7. The main reason for trade in financial assets is ()a shortage of money in an economy, making trade in other financial assets necessary O the desire of holders of bonds to be able to exchange them for shares of common stock O the mismatch of income and spending for many individuals and businesses O the refusal of most modern governments to trade currency for gold or silver 8. The purchasing power of money C is constant O is set by the Fed in January of each year O rises when prices fall rises when prices rise 9. Expectations of asset values by participants in financial markets are not possible to model, given the current state of economic knowledge O determine market prices, but are not related to changes in market prices O are determined largely by governmental actions determine market prices and changes in market prices 10. A one-year discount bond with a par value of $1000 sold today, at issuance, for $943 has a yield to maturity of 6.04% 9.43% 5.70% 4.30%6. A swap is another name for a put option the name for the replacement of a futures contract by an options contract O another name for a call option an agreement between two or more persons to exchange sets of cash flows over some future period 7. The main reason for trade in financial assets is () a shortage of money in an economy, making trade in other financial assets necessary the desire of holders of bonds to be able to exchange them for shares of common stock O the mismatch of income and spending for many individuals and businesses O the refusal of most modern governments to trade currency for gold or silver 8. The purchasing power of money is constant is set by the Fed in January of each year O rises when prices fall rises when prices rise 9. Expectations of asset values by participants in financial markets are not possible to model, given the current state of economic knowledge O determine market prices, but are not related to changes in market prices O are determined largely by governmental actions determine market prices and changes in market pricesMoney, Banking. and Business (Online) / Preparing for Midcourse Exum 1. The theory of purchasing power parity assumes that inflation rates are roughly the same in most countries movements in nominal exchange rates are the result of movements in relative price level real exchange rates are volatile movements in nominal exchange rates are the result of movements in real exchange rates 2. In the long run, exchange rates are determined by O agreement among the governments of the major industrial countries the rate at which each country's currency exchanges for gold the difference between short-run and long-run interest rates in each country economic fundamentals such as price levels or productivity levels in different countries 3. When market participants have rational expectations they use all information available to them are less likely to make accurate forecasts than if they have adaptive expectations O only slowly adjust their expectations to news that could affect prices or returns O are able to forecast interest rates more accurately than inflation rates 4. The default risk premium is measured by an index published monthly by the Securities and Exchange Commission as the difference between the nominal yield on the security and the real after-tax yield on the security as the difference between the yield on the security and the yield on a U.S. Treasury security of the same maturity by an index published monthly by The Wall Street Journal 5. The bond market is important because it provides a rate of return significantly greater than the stock market is the major source of borrowed funds for U.S. business provides foreign purchasers of U.S. products a means to exchange their currencies for U.S. dollars O provides a way for businesses and governments to borrow funds from savers, and it is the market that determines interest rates