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mgt411 Online Quiz (18-21 June 2010

Monday, June 21, 2010 Posted In Edit This
Question # 1 of 15 ( Start time: 03:58:32 AM ) Total Marks: 1 
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 # 2 of 15 ( Start time: 03:58:53 AM ) Total Marks: 1 
What is the true relationship that exists between default risk and yield? 
Select correct option: 

Higher the default risk, higher the yield 
Lower the default risk, higher the yield 
Higher the default risk yield will remain constant 
Lower the default risk yield will remain constant 

Question # 3 of 15 ( Start time: 03:59:11 AM ) Total Marks: 1 
The theory of efficient market states that prices of financial instruments reflect: 
Select correct option: 

All available information 
Some of the information 
No information 
Imperfect information 


Question # 4 of 15 ( Start time: 03:59:37 AM ) Total Marks: 1 
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 # 5 of 15 ( Start time: 04:00:55 AM ) Total Marks: 1 
Diversification is the principle of: 
Select correct option: 

Holding more than one risk at a time 
Reducing the risks we carry to just two 
Creating risk to increase returns 
Eliminating investments from our portfolio that have idiosyncratic risk 

Question # 6 of 15 ( Start time: 04:01:16 AM ) Total Marks: 1 
The price of a coupon bond can best be described as: 
Select correct option: 

The present value of the face value 
The future value of the coupon payments and the face value 
The present value of the coupon payments 
Both The present value of the face value and of the coupon payments 


Question # 7 of 15 ( Start time: 04:01:36 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 
The index is more stable than the data it reflects 
It does not require any calculations to compute percentage changes 


Question # 8 of 15 ( Start time: 04:02:02 AM ) Total Marks: 1 
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 # 9 of 15 ( Start time: 04:02:21 AM ) Total Marks: 1 
Which of the following is NOT included in the definition of M1? 
Select correct option: 

Traveler’s checks 
Demand deposits 
Currency 
Gold coins issued by treasury 

Question # 10 of 15 ( Start time: 04:02:33 AM ) Total Marks: 1 
Which of the following statement is true about the relation ship between bond ,coupon payment and interest? 
Select correct option: 

Coupon payments fall, the interest rate falls, and Bond price will rise 
Coupon payments rises, the interest rate falls, and Bond price will rise 
Coupon payments fall, the interest rate falls, and Bond price will fall 
Coupon payments rise, the interest rate falls, and Bond price will fall 

Question # 11 of 15 ( Start time: 04:03:32 AM ) 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 
Inflation risk 
Interest rate risk 
Systematic risk 


Question # 12 of 15 ( Start time: 04:03:52 AM ) Total Marks: 1 
Banks can also borrow by using a repurchase agreement or repo, which is a short-term _____________. 
Select correct option: 

Discount loan 
Collateralized loan 
Personal loan 
Corporate loan 

Question # 14 of 15 ( Start time: 04:05:05 AM ) Total Marks: 1 
Which of the following would be included in a definition of risk? 
Select correct option: 

Risk is a not measure of uncertainty 
Risk is unavoidable 
Risk doesn't have a time horizon 
Risk seldom involves some future payoff 

Question # 15 of 15 ( Start time: 04:06:29 AM ) 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 
Risk premium 
Unique risk


Question # 1 of 15 ( Start time: 04:22:12 AM ) Total Marks: 1 
The bond rating of a security refers to which of the followings? 
Select correct option: 

The size of the coupon payment relative to the face value 
The return a holder is likely to receive 
The likelihood the lender/borrower will be repaid by the borrower/issuer 
The years until the bond matures 

Question # 2 of 15 ( Start time: 04:22:32 AM ) Total Marks: 1 
Which of the following are used to monitor and stabilize the economy? 
Select correct option: 

Stock exchanges 
Commercial Banks 
Central Banks 
Financial institutions 

Question # 3 of 15 ( Start time: 04:22:51 AM ) Total Marks: 1 
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 of 15 ( Start time: 04:23:14 AM ) Total Marks: 1 
Which of the following NOT true for financial institutions? 
Select correct option: 

It reduces the transaction cost 
It reduce the information cost 
It reduces the asymmetric information 
It doesn’t make long term loans 

Question # 5 of 15 ( Start time: 04:24:40 AM ) Total Marks: 1 
Most of the people among us are ___________. 
Select correct option: 

Risk lovers 
Risk enhancers 
Risk averse 
Risk tolerating 

Question # 6 of 15 ( Start time: 04:25:45 AM ) Total Marks: 1 
The price of a coupon bond can best be described as: 
Select correct option: 

The present value of the face value 
The future value of the coupon payments and the face value 
The present value of the coupon payments 
Both The present value of the face value and of the coupon payments 

Question # 7 of 15 ( Start time: 04:26:10 AM ) Total Marks: 1 
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 # 8 of 15 ( Start time: 04:26:18 AM ) 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 
Greater the risk the return will remain constant 
No relationship between them 

Question # 9 of 15 ( Start time: 04:26:42 AM ) Total Marks: 1 
Financial development measured by 
Select correct option: 

M1/GDP 
M2/GDP 
M3/DGP 
All of above 

Question # 10 of 15 ( Start time: 04:28:09 AM ) Total Marks: 1 
A loan that is used to purchase the real estate is known as: 
Select correct option: 

Real estate loan 
Home mortgages 
Fixed payment loan 
Home loan 


Question # 11 of 15 ( Start time: 04:28:27 AM ) Total Marks: 1 
Which of the following is NOT a depository financial institution? 
Select correct option: 

Credit Union 
Savings and Loan 
Commercial bank 
Life Insurance Company 

Question # 12 of 15 ( Start time: 04:28:44 AM ) Total Marks: 1 
If the tax rate is higher than gap between yield on taxable and tax exempt bond? 
Select correct option: 

Shorter 
Wider 
No gap 
Any thing can be possible 

Question # 13 of 15 ( Start time: 04:29:01 AM ) Total Marks: 1 
----- example of channel fund from saver to borrower. 
Select correct option: 

Bank 
Mutual fund 
Finance companies 
All of above 

Question # 14 of 15 ( Start time: 04:30:10 AM ) Total Marks: 1 
You receive a check for $100 two years from today. The discounted present value of this $100 is: 
Select correct option: 

$100/(1+i) 
$100*(1+i)2 
$100*(1+i) 
$100/(1+i)2 

Question # 15 of 15 ( Start time: 04:30:31 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


Question # 1 of 15 ( Start time: 04:39:43 AM ) Total Marks: 1 
The risk premium of a bond will: 
Select correct option: 

Higher for investment-grade bonds than for high-yield bonds 
Positive but small if the risk of default is zero 
Decrease when the default risk rises 
Increase when the risk of default rises 

Question # 2 of 15 ( Start time: 04:40:01 AM ) Total Marks: 1 
Banks can also borrow by using a repurchase agreement or repo, which is a short-term _____________. 
Select correct option: 

Discount loan 
Collateralized loan 
Personal loan 
Corporate loan 

Question # 3 of 15 ( Start time: 04:40:21 AM ) 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 
Inflation risk 
Interest rate risk 
Systematic risk 

Question # 4 of 15 ( Start time: 04:40:39 AM ) Total Marks: 1 
Mr A need 1000000 to buy a car for his personal use he contact with bank that give his loan this would be called 
Select correct option: 

Direct finance 
Indirect finance 
Facilitate payment 
All of above 

Question # 5 of 15 ( Start time: 04:41:01 AM ) Total Marks: 1 
A graph of the term structure with YTM on Y-axis and time to maturity on X-axis is called: 
Select correct option: 

Demand curve 
Supply curve 
Yield curve 
Leffer curve 

Question # 6 of 15 ( Start time: 04:41:20 AM ) Total Marks: 1 
Expectation hypothesis focuses on which one of the following? 
Select correct option: 

Risk premium 
Risk free interest rate 
Yield to maturity 
None of the given options 

Question # 7 of 15 ( Start time: 04:41:39 AM ) Total Marks: 1 
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 

Question # 8 of 15 ( Start time: 04:41:58 AM ) Total Marks: 1 
Diversification is the principle of: 
Select correct option: 

Holding more than one risk at a time 
Reducing the risks we carry to just two 
Creating risk to increase returns 
Eliminating investments from our portfolio that have idiosyncratic risk 

Question # 9 of 15 ( Start time: 04:42:16 AM ) Total Marks: 1 
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 # 10 of 15 ( Start time: 04:42:31 AM ) Total Marks: 1 
Which of the following statement is true about the relation ship between bond ,coupon payment and interest? 
Select correct option: 

Coupon payments fall, the interest rate falls, and Bond price will rise 
Coupon payments rises, the interest rate falls, and Bond price will rise 
Coupon payments fall, the interest rate falls, and Bond price will fall 
Coupon payments rise, the interest rate falls, and Bond price will fall 

Question # 11 of 15 ( Start time: 04:42:48 AM ) Total Marks: 1 
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 # 12 of 15 ( Start time: 04:43:22 AM ) Total Marks: 1 
Which of the following is NOT an example of financial institutions? 
Select correct option: 

Banks 
Securities firms 
Stock exchanges 
Insurance companies 

Question # 13 of 15 ( Start time: 04:44:29 AM ) Total Marks: 1 
Time affects the value of which of the following? 
Select correct option: 

Financial Instruments 
Financial Markets 
Financial Institutions 
Central Banks 

Question # 14 of 15 ( Start time: 04:44:47 AM ) Total Marks: 1 
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 # 15 of 15 ( Start time: 04:45:13 AM ) Total Marks: 1 
A bank can usually offer a saver a higher return for the same risk because: 
Select correct option: 

The bank can usually purchase assets at a higher cost than any one saver 
The bank can pool the resources of larger savers and purchase lower denominated assets 
Economies of scale can be applied by the bank in its purchase of assets 
None of the given options.


Question # 1 of 15 ( Start time: 04:51:28 AM ) Total Marks: 1 
The risk premium for an investment: 
Select correct option: 

Increases with risk 
Is a fixed amount added to the risk free return 
Is negative for U.S. Treasury Securities 
Is negative for risk averse investors 


Question # 2 of 15 ( Start time: 04:51:46 AM ) Total Marks: 1 
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 # 3 of 15 ( Start time: 04:51:54 AM ) Total Marks: 1 
A typical bank will offer ________ type/s of checking accounts. 
Select correct option: 

Only one type 
Two types 
Four types 
Six or more types 

Question # 4 of 15 ( Start time: 04:52:35 AM ) Total Marks: 1 
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: 
Select correct option: 

$94.00 
$94.33 
$95.25 
$96.10 

Question # 5 of 15 ( Start time: 04:52:50 AM ) Total Marks: 1 
Government bonds called …….. Where as corporate bonds are called …… 
Select correct option: 

Zero coupon bond, coupon bond 
Risky bond. Risk free bond 
T bill, corporate bond 
Console bond, junk bonds 

Question # 6 of 15 ( Start time: 04:53:15 AM ) Total Marks: 1 
Which of the following is NOT a depository financial institution? 
Select correct option: 

Credit Union 
Savings and Loan 
Commercial bank 
Life Insurance Company 

Question # 7 of 15 ( Start time: 04:53:31 AM ) Total Marks: 1 
Bonds without maturity dates are which of the followings? 
Select correct option: 

Zero coupon bonds 
Coupon securities 
Consols 
Preferred Bonds 

Question # 8 of 15 ( Start time: 04:53:48 AM ) Total Marks: 1 
Which of the following best expresses the proceeds a lender receives from a simple loan? 
Select correct option: 

PV(1 + i) 
FV/i 
PV + i 
PV/i 

Question # 9 of 15 ( Start time: 04:54:03 AM ) 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 

Question # 10 of 15 ( Start time: 04:54:20 AM ) Total Marks: 1 
In the long run, the yield curve tends to be which of the following? 
Select correct option: 

Upward sloping 
Downward sloping 
Nearly vertical 
Nearly horizontal 

Question # 11 of 15 ( Start time: 04:54:35 AM ) Total Marks: 1 
Financial instruments are evolved just as ____________. 
Select correct option: 

Currency 
Stock 
Bond 
Commodity 

Question # 12 of 15 ( Start time: 04:54:51 AM ) Total Marks: 1 
If YTM is less 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 

Question # 13 of 15 ( Start time: 04:55:54 AM ) Total Marks: 1 
_____________ are organized to eliminate the need of costly information gathering. 
Select correct option: 

Central bank 
Commercial banks 
Stock exchanges 
Insurance companies 

Question # 14 of 15 ( Start time: 04:56:21 AM ) Total Marks: 1 
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 

Question # 15 of 15 ( Start time: 04:56:37 AM ) Total Marks: 1 
At which money aggregate definitions relation is stronger with inflation and growth 
Select correct option: 

M1 
M2 
M3 
None of above


Question # 1 of 15 ( Start time: 04:59:31 AM ) Total Marks: 1 
The interest rate that is involved in _____________ calculation is referred to as discount rate 
Select correct option: 

Present value 
Future value 
Intrinsic value 
Discount value 

Question # 2 of 15 ( Start time: 04:59:47 AM ) Total Marks: 1 
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 

Question # 3 of 15 ( Start time: 05:00:04 AM ) Total Marks: 1 
----- example of channel fund from saver to borrower. 
Select correct option: 

Bank 
Mutual fund 
Finance companies 
All of above 

Question # 4 of 15 ( Start time: 05:00:15 AM ) Total Marks: 1 
What characteristic of money is not included in securities characteristics 
Select correct option: 

Mean of payment 
Unit of account 
Store of value 
Transfer of risk 

Question # 5 of 15 ( Start time: 05:00:38 AM ) Total Marks: 1 
The fact that common stockholders are residual claimants means: 
Select correct option: 

The stockholders receive their dividends before any other residuals are paid 
The stockholders receive the remains after everyone else is paid 
The stockholders are paid any past due dividends before other claims are paid 
The common stockholders are responsible for all corporate debts 

Question # 6 of 15 ( Start time: 05:01:51 AM ) Total Marks: 1 
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 # 7 of 15 ( Start time: 05:02:07 AM ) Total Marks: 1 
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 

Question # 8 of 15 ( Start time: 05:03:19 AM ) Total Marks: 1 
Core principles of Money and Banking include each of the following except? 
Select correct option: 

People act rationally 
Time has value 
Information is the basis for decisions 
Risk requires compensation 

Question # 9 of 15 ( Start time: 05:03:34 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) 

Question # 10 of 15 ( Start time: 05:03:56 AM ) Total Marks: 1 
If bond’s rating is lower, what will be its price? 
Select correct option: 

Higher 
Lower 
Equal to 
No change 

Question # 11 of 15 ( Start time: 05:04:57 AM ) Total Marks: 1 
The default premium: 
Select correct option: 

Is positive for a U.S. Treasury bond 
Must always be less than 0 (zero) 
Is also known as the risk spread 
Is assigned by a bond rating agency 

Question # 12 of 15 ( Start time: 05:05:14 AM ) Total Marks: 1 
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 # 13 of 15 ( Start time: 05:05:37 AM ) Total Marks: 1 
___________ include savings and time deposits and account for nearly two-thirds of all commercial bank liabilities. 
Select correct option: 

Non transactions Deposits 
Borrowings 
Checkable Deposits 
Discount loans 

Question # 14 of 15 ( Start time: 05:06:35 AM ) Total Marks: 1 
The____________ are an assessment of the creditworthiness of the corporate issuer. 
Select correct option: 

Bond yield 
Bond ratings 
Bond risk 
Bond price 

Question # 15 of 15 ( Start time: 05:06:56 AM ) 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 
Risk premium 
Unique risk



Question # 1 of 15 ( Start time: 10:42:19 PM ) Total Marks: 1 
The risk premium for an investment: 
Select correct option: 



Increases with risk 

Is a fixed amount added to the risk free return 

Is negative for U.S. Treasury Securities 

Is negative for risk averse investors 



Question # 2 of 15 ( Start time: 10:43:55 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 

Bonds 

Stocks 

Income 



Question # 3 of 15 ( Start time: 10:44:31 PM ) Total Marks: 1 
What will be the effect on the present value if we double the future value of the payment? 
Select correct option: 



It will decrease the value by one-half 

It will increase the value by one-half 

It will equally increase the value i.e. doubles the value 

It will have no effect on the value 



Question # 4 of 15 ( Start time: 10:45:26 PM ) Total Marks: 1 
A loan that is used to purchase the real estate is known as: 
Select correct option: 



Real estate loan 

Home mortgages 

Fixed payment loan 

Home loan 



Question # 5 of 15 ( Start time: 10:46:56 PM ) Total Marks: 1 
An increase in the expected inflation shifts the bond demand to the _________. 
Select correct option: 



Right 

Left 

No change 

All of the given options 



Question # 6 of 15 ( Start time: 10:47:48 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 

Variance 


Question # 7 of 15 ( Start time: 10:48:42 PM ) Total Marks: 1 
Diversification is the principle of: 
Select correct option: 



Holding more than one risk at a time 

Reducing the risks we carry to just two 

Creating risk to increase returns 

Eliminating investments from our portfolio that have idiosyncratic risk 



Question # 8 of 15 ( Start time: 10:49:39 PM ) Total Marks: 1 
Which characteristic are common both in money and securities 
Select correct option: 



Transfer of risk, store of value 

Unit of account, mean of payment 

Mean of payment, transfer of risk 

Store of value, mean of payment 




Question # 9 of 15 ( Start time: 10:50:30 PM ) Total Marks: 1 
Which of the following NOT true for financial institutions? 
Select correct option: 



It reduces the transaction cost 

It reduce the information cost 

It reduces the asymmetric information 

It doesn’t make long term loans 




Question # 10 of 15 ( Start time: 10:52:02 PM ) Total Marks: 1 
Which of the following would be considered characteristic of money? 
Select correct option: 



It is store of value 

It pays a higher return than most assets 

It is in fixed supply 

It is legal tender everywhere in the world 


Question # 11 of 15 ( Start time: 10:52:38 PM ) Total Marks: 1 
GDP deflator is called 
Select correct option: 



Retailer price index 

Consumer price index 

Producer price index 

None of above 


Question # 12 of 15 ( Start time: 10:53:22 PM ) Total Marks: 1 
A financial instrumnet in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as ___________. 
Select correct option: 



Bond 

Bank Loan 
Home Mortgage 

Futures Contract 




Question # 13 of 15 ( Start time: 10:54:45 PM ) Total Marks: 1 
What will the yield curve look like if future short-term interest rates are expected to rise sharply? 
Select correct option: 



It will steeply slope upward 
It will be horizontal 

It will slightly slope upward 

It will slope downward 



Question # 14 of 15 ( Start time: 10:55:29 PM ) Total Marks: 1 
Home loans and car loans are the example of which one of the following? 
Select correct option: 



Mortgage loans 

Pledge 

Fixed Payment Loans 

Ordinary loan 



Question # 15 of 15 ( Start time: 10:56:44 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 

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

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


Q#1Which of the following represents the transmission of monetary policy?

A)

an increase in the demand for SUV's due to lower gas prices

B)

income tax rates change


C)firms alter their investment plans

D)oil prices increase

Q#2
A tightening of monetary policy should:

A)increase spending by households and businesses and increase net exports.

B)raise net exports but lower spending by households and businesses.


C)decrease spending by households and businesses as well as net exports.

D)increase investment and household spending but lower net exports.

Q#3
The direct impact on spending of short-term interest rate changes by central banks is:

A)definitely the strongest of all transmission mechanisms.

B)

only effective for net exports but not for investment and consumption.

C)

only effective for consumption but not investment.


D)

not that powerful.

Q#4The relationship between interest rates and stock prices is referred to as:

A)

the Dow Jones mechanism of monetary policy.
B)

the asset-price channel of monetary policy.

C)

the wealth-creating mechanism of monetary policy.

D)

the investment-spending mechanism of monetary policy.

Q#5The bank lending channel of monetary policy focuses on:


A)

banks' willingness and ability to lend.

B)

the interest rate banks charge their largest customer.

C)

how central bank policy influences the solvency of banks.

D)

the deposit insurance premiums banks will end up paying.


Q#6For a firm that has liabilities, a decrease in interest rates increases net worth because:

A)

asset values will decrease.

B)

the principal amount of the loans will decrease.


C)

profits will be higher due to lower interest costs.

D)

None of the above.

Q#7Which of the following is a transmission channel of monetary policy?


A)

the balance-sheet channel

B)

the technology-price channel

C)

the efficient-market channel

D)

the tax-impact channel

Q#8If the Fed lowers the interest-rate target and mortgage interest rates fall, the economy would be affected through:

A)

the balance-sheet channel
B)

the asset-price channel

C)

the efficient-market channel

D)

the tax-impact channel

Q#9The dramatic rise of inflation in the 1970s was at least partly due to the fact that:

A)

the Fed wanted high rates of inflation because output was growing rapidly.
B)

the Fed was slow to identify decreases in potential output.

C)

the Fed's tight money policy of the 1970s.

D)

potential output rose dramatically during the 1970s.

Q#10If the dynamic aggregate demand curve shifts to the right, but there is no change in potential output, the appropriate response by monetary policymakers would be to:


A)

shift the monetary policy reaction function to the left.

B)

shift the monetary policy reaction function to the right.

C)

steepen the monetary policy reaction function.

D)

flatten the monetary policy reaction function.

Q#11If the short-run and long-run aggregate supply curves shift to the right, the appropriate response by monetary policymakers would be to:

A)

shift the monetary policy reaction function to the left.
B)

shift the monetary policy reaction function to the right.

C)

steepen the monetary policy reaction function.

D)

flatten the monetary policy reaction function.

Q#12Bonds must have positive yields because:

A)

the U.S. Treasury guarantees all bonds to have a positive yield.


B)

people can always hold cash.

C)

the banking technology does not exist to deal with negative yields.

D)

All of the above.

Q#13A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:

A)

set a target of zero inflation.

B)

set an inflation target well above 5 percent.

C)

target a nominal interest rate of zero.


D)

set an inflation target of two to three percent.

Q#14If the target federal funds rate reaches zero:

A)

the FOMC must stop purchasing securities since they cannot lower nominal rates below zero.
B)

the FOMC would likely shift their focus to purchasing longer term securities.

C)

the FOMC would likely raise the required reserve rate.

D)

the FOMC would likely raise the discount rate.

Q#15Some people who believe monetary policymakers should not address equity and property price bubbles, argue their position based on:
A)

price bubbles are virtually impossible to identify when they are developing.

B)

the policymakers have a history for poor investing decisions.

C)

their belief that government should stay out of private matters.

D)

All of the above.

Q#16The movement away from bank lending towards asset-backed securities:

A)

has decreased the importance of the bank lending channel.

B)

has eliminated the bank lending channel as a mechanism for monetary policy.

C)

has increased the importance of the bank lending channel of monetary policy.

D)

will require the FOMC to rethink the quantitative impact of changing the target federal funds rate.
E)

a and d.



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