Liquidity premium theory is consistent with all of the following except:

A. Interest rates are determined by demand and supply of funds in a particular section of the market

B. Is based on geometric averages of current and short-term rates

C. Liquidity premium increases as maturity increases

D. Assumes that investors are risk averse

2. Secondary markets offer buyers and sellers an opportunity to know the market value of their instruments.

A. True

B. False

3. The Fed offers three type of discount window loans. ____ credit is offered to small institutions with demonstrable patterns of financing needs, ____ credit is offered for short-term temporary funds outflows, and ___ credit may be offered at a higher rate to troubled institutions with more severe liquidity problems.

A. Seasonal; primary; secondary

B. Adjustment; extended; seasonal

C. Extended; adjustment; seasonal

D. Seasonal; extended; adjustment

4. Which of the following is the major monetary policy-making body of the U.S. Federal Reserve System?

A. FOMC

B. Group of Eight

C. FRB Bank Presidents

D. OCC

E. Board of Governors

5. The duration of a zero-coupon bond exceeds its maturity

A. True

B. False

6. An increase in the demand for loanable funds leads to an ___ in interest rates.

A. Increase

B. Sometimes increase, sometimes decrease

C. Interest rates are unaffected by in this scenario

D. Decrease

7. Economic conditions have an inverse impact on the equilibrium interest rate.

A. True

B. False