1) Which is NOT an example of direct investment?

a) A couple investing their savings in a home

b) A government investing in a new highway or hospital

c) A domestic or foreign company paying start-up costs for a plant to produce a new

product

d) An individual investing in a mutual fund

2) What key fact distinguishes a principal from an agent?

a) The principal needs the agent to undertake trading

b) The principal owns the securities to be traded

c) The principal earns a commission on trades

d) The principal runs a lower risk than an agent

3) Which of the following is NOT true?

a) Higher interest rates compensate for a higher risk of default.

b) Lower interest rates should increase GDP, because the cost of borrowing for

businesses.

c) Higher interest rates encourage companies to spend now.

d) Higher domestic interest rates attract foreign capital, helping to increase the exchange

rate.

4) Which of the following statements is true regarding business cycle indicators?

I. Employment is a leading indicator, the unemployment rate is a lagging

indicator

II. Inflation is a lagging indicator

III. Stock prices are a leading indicator, personal income is a coincident indicator

IV. Industrial production, retail sales, and capital spending are leading indicators

a) I, II, and III

b) II and IV

c) I only

d) II only

5) The Gross National Product Index (GNP) is the most widely used indicators of

inflation and is considered a measure of the cost of living in Canada.

a) True

b) False

6) Which of the following is a leading indicator?

a) GDP

b) Level of inventories

c) Personal income

d) Housing starts