Virtual University Solved Assignments Online Quiz Past Papers GDB VUsolutions VU solutions

Question No: 24 ( Marks: 1 ) - Please choose one

___________ is the strategy of buying and selling government securities:

► Open market operations

► Reserve requirement

► Discount loans

► Cash withdrawal

Ref: http://highered.mcgraw

Question No: 25 ( Marks: 1 ) - Please choose one

The _____________ shows how the quantity of money is related to the monetary base:

► Money multiplier

► Deposit expansion multiplier

► Fiscal multiplier

► Tax multiplier

Ref: The money multiplier shows how the quantity of money (checking account plus currency) is related to the monetary base (reserves in the banking system plus currency held by the nonblank public)

Question No: 26 ( Marks: 1 ) - Please choose one

Which of the following is correct?

► Monetary base = Currency + Reserves

► Monetary base = Currency + Deposits

► Monetary base = Loans + Reserves

► Monetary base = Required reserves + Deposits

Ref: M = C + D

Monetary Base = Currency + Reserves

Question No: 27 ( Marks: 1 ) - Please choose one

The central bank makes which type of loans?

► Primary credit

► Secondary credit

► Seasonal credit

► All of the given options

Ref: The central bank makes three types of loans:

Primary credit,

Secondary credit,

Seasonal credit

Question No: 28 ( Marks: 1 ) - Please choose one

Which of the following expresses the equation of exchange?

► MV = PY

► MV = Y

► MY = PV

► MP = VY

Ref: The equation of exchange, MV=PY provides the link between money and prices if we rewrite it in terms of percentage changes

Question No: 29 ( Marks: 1 ) - Please choose one

If the liquidity of alternative assets falls, the demand for money________.

► Increases

► Decreases

► Remains unchanged

► None of the given option

Ref: As the liquidity of alternatives falls, the demand for money goes up

Question No: 30 ( Marks: 1 ) - Please choose one

Interest rate risk arises as a result of which one of the following consequences?

► It arises when banks make additional profit by using derivatives

► It arises when loan is not repaid

► It arises because of sudden demands of funds

► It arises when two sides of the balance sheet do not match up

The two sides of a bank’s balance sheet often do not match up because liabilities tend to be short-term while assets tend to be long-term; this creates interest-rate risk

Question No: 31 ( Marks: 1 ) - Please choose one

A U.S. institution, United Bank, buys some financial assets denominated in British pounds. Fluctuations in the dollar value of the pound will give rise to:

► Credit risk

► Operational risk

► Foreign exchange risk

► Country risk

Ref: Foreign exchange risk (the risk from unfavorable moves in the exchange rate)

Question No: 32 ( Marks: 1 ) - Please choose one

High State Bank purchases some U.S. Treasury bonds. We would view such bonds as being free of:

► Credit risk

►Interest Rate Risk

► Reinvestment risk

► All of the given options

ref

Question No: 33 ( Marks: 1 ) - Please choose one

In general, if the financial institution's balance sheet displays assets and liabilities that are "mis-matched" to a significant degree, the institution faces:

► Operational risk

► Sovereign risk

► Interest rate risk

► Liquidity risk

The two sides of a bank’s balance sheet often do not match up because liabilities tend to be

short-term while assets tend to be long-term; this creates interest-rate risk

􀂃 In order to manage interest-rate risk, the bank must determine how sensitive its balance sheet

(assets and liabilities) is to a change in interest rates;

Question No: 34 ( Marks: 1 ) - Please choose one

The idea that central banks should be independent of political pressure is an idea that:

► Is included in Federal Reserve Act in 1913

► Is relatively new

► Every central bank was founded upon

► Became quite popular in the early 1900's

ref

Question No: 35 ( Marks: 1 ) - Please choose one

Currency-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?

► Central bank

► Bank regulators

► Commercial banks

► Non bank public

Question No: 36 ( Marks: 1 ) - Please choose one

The real purchasing power of money in circulation is expressed as which of the following?

► MV·PY

► M/P

► PY

► M/Y

ref

Question No: 37 ( Marks: 1 ) - Please choose one

The FOMC targets the federal funds rate, but if they are going to alter the course of the economy they must influence which one of the following?

► The money growth rate as well

► The long-term nominal interest rate as well

► The real interest rate as well

► The nominal exchange rate as well

Reference

Question No: 38 ( Marks: 1 ) - Please choose one

Inflation in the long run would be determined by which one of the following?

► The exchange rate

► Aggregate demand

► The rate of money growth

► Aggregate supply

Question No: 39 ( Marks: 1 ) - Please choose one

According to real business cycle theory, aggregate economic fluctuations are caused by changes in:

► The money supply

► Fiscal policy

► High unemployment

► The natural rate level of output

Question No: 40 ( Marks: 1 ) - Please choose one

Which of the following represents the history of money uptill the modern age?

► Gold/silver coins____ Paper Currency____Electronic Fund Transfer

► Paper Currency_____Gold/Silver coins_____Electronic Fund Transfer

► Electronic Fund Transfer_____Paper Currency _____Gold/silver coins

► Gold/silver coins_____Electronic Fund Transfer_____Paper currency

Question No: 41 ( Marks: 1 ) - Please choose one

Zero-Coupon Bonds are pure discount bonds since they sell at a price __________.

► Equal their face value

► Below their face value

► Above their face value

► None of the given options

Question No: 42 ( Marks: 1 ) - Please choose one

__________ pool money from individuals and invest in different portfolio and return is distributed in different share holders.

► Mutual funds

► Investment banks

► Brokers

► Finance companies

The____________ are an assessment of the creditworthiness of the corporate issuer.
Select correct option:

Bond yield

Bond price

Bond risk
Bond ratings

Bond price

Question # 2
Which of the following statement is true for the given sentence, "that tax affects the bond return"?
Select correct option:

Because only interest income they receive from bond is taxable
Because principal amount and interest income they receive from bond is taxable
Because bond holders are taxpayers
Because all bond is sold with a condition that tax will be deducted from its return

The second important factor that affects the return on a bond is taxes

Bondholders must pay income tax on the interest income they receive from privately issued

Question # 3
The relationship between the price and the interest rate for a zero coupon bond is best described as:
Select correct option:

Volatile
Stable
Non-existent
Inverse

Question # 4

When stock prices reflect fundamental values:
Select correct option:

All investors will experience capital gains
All companies will have an easier task of obtaining financing for investment projects
The allocation of resources will be more efficient
The overall level of the stock market should move higher continuously

Question # 5
Coupon bonds make the annual payments which are called as ___________.
Select correct option:

Annual payments
Fixed payments
Coupon payments
Maturity payment

Question # 6

If information in a financial market is asymmetric, this means:
Select correct option:

Borrowers and lenders have perfect information
Borrowers would have more information than lenders
Borrowers and lenders have the same information
Lenders lack any information

Question # 7
If YTM equals the coupon rate the price of the bond is __________.
Select correct option:

Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information

Question # 8

The Financial Systems makes it easier to trade because it:
Select correct option:

Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options

Question # 9 of
Debt instruments is categorized on the basis of which one of the following?
Select correct option:

Loan maturity period
Interest rates
Mode of payment of interest
Amount of the debt taken

Question # 10
The return on holding a bond till its maturity is called:
Select correct option:

Coupon rate
Yield to maturity
Current yield
Internal rate of return

Question # 11
Which of the following are used to monitor and stabilize the economy?
Select correct option:

Stock exchanges
Commercial Banks
Central Banks

Financial institutions

Question # 12

Previously financial markets are located in which of the following?
Select correct option:

Coffee houses or Taverns .
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Financial Markets

To buy and sell financial instruments quickly and cheaply

Evolved from coffeehouses to trading places (Stock exchanges) to electronic networks

Transactions are much more cheaper now

Markets offer a broader array of financial instruments than were available even 50 years ago

Question # 13

Requiring a large deductible on the part of an insured is one way insurers treat the problem of:
Select correct option:

Free-riding

for more contents visit

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Moral hazard
Adverse selection
The Lemons market

Question # 14
Which one of the following is the procedure of finding out the Present Value (PV)?
Select correct option:

Discounting
Compounding
Time value of money
Bond pricing

Question # 15

_____________ are organized to eliminate the need of costly information gathering.
Select correct option:

Central bank
Commercial banks
Stock exchanges
Insurance companies

Question # 16
With direct finance we mean which of the following?
Select correct option:

Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.

Question # 17

Yield curves show which of the followings?
Select correct option:

The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)

Question # 18
In a financial market where information is symmetric:
Select correct option:

The same information would be known by both parties in a transaction
One party to a transaction knows information the other party does not
The ability to obtain information is available to only one party
All of the given options

Question # 19
Other things remaining equal, the liquidity premium theory is based upon the idea that ____________.
Select correct option:

Investors prefer long-term bonds
Investors prefer short-term bonds
Investors are indifferent between short-term and long-term bonds
Investors prefer intermediate-term bonds

Question # 20
Spreading involves:
Select correct option:

Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently

The Financial Systems makes it easier to trade because it:

Select correct option: Facilitate Payments

Channels Funds from Savers to Borrowers

Enables Risk Sharing

All of the given options

Question # 2 of 20

The process of financial intermediation:

Select correct option:

Creates a net cost to an economy but is unavoidable

Is used primarily in underdeveloped countries

Is always used when a borrower needs to obtain funds

Increases the economy's ability to produce

Question # 3 of 20

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return

Greater the risk the return will remain constant

Question # 4 of 20

Financial instruments are evolved just as ____________.

Select correct option:

Currency

Stock

Bond

Commodity

Question # 5 of 20

Beside default risk which one if the following factor affects the return on bond?

Select correct option:

Taxes

Monetary policy

Junk bonds

Debt

The second important factor that affects the return on a bond is taxes

Question # 7 of 20 ( Start time: 06:31:33 PM ) Total Marks: 1

Which of the following is the measure of likelihood that an event will occur?

Select correct option:

Risk

Probability

Frequency

Question # 8 of 20

According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects

Select correct option:

Short-term interest rates to rise sharply

Short-term interest rates to stay near their current levels

Short-term interest rates to drop sharply

Short-term interest rates does not change

Question # 9 of 20 Home loans and car loans are the example of which one of the following?

Select correct option:

Mortgage loans

Pledge

Fixed Payment Loans

Fixed Payment Loans

They promise a fixed number of equal payments at regular intervals

Home mortgages and car loans are examples of fixed payment loans

Question # 10 of 20

Which one of the following is the procedure of finding out the Present Value (PV)?

Select correct option:

Discounting

Compounding

Time value of money

Bond pricing

Question # 12 of 20

Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:

Select correct option:

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat

The slope of the yield curve should actually increase

Question # 14 of 20

Most of the people among us are ___________.

Select correct option:

Risk lovers

Risk enhancers

Risk averse

Risk tolerating

Question # 15 of 20

A risk-averse investor will:

Select correct option:

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

Question # 16 of 20

The liquidity premium theory suggests that yield curves should usually be:

Select correct option:

Up-sloping

Inverted

Flat

Up-sloping through year 1, then flat thereafter

Wider the range of outcome wider will be the ___________.

Select correct option:

Risk

Profit

Probability

Measuring Risk

Most of us have an intuitive sense for risk and its measurement;

The wider the range of outcomes the greater the risk

The return on holding a bond till its maturity is called:

Coupon rate

Yield to maturity

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Current yield

Fixed return

Question # 20 of 20

If information in a financial market is asymmetric, this means:

Select correct option:

Borrowers and lenders have perfect information

Borrowers would have more information than lenders

Borrowers and lenders have the same information

Lenders lack any information

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%

Select correct option:

Doubles

Triples

Halves

3/4

Stock market bubbles can lead to:

Select correct option:

An inefficient allocation of resources

Stock market crashes

Patterns of volatile returns from the stock market

All of the given options

Which one of the following is true for the relationship between the yield of taxable and tax exempt bond?

Select correct option:

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond

change

The Dividend-Discount Model of stock valuation:

Select correct option:

Takes the annual dividend, adds it to the expected future selling price and divides by the number of years to get the current price

Takes the net present value of expected dividends and add it to the future sale price of the stock

Takes the net present value of the expected future price of the stock and add the annual dividend

Is an application of the net present value formula

In which of the following bonds we may ignore the default risk?

Select correct option:

Privately issued bonds

Government issued bonds

Bonds issued by Corporate

All of the given options

The slope of the yield curve seems to predict the performance of the economy with:

Select correct option:

Usually 3 months lag

Usually two years lag

Usually within few weeks

Usually one year lag

The GDP deflator is calculated as___________.

Select correct option:

Nominal GDP/Real GDP *100

Real GDP/Nominal GDP

Nominal GDP – Real GDP

Real GDP – Nominal GDP

What is true about the relationship between standard deviation and risk?

Select correct option:

Greater the standard deviation greater will be the risk

Greater the standard deviation lower will be the risk

Greater the standard deviation risk remains the same

No relation between them

The concept of limited liability says a stockholder of a corporation:

Select correct option:

Is liable for the corporation's liabilities, but nothing more

Cannot receive dividends that exceed their investment

Cannot own more than fiver percent of any public corporation

Cannot lose more than their investment

Which of the following best describes the relationship between Bond prices and yields?

Select correct option:

Move together inversely

Bond yields do not change since the coupon is fixed

Move together directly

Are independent of each other

Which of the following best expresses the payment a lender receives for lending their money for four years?

Select correct option:

PV(1+i)4

PV/(1 + i)4

4PV

PV/(1 - i)4

If YTM is greater than the coupon rate the price of the bond is __________.

Select correct option:

Greater than its face value

Lower than its face value

Equals to its face value

All of the given options

Bond Price <>

Coupon Rate <>

SHAWWAL’S QUIZ

Question # 1 of 20 ( Start time: 11:44:29 AM ) Total Marks: 1

Which of the following patterns of term structure occur most frequently?

Select correct option:

Ascending yield curve(Not sure)see page#57

Descending yield curve

Flat yield curve

Humped yield curve

Question # 2 of 20 ( Start time: 11:45:51 AM ) Total Marks: 1

Without the ability of financial intermediaries to pool the resources of small savers:

Select correct option:

Borrowers needing large amounts of money would find it less costly to obtain the funds

The economy would likely grow faster

People would likely save more

The risk associated with lending would increase(Correct)

Question # 3 of 20 ( Start time: 11:47:21 AM ) Total Marks: 1

An index number is a valuable tool because:

Select correct option:

The number by itself provides all of the useful information needed

The index provides a meaningful measurement scale to calculate percentage changes(Correct)

The index is more stable than the data it reflects

It does not require any calculations to compute percentage changes

Question # 4 of 20 ( Start time: 11:48:17 AM ) Total Marks: 1

The concept of limited liability says a stockholder of a corporation:

Select correct option:

Is liable for the corporation's liabilities, but nothing more

Cannot receive dividends that exceed their investment

Cannot own more than fiver percent of any public corporation

Cannot lose more than their investment(Correct)

Question # 5 of 20 ( Start time: 11:49:23 AM ) Total Marks: 1

When the Fed wants to increase the level of reserves in the banking system, it can:

Select correct option:

Buy bonds from the public

Buy bonds from banks(confusion)see page#105

Increase discount loans to banks

All of the given options

Which one of the following is NOT non depository institution?

Select correct option:

Insurance Companies

Securities Firms

Finance Companies

Credit unions(Correct)Page#23

Nondepository institutions

Insurance companies, securities firms, mutual fund companies, finance companies, and pension

funds

Question # 7 of 20 ( Start time: 11:50:46 AM ) Total Marks: 1

High-powered money less reserves equals:

Select correct option:

Required reserves

Currency in circulation(Correct)

The monetary base

The non-borrowed monetary base

THE MONETARY BASE

Currency in the hands of the public and the reserves of the banking system are the two

components of the monetary base, also called high-powered money.

Bank Reserves = Vault Cash plus Deposits at the central bank

The central bank can control the size of the monetary base and therefore the quantity of money

Question # 8 of 20 ( Start time: 11:52:08 AM ) Total Marks: 1

Which one of the following is NOT true for the expectation hypothesis?

Select correct option:

Risk free interest rate can be computed

There is uncertainty in the future

Identifying yield of bond today that will be available next year

It focuses on risk free interest rate and the risk premium(Correct)Page#58

Expectations Hypothesis

The risk-free interest rate can be computed, assuming that there is no uncertainty about the future

Since certainty means that bonds of different maturities are perfect substitutes for each other, an

investor would be indifferent between holding

A two-year bond or

A series of two one-year bonds

Certainty means that bonds of different maturities are perfect substitutes for each other

Assuming that current 1-year interest rate is 5%. The expectations hypothesis implies that the

current 2-year interest rate should equal the average of 5% and 1-year interest rate one year in

future.

If future interest rate is 7%, then current 2-year interest rate will be (5+7) / 2 = 6%

Therefore, when interest rates are expected to rise long-term rates will be higher than short-term

rates and the yield curve will slope up (and vice versa)

Question # 9 of 20 ( Start time: 11:53:27 AM ) Total Marks: 1

Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other?

Select correct option:

Spreading the risk

Standard deviation

Hedging the risk(Correct) page #40

Variance

Hedging Risk

Hedging is the strategy of reducing overall risk by making two investments with opposing risks.

When one does poorly, the other does well, and vice versa.

So while the payoff from each investment is volatile, together their payoffs are stable.

Question # 10 of 20 ( Start time: 11:53:52 AM ) Total Marks: 1

Which one of the following is true for financial intermediaries?

Select correct option:

Channel funds from savers to borrowers

Greatly enhance economic efficiency

Have been an source of many financial innovations

All of the given options (Not sure)

Question # 11 of 20 ( Start time: 11:54:10 AM ) Total Marks: 1

Bonds that are issued by Government are called _________.

Select correct option:

Government bond

Treasury bond(Correct)

Corporate bond

Callable Bonds

Question # 12 of 20 ( Start time: 11:55:21 AM ) Total Marks: 1

The liquidity premium theory suggests that yield curves should usually be:

Select correct option:

Up-sloping (page#61)

Inverted

Flat

Up-sloping through year 1, then flat thereafter

Question # 13 of 20 ( Start time: 11:56:41 AM ) Total Marks: 1

Which of the following expresses 6.5%?

Select correct option:

0.0065

6.50

0.650

0.0650(Correct)

Question # 14 of 20 ( Start time: 11:57:52 AM ) Total Marks: 1

Wider the range of outcome wider will be the ___________.

Select correct option:

Risk (page #36)

Profit

Probability

Lose

Question # 15 of 20 ( Start time: 11:58:25 AM ) Total Marks: 1

Yield curves show which of the followings?

Select correct option:

The relationship between bond interest rates (yields) and bond prices

The relationship between liquidity and bond interest rates (yields)

The relationship between risk and bond interest rates (yields)

The relationship between time to maturity and bond interest rates (yields) (Correct)

Question # 16 of 20 ( Start time: 11:59:52 AM ) Total Marks: 1

Which of the following statement is true for the given sentence, "that tax affects the bond return"?

Select correct option:

Because only interest income they receive from bond is taxable

Because principal amount and interest income they receive from bond is taxable

Because bond holders are taxpayers

Because all bond is sold with a condition that tax will be deducted from its return

Confusion between 1 & 4

Question # 17 of 20 ( Start time: 12:01:08 PM ) Total Marks: 1

Which of the following best expresses the payment a lender receives for lending their money for four years?

Select correct option:

PV(1+i)4(Correct)page#25

PV/(1 + i)4

4PV

PV/(1 - i)4

Question # 18 of 20 ( Start time: 12:02:25 PM ) Total Marks: 1

The reason for the government to get involved in the financial system is to:

Select correct option:

Protect investors

Ensure the stability of the financial system

Protect bank customers from monopolistic exploitation

All of the given options(Correct)

Question # 19 of 20 ( Start time: 12:02:45 PM ) Total Marks: 1

A loan that is used to purchase the real estate is known as:

Select correct option:

Real estate loan(Correct)

Home mortgages

Fixed payment loan

Home loan

Question # 20 of 20 ( Start time: 12:03:40 PM ) Total Marks: 1

A sale of government bonds by the Fed, all else the same:

Select correct option:

Increases the monetary base(not sure)

Increases the high-powered money

Increases the non-borrowed monetary base

None of the given option

AYESHA’S QUIZ

Question # 1 of 20 ( Start time: 12:09:21 PM ) Total Marks: 1

The Dividend-Discount Model of stock valuation:

Select correct option:

Takes the annual dividend, adds it to the expected future selling price and divides by the number of years to get the current price

Takes the net present value of expected dividends and add it to the future sale price of the stock

Takes the net present value of the expected future price of the stock and add the annual dividend

Is an application of the net present value formula(Correct)

Question # 2 of 20 ( Start time: 12:10:46 PM ) Total Marks: 1

A business cycle downturn shifts the bond supply to the:

Select correct option:

Right

Left(Not sure)

No change

None of the given options

Question # 3 of 20 ( Start time: 12:11:39 PM ) Total Marks: 1

Which of the following is NOT an example of financial institutions?

Select correct option:

Banks

Securities firms(Correct)

Stock exchanges

Insurance companies

Question # 4 of 20 ( Start time: 12:13:13 PM ) Total Marks: 1

Successful monetary policy relies on:

Select correct option:

The institutional environment

Competent people in responsible positions(Correct)

Knowledgeable citizens who know how to react to the policy

Competent people in responsible positions and knowledgeable citizens who know how to react to the policy

Question # 5 of 20 ( Start time: 12:14:38 PM ) Total Marks: 1

Which one of the following is NOT true for the expectation hypothesis?

Select correct option:

Risk free interest rate can be computed

There is uncertainty in the future

Identifying yield of bond today that will be available next year

It focuses on risk free interest rate and the risk premium(Correct)Page#58

Expectations Hypothesis

The risk-free interest rate can be computed, assuming that there is no uncertainty about the future

Since certainty means that bonds of different maturities are perfect substitutes for each other, an

investor would be indifferent between holding

A two-year bond or

A series of two one-year bonds

Certainty means that bonds of different maturities are perfect substitutes for each other

Assuming that current 1-year interest rate is 5%. The expectations hypothesis implies that the

current 2-year interest rate should equal the average of 5% and 1-year interest rate one year in

future.

If future interest rate is 7%, then current 2-year interest rate will be (5+7) / 2 = 6%

Therefore, when interest rates are expected to rise long-term rates will be higher than short-term

rates and the yield curve will slope up (and vice versa)

Question # 6 of 20 ( Start time: 12:15:11 PM ) Total Marks: 1

Which of the following is NOT included in the assets of commercial banks?

Select correct option:

Cash Items

Reserves

Securities

Bills payable(Correct) B.coz its liability

Question # 7 of 20 ( Start time: 12:16:29 PM ) Total Marks: 1

Which of the following is the least liquid of all?

Select correct option:

Money(Correct)

Bonds & stocks

Lands & buildings

None of the given options

Question # 8 of 20 ( Start time: 12:17:16 PM ) Total Marks: 1

The risk premium of a bond will:

Select correct option:

Higher for investment-grade bonds than for high-yield bonds(Not sure)

Positive but small if the risk of default is zero

Decrease when the default risk rises

Increase when the risk of default rises

Question # 9 of 20 ( Start time: 12:18:29 PM ) Total Marks: 1

Which of the following best describes default risk?

Select correct option:

The chance the issuer will be unable to make interest payments or repay principal

The chance the issuer will retire the debt early

The chance the issuing firm will be sold to another firm

The chance the issuer will sell more debt

Question # 10 of 20 ( Start time: 12:19:49 PM ) Total Marks: 1

The slope of the yield curve seems to predict the performance of the economy with:

Select correct option:

Usually 3 months lag

Usually two years lag

Usually within few weeks

Usually one year lag(Correct)

Question # 11 of 20 ( Start time: 12:20:56 PM ) Total Marks: 1

Which of the following statement is true for the given sentence, "that tax affects the bond return"?

Select correct option:

Because only interest income they receive from bond is taxable(may be)

Because principal amount and interest income they receive from bond is taxable

Because bond holders are taxpayers

Because all bond is sold with a condition that tax will be deducted from its return(Not Sure)

Question # 12 of 20 ( Start time: 12:21:51 PM ) Total Marks: 1

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return(Correct)

Greater the risk the return will remain constant

No relationship between them

Question # 13 of 20 ( Start time: 12:22:55 PM ) Total Marks: 1

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%

Select correct option:

Doubles(Correct)

Triples

halves

3/4

Question # 14 of 20 ( Start time: 12:23:44 PM ) Total Marks: 1

When the auto manufacturing industry does poorly due to a recession this is an example of:

Select correct option:

Idiosyncratic risk

Systematic risk(page # 39)

Risk premium

Unique risk

Question # 15 of 20 ( Start time: 12:25:11 PM ) Total Marks: 1

Suppose that machinery used by Bank-Twenty for sorting and clearing checks breaks down. This is a manifestation of:

Select correct option:

Credit risk

Operational risk(Not sure)

Liquidity risk

Market risk

Question # 16 of 20 ( Start time: 12:26:42 PM ) Total Marks: 1

Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:

Select correct option:

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat(Correct)

The slope of the yield curve should actually increase

Question # 17 of 20 ( Start time: 12:28:05 PM ) Total Marks: 1

Sum of all the probabilities should be equal to which one of the following?

Select correct option:

Zero

One

Two

Three

Question # 18 of 20 ( Start time: 12:29:27 PM ) Total Marks: 1

If we ignore risk, the dividend discount model says the fundamental price of a stock is simply:

Select correct option:

The current dividend divided by the interest rate less the dividend growth rate

The annual growth rate of the dividend minus the interest rate divided by the current dividend

The current dividend divided by the interest rate plus the dividend growth rate

The current dividend divided by the dividend growth rate less the interest rate

Question # 19 of 20 ( Start time: 12:30:56 PM ) Total Marks: 1

Debt instruments is categorized on the basis of which one of the following?

Select correct option:

Loan maturity period

Interest rates

Mode of payment of interest

Amount of the debt taken (Not sure)

Question # 20 of 20 ( Start time: 12:32:22 PM ) Total Marks: 1

Often a bank will require a loan officer to make personal visits on customers with loans outstanding. This is encouraged because:

Select correct option:

The bank worries about competitors trying to steal their customers

The bank wants to make sure the business is still there

The bank likely has excess funds available and hopes to make another loan to the business

This is an effective monitoring technique and should reduce moral hazard(Not Sure)

Question # 1 of 20 ( Start time: 01:58:52 PM ) Total Marks: 1

Which of the following are used to monitor and stabilize the economy?

Select correct option:

Stock exchanges

Commercial Banks

Central Banks (page # 4)

Financial institutions

Question # 2 of 20 ( Start time: 01:59:18 PM ) Total Marks: 1

Which of the following is a role of a financial institution acting as a financial intermediary?

Select correct option:

Pooling the resources of small savers(Correct)

Formulating oversight regulations

Sending out free calendars at the holidays

Lobbying legislators

Reference: page # 71.

The most straightforward economic function of a financial intermediary is to pool the resources of

many small savers

Question # 3 of 20 ( Start time: 01:59:44 PM ) Total Marks: 1

In which of the following bonds we may ignore the default risk?

Select correct option:

Privately issued bonds

Government issued bonds(Correct)

Bonds issued by Corporate

All of the given options

Question # 4 of 20 ( Start time: 02:00:05 PM ) Total Marks: 1

There is no guarantee that a bond issuer will make the promised payments is known as which one of the following?

Select correct option:

Default risk (page # 53)

Inflation risk

Interest rate risk

Systematic risk

Question # 5 of 20 ( Start time: 02:00:43 PM ) Total Marks: 1

Successful monetary policy relies on:

Select correct option:

The institutional environment

Competent people in responsible positions

Knowledgeable citizens who know how to react to the policy

Competent people in responsible positions and knowledgeable citizens who know how to react to the policy

1 & 2 Option here is confusion…..

Question # 6 of 20 ( Start time: 02:02:03 PM ) Total Marks: 1

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return(Correct)

Greater the risk the return will remain constant

No relationship between them

Question # 7 of 20 ( Start time: 02:02:20 PM ) Total Marks: 1

Which one of the following is a component of wealth that is held in a readily spendable form?

Select correct option:

Money (page # 8)

Bonds

Stocks

Income

Question # 8 of 20 ( Start time: 02:03:21 PM ) Total Marks: 1

Which of the following statement is true for the given sentence, "that tax affects the bond return"?

Select correct option:

Because only interest income they receive from bond is taxable

Because principal amount and interest income they receive from bond is taxable

Because bond holders are taxpayers

Because all bond is sold with a condition that tax will be deducted from its return

Confusion(1 & 4)

Question # 9 of 20 ( Start time: 02:04:23 PM ) Total Marks: 1

Which of the following institution take direct deposit from customer and give loan to customer directly?

Select correct option:

Zarai Tarkaytee Bank LTD

Soneri Bank

Khushali Bank

Credit union(Correct)

Question # 10 of 20 ( Start time: 02:05:18 PM ) Total Marks: 1

An index number is a valuable tool because:

Select correct option:

The number by itself provides all of the useful information needed

The index provides a meaningful measurement scale to calculate percentage changes(Correct)

The index is more stable than the data it reflects

It does not require any calculations to compute percentage changes

Question # 11 of 20 ( Start time: 02:06:22 PM ) Total Marks: 1

It arises when banks make additional profit by using derivatives

Select correct option:

It arises when loan is not repaid

It arises because of sudden demands of funds

It arises when two sides of the balance sheet do not match up

It arises when banks make additional profit by using derivatives(Not sure)

Question # 12 of 20 ( Start time: 02:07:45 PM ) Total Marks: 1

In a financial market where information is symmetric:

Select correct option:

The same information would be known by both parties in a transaction(Correct)

One party to a transaction knows information the other party does not

The ability to obtain information is available to only one party

All of the given options

Question # 13 of 20 ( Start time: 02:08:31 PM ) Total Marks: 1

In the United States, the central bank is responsible for:

Select correct option:

Oversee the stock exchanges

The conduct of monetary policy

Help finance government deficits

Both the conduct of monetary policy and help finance government deficits(Not sure)

Question # 14 of 20 ( Start time: 02:08:49 PM ) Total Marks: 1

Which of the following expresses 6.5%?

Select correct option:

0.0065

6.50

0.650

0.0650(Correct)

Question # 15 of 20 ( Start time: 02:09:19 PM ) Total Marks: 1

Which of the following best represent the true relationships between interest rates and bond prices?

Select correct option:

Move in the same direction

Move in opposite direction (page # 32)

Sometimes move in the same direction, some times in opposite direction

Have no relationship with each other (i.e. they are independent)

Reference: page # 32 of handouts.

Lower interest rates mean higher bond prices and vice versa.

Question # 16 of 20 ( Start time: 02:10:09 PM ) Total Marks: 1

Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:

Select correct option:

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat(Correct)

The slope of the yield curve should actually increase

Question # 17 of 20 ( Start time: 02:11:35 PM ) Total Marks: 1

Which one of the following is the strategy of reducing overall risk by making two investments which are totally independent of each other?

Select correct option:

Spreading the risk

Standard deviation

Hedging the risk (page # 40)

Variance

Mutual funds that charge a sales commission when shares are purchases are called

a. no-load funds

*b. loaded funds

c. sinking funds

d. sinking-charge funds

When an investment bank purchases a new issue of securities in the hopes of making a profits, it is said to ________ the issue.

a. pawn

b. backstock

c. syndicate

*d. underwrite

Brokers are distinguished from the dealers in that brokers do not

*a. hold inventories of securities

b. make profits

c. incur losses

d. deal directly with the public

To encourage higher enrollments at colleges and universities, the government created the following agency to purchase student loans granted by financial institutions under the Guaranteed Student Loan Program.

a. Fannie Mae

b. Ginnie Mae

*c. Sallie Mae

d. Freddie Mac

Charging insurance premiums on the basis of how much risk a policyholder poses for the insurance company is a time-honored principle of insurance management to reduce

a. moral hazard

*b. adverse selection

c. free riding

d. principal-agent problems

Which of the following describes the relationship between legal tender and money?

a. being legal tender is a necessary but not sufficient condition for a substance to be money.

*b. being legal tender is a sufficient but not necessary condition for a substance to be money

c. being legal tender is a necessary and sufficient condition for a substance to be money

d. being legal tender is neither necessary nor sufficient for a substance to be money

Which of the following is not legal tender?

a. a dime

b. a $20 dollar bill

*c. a checking account in a commercial bank

d. none of the above‑‑that is, all of the above are legal tender

A six pack of Mountain Dew is priced at $2.79. This example illustrates money serving as:

a. a medium of exchange

*b. a standard of value

c. a means of payment

d. a store of value

In the 1970s, the U.S. price level doubled. In the 1970s, money served which function very poorly?

a. standard of value

b. unit of account

c. means of payment

*d. store of value

Our current monetary system may be characterized as a:

a. gold standard system

b. commodity money system

*c. credit or fiat money system

d. representative full‑bodied monetary system

Today, our money is "backed"

a. 25 percent by gold certificates held by the Federal Reserve

b. 40 percent by gold certificates held by the Federal Reserve

c. by a combination of gold certificates and silver certificates

*d. by faith that our government will keep the growth of money in moderation

Which of the following is not included in M2?

a. currency and coins

b. demand deposits

c. money market mutual fund shares

*d. corporate bonds held by firms and individuals

Which of the following payments instruments are least efficient from society's point of view?

a. currency

b. a system of electronic funds transfers

*c. credit cards

d. all are equally efficient

Which of the following have not served as money at some time?

a. gold

b. tobacco

*c. credit cards

d. silver

The designation "legal tender":

a. applies to all forms of M1 money today

b. is a necessary condition for an item to be considered money

*c. means that a seller cannot refuse payment made in that form

d. all of the above

Which of the following can serve as a store of value?

a. art

b. money

c. gold

*d. all of the above

Which of the following assets is most liquid?

a. 2‑year Treasury bonds

b. shares of common stock

*c. passbook savings accounts

d. gold bars

The $20 gold piece so common in old Western films is an example of:

*a. full‑bodied commodity money

b. representative full‑bodied commodity money

c. fiat money

d. barter money

The development of representative full‑bodied commodity money stemmed mainly from the underlying commodity’s lack of:

a. scarcity

*b. portability

c. durability

d. none of the above

When an economist talks about the impossibility of barter, she really is not saying that barter is impossible. Rather, she means to imply that

*a. barter transactions are relatively costly.

b. barter has no useful place in today’s world. It is impossible for barter transactions to leave the parties to an exchange better off.

c. it is impossible for barter transactions to leave the parties to an exchange better off.

d. each of the above is true.

The resources expended trying to find potential buyers or sellers and negotiating over price and terms are called

a. barter costs.

*b. transaction costs.

c. information costs.

d. enforcement costs.

If cigarettes serve as a medium of exchange, a unit of account, and a store of wealth, cigarettes are said to function as

a. bank deposits.

b. reserves.

*c. money.

d. loanable funds.

Because money reduces both the time it takes to make exchanges and the necessity of a double coincidence of wants, people will find that they can more easily pursue their individual comparative advantages. Thus money

a. encourages nonproductive pursuits.

*b. encourages specialization.

c. forces people to become too specialized.

d. causes a waste of resources due to the duplication of many activities.

As the transaction costs of selling an asset rise, the asset is said to become

a. more valuable.

b. more liquid.

*c. less liquid.

d. more moneylike.

Which of the following are problems with a payments system based largely on checks?

a. Checks are costly to process.

b. Checks are costly to transport.

c. Checks take time to move through the check-clearing system.

*d. All of the above.

e. Only (a) and (b) of the above.

Starting January 1, 1999 the ______ became the official currency of countries joining the European Monetary System:

*a. euro

b. franc

c. dollar

d. yen

Which of the following is not included in the money aggregate M2?

a. Currency

b. Money market deposit accounts

c. Small denomination CDs (time deposits)

*d. Savings bonds

Which of the following best describes the behavior of the money aggregates M1 and M2?

*a. While both M1 and M2 tend to rise and fall together, they can grow at very different rates.

b. M1 always grows at a much faster rate than M2.

c. While both M1 and M2 tend to move closely together over periods as short as a year, in the long run they tend to move in opposite directions.

d. While both M1 and M2 tend to move closely together over periods as short as a year, in the long run their growth rates are vastly different.

The conversion of a barter economy to one that uses money

a. increases efficiency by reducing the need to exchange goods.

*b. increases efficiency by reducing transaction costs.

c. has no effect on economic efficiency since efficiency is a production concept, not an exchange concept.

d. decreases efficiency by reducing the need to specialize.

Generally, the problem of defining money becomes__________trouble some as the pace of financial innovation________.

a. less; quickens

*b. more; quickens

c. more; slows

d. more; stops

If an individual “cashes in” a U.S. savings bond for currency,

a. M1 increases and M2 stays the same.

b. M1 stays the and M2 increases.

c. M1 stays the same and M2 stays the same.

*d. M1 increases and M2 increases.

Generally speaking, the initial data on the monetary aggregates reported by the Fed are

a. not a reliable guide to the short-run behavior of the money supply.

b. a reliable guide to the long-run behavior of the money supply.

c. a reliable guide to the short-run behavior of the money supply.

*d. both (a) and (b) of the above.

Student loans and mortgage loans are examples of

a. “simple” loans

*b. fixed-payment loans

c. coupon loan

d. discount loans

A sharp decline in market interest rates will:

*a. increase the price of existing bonds

b. increase the yield on existing bonds

c. decrease the price of existing bonds

d. do none of the above

The prime loan rate (prime interest rate):

a. is set by the Federal Reserve

b. is the loan rate charged to small businesses and consumers

*c. is a benchmark interest rate set by large banks

d. exerts only a weak influence over bank loan rates

The real interest rate is defined as:

a. the actual interest rate plus the rate of inflation

*b. the actual interest rate minus the rate of inflation

c. the actual rate people pay rather than the advertised rate

d. none of the above

According to the Fischer Effect, interest rates rise when

a. national income increases

b. the economy moves into a recession

c. price deflation occurs

*d. expected inflation rises

The U.S. experience over the past 60 years suggests that interest rates

*a. rise during business cycle expansions and fall during contractions

b. rise during business cycle contractions and fall during expansions

c. fall during business cycle contractions and remain constant during expansions

d. fall during business cycle expansions and remain constant during contractions

In 1997, the U.S. Treasury began to issue indexed securities whose interest and principal payments are adjusted for changes in the consumer price index. These securities are known as

a. Treasury bills

b. Treasury notes

c. Treasury bonds

*d. TIPS

Assume the nominal interest rate is 12 percent, the expected inflation rate is 5 percent, and the marginal income tax rate is 25 percent. Then the after‑tax real interest rate is:

a. 7 percent

b. negative 2 percent

*c. 4 percent

d. none of the above

The passage of a balanced budget amendment to the U.S. Constitution requiring the federal budget to be balanced annually would tend to result in

a. the bond demand curve shifting rightward

b. the bond demand curve shifting leftward

c. the bond supply curve shifting rightward

*d. the bond supply curve shifting leftward

If nominal interest rates are 8 percent, expected inflation is 4 percent, and the

relevant marginal tax rate is 25 percent:

a. the real rate of interest is 6 percent

b. the aftertax real rate of interest is 2.25 percent

c. the real rate of interest is 2 percent

*d. the aftertax real rate of interest is 2 percent

The early years of the Reagan administration witnessed deregulation in several industries, including banking, communications, airlines, and others. This widespread deregulation tended to______ the marginal productivity of capital and ______ real interest rates.

*a. increases, increases

b. increases, decreases

c. decreases, increases

d. decreases, decreases

In which of the following situations would you rather be borrowing?

a. the interest rate is 20% and expected inflation rate is 15%

b. the interest rate is 4% and expected inflation rate is 1%.

c. the interest rate is 13% and expected inflation rate is 15%

*d. the interest rate is 10% and expected inflation rate is 15%

It is normally true that, the longer the time to maturity of a U.S. Treasury bill:

a. the lower the discount rate

*b. the less liquid the asset

c. the lower the level of taxation on the Treasury bill

d. the lower the market risk in the Treasury bill

Transactions costs are lowest in:

*a. Treasury bills

b. common stocks

c. U.S. government bonds

d. municipal bonds

The least liquid asset below is:

*a. Treasury bond

b. money market mutual fund share

c. passbook savings account

d. checking account deposit

To be considered highly liquid, an asset must:

a. be easily convertible to the medium of exchange

b. not fluctuate sharply in value

c. be sellable without substantial transactions costs

*d. exhibit all of the above qualities

Which of the following bears the most market risk?

*a. corporate bond

b. savings account deposit

c. certificate of deposit (CD)

d. checking account deposit

Which of the following is NOT true?

*a. liquidity and risk are positively related

b. risk and yield are positively related

c. liquidity and yield are inversely related

d. all of the above are true

Which asset carries the greatest default risk?

a. corporate bond

*b. corporate stock

c. long‑term Treasury bond

d. money market mutual fund shares

In the loanable funds model, which of the following would shift the demand curve for loanable funds rightward?

a. an increase in the money supply

b. a reduction in the federal budget deficit

*c. an increase in business confidence

d. an increase in the private saving rate

In the loanable funds model, which of the following would shift the supply curve of loanable funds leftward?

a. a reduction in expected inflation

b. an increase in the federal budget deficit

*c. households becoming less thrifty

d. none of the above

Assume Congress threatens to default on U.S. government bonds. In terms of the supply and demand for loanable funds in the U.S. government securities market, which of the following would occur?

a. demand for funds would rise and interest rates would rise

*b. supply of funds would fall and interest rates would rise

c. demand for funds would fall and interest rates would rise

d. supply of funds would fall and interest rates would fall

In terms of the loanable funds market, an increase in the expected rate of inflation shifts:

*a. demand for funds right, supply of funds left, and interest rates rise.

b. demand for funds right, supply of funds right, and interest rates rise.

c. demand for funds left, supply of funds right, and interest rates fall.

d. supply of funds left, demand for funds left, and interest rates rise

Suppose that the real interest rate remains constant at 3 percent while expected inflation increases from 4 percent to 6 percent. Then the nominal interest rate:

a. increases from 4 percent to 6 percent

*b. increases from 7 percent to 9 percent

c. increases from 1 percent to 3 percent

d. does none of the above

Referring to the loanable funds market, in a severely declining economy the:

a. supply of funds rises and interest rates rise

b. supply of funds falls and interest rates rise

*c. demand for funds falls and interest rates fall

d. demand for funds rises and interest rates rise

The decline in interest rates tends to be most pronounced in:

a. the first half of recessions

*b. the second half of recessions

c. the first half of recoveries

d. the second half of recoveries

If market interest rates rise:

a. bond prices must rise

*b. bond prices must fall

c. bond prices cannot fall

d. bond prices will either rise or fall

The predominant factor driving the long‑run behavior of interest rates has been:

a. budget deficits

b. business cycles

*c. expected inflation

d. exchange rate behavior

Higher expected inflation should

a. decrease the nominal interest rate and decrease the real interest rate

b. decrease the nominal interest rate and increase the real interest rate

c. increase the nominal interest rate and decrease the real interest rate

*d. increase the nominal interest rate, but its effect on the real interest rate is unclear

If market interest rates rise:

*a. long‑term bondholders will experience capital losses as they sell bonds

b. long‑term bondholders will experience capital gains as they sell bonds

c. Treasury bill holders lose; bondholders do not

d. then none of the above occur

Net suppliers of loanable funds in the U.S. tend to be:

a. business firms and households

*b. foreigners and households

c. government and business firms

d. business firms and foreigners

The interest rate that large banks often use as a benchmark rate to set their various loan rates is known as:

*a. the prime loan rate

b. the standard loan rate

c. the bank rate

d. the discount rate