very little(Points
: 4)
global risk.
size risk.
marketability risk.
None of the above
Question 7.7.(TCO 6) An
example of a liability of a non-financial business corporation is(Points
: 4)
commercial paper.
Federal Funds.
Treasury securities.
agency securities.
Question 8.8.(TCO 6) The use
of commercial paper as a backup line of credit(Points
: 4)
increases the credit risk for
investors.
decreases the credit risk for
investors.
has no impact on investors.
decreases the marketability of
commercial paper.
Question 9.9.(TCO 6) Which
money market security is backed by specified collateral?(Points
: 4)
Negotiable CDs
Banker’s acceptances
Repurchase agreements
Commercial paper
Question 10.10.(TCO 6) If a
firm is to sell securities with the agreement to buy them back later at a
higher price, this is a _____.(Points
: 4)
repurchase agreement
purchase agreement
reverse purchase agreement
reverse repurchase agreement
Question 11.11.(TCO 7) Which
of the following is an example of capital market securities?(Points
: 4)
Common stocks
Convertible bonds
Mortgages
All of the above
Question 12.12.(TCO 7)
Corporations will typically use capital market financing for(Points
: 4)
new plant and equipment.
seasonal inventory needs.
a quarterly dividend payment.
the sale of common stock.
Question 13.13.(TCO 7) United
States Treasury STRIP investments help to eliminate(Points
: 4)
default risk.
price risk.
reinvestment risk.
foreign exchange risk.
Question 14.14.(TCO 7) _____
would be least likely to purchase a tax-exempt municipal Bond.(Points
: 4)
Variables commercial bank
Casualty insurance company
Mutual funds
Individuals in low tax brackets
Question 15.15.(TCO 7) Bonds
are classified as a junk bonds if(Points
: 4)
issued in large volumes.
originate within small businesses.
its with high default risk.
None of the above
Question 16.16.(TCO 7)
Multinational firms look at Eurocurrency markets as a source of attractively
priced working capital loans because(Points
: 4)
lower regulatory costs allow
lenders to offer lower cost loans.
with transactions starting at
$500,000, economies of scale provide better pricing.
higher credit checking costs and
other processing costs lowers lending rates.
lower regulatory costs allow
lenders to offer lower cost loans and With transactions starting at
$500,000, economies of scale provide better pricing.
Question 17.17.(TCO 8) All of
the following can be used to adjust ARM rates except(Points
: 4)
Treasury security rates
Dow Jones Mortgage Rate Index
S & L cost of funds index
LIBOR
Question 18.18.(TCO 8) If a
savings and loan (S & L) has a very low net worth position, most
likely the S & L would(Points
: 4)
invest in conventional fixed-rate
loans.
invest in variable-rate loans.
make and sell eligible loans to the
FHLMC.
make equity-participation
mortgages.
Question 19.19.(TCO 8)
Mortgage rates, relative to other capital market rates(Points
: 4)
tend to vary with other rates.
tend to be lower than Treasury bond
rates.
reflect an element of credit risk.
tend to vary with other rates and
reflect an element of credit risk.
Question 20.20.(TCO 8) The
Federal Home Loan Mortgage Corporation (Freddie Mac) had an original
purpose to(Points
: 4)
make home loans to low income
individuals.
purchase the conventional mortgages
from thrift institutions.
purchase the insured conventional
mortgages from financial institutions.
purchase the government insured
mortgages from thrift institutions.
