Question 1 (2 points) Finance is: O the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets 0 the study of how businesses acquire, spend, and manage money and other financial assets the study of how governments, and businesses acquire, spend, and manage money and other financial assets 0 the study of how money is used to purchase goods and services Question 2 (2 points) Economists use a ___________________ framework to explain how the prices and quantities of goods and services are determined in a free-market economic system. Q opportunity 0 marginal cost 0 supply-and-demand O antimonopoly Question 3 (2 points) Successful businesses typically progress through a series of life-cycle stagesfrom the idea stage to exiting the business; these five stages include the: 0 development stage, startup stage, survival stage, rapid growth stage, and maturity stage. 0 idea stage, design stage, operating stage, rebuilding stage, and decline stage 0 development stage, operating stage, rebuilding stage, rapid growth stage, and maturity stage 0 idea stage, startup stage, rapid growth stage, survival stage, and decline stage Question 4 (2 points) If the interest rate is equal to 0%, then a dollar today is worth 0 more than a dollar tomorrow 0 the same as a dollar tomorrow 0 less than a dollar tomorrow 0 there is not sufficient information to tell Question 5 (2 points) Among the six principles of finance, all are included except: 0 All decisions are ultimately financial decisions. 0 Higher returns are expected for taking on more risk 0 Diversification of investments can reduce risk 0 Financial markets are efficient in pricing securities Question 6 (2 points) $1,000 invested today at 6% interest would be worth ________ one year from now 0 $1,600 0 $1,060 0 $1,160 0 $1,006 Question 7 (2 points) An effective financial system must have: 0 several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies 0 an efficient system for buying goods and services 0 gold reserves equal to the amount of money in circulation 0 free trade in financial instruments with foreign nations Question 8 (2 points) ____________________ provide the record-keeping mechanism for showing ownership of the financial instruments used in the flow of financial funds between savers and borrowers and record revenues, expenses, and profitability of organizations that produce and exchange goods and services. 0 Financial Managers 0 Accountants 0 Operations Managers 0 Statisticians Question 9 (2 points) The _________________ is primarily responsible for the amount of money that is created, although most of the money is actually created by depository institutions. 0 Securities Exchange Commission 0 Federal Treasury 0 Federal Reserve System 0 Financial Asset Oversight Board Question 10 (2 points) Major participants in the secondary mortgage markets include which of the following: 0 personal loan companies 0 Agricultural co-ops 0 Freddie Mae 0 Fannie Mae Question 11 (2 points) Credit unions are 0 for profit organizations. 0 made up of individuals who possess common bonds of association. 0 institutions that derive funds from investment activities. 0 generally larger than most commercial banks. Question 12 (2 points) __________________ accept savings from individuals and then lend these pooled savings to businesses, governments, and individuals. 0 Insurance companies 0 Commercial finance companies 0 Depository institutions 0 Investment banks Question 13 (2 points) _______________ provide loans directly to consumers and businesses or aid individuals in obtaining financing of durable goods and homes, whereas ______________ originate mortgage loans on homes and other real property by bringing together borrowers and institutional investors. O thrift institutions; savings and loans 0 thrift institutions; mortgage banking firms 0 finance companies; savings and loans 0 finance companies; mortgage banking firms Question 14 (2 points) Our system of national banks 0 was designed to destroy state banking. O was an integral part of the Federal Reserve Act. O was replaced by Federal Reserve banking. 0 came into existence during the Civil War. Question 15 (2 points) The Federal Savings and Loan Insurance Corporation 0 has ceased operations and has been replaced by the FDIC in its insuring operations. 0 protects credit unions. 0 insures money market accounts. 0 is responsible for insuring deposits at savings banks. Question 16 (2 points) The principal liabilities of all depository institutions are 0 reserves. 0 securities. Question 17 (2 points) The item on the assets side of a bank's balance sheet that represents the largest proportion of bank assets is O deposits. 0 owner's capital. O securities. 0 loans. Question 18 (2 points) The Equity Capital Ratio for a bank with owners' equity of $3 million and total assets of $50 million would be 0 3 percent. 0 6 percent. 0 2.83 percent. 0 5.66 percent. Question 19 (2 points) Government financing of large budgetary deficits O absorbs savings and decreases interest rates. 0 may crowd out private borrowers. O is known as monetizing the deficit. O reduces total consumer spending and demand. Question 20 (2 points) Price inflation O is relatively unimportant to individuals O is considered to be acceptable in the nation's quest for high levels of employment 0 causes inequities and discourages investment by increasing the uncertainty about future returns 0 is almost always due to financing wars \\(HCJLIUII '1. \\L lJUIIILJ] The federal government pays for the services it provides primarily through 0 taxation. 0 creating money. 0 borrowing. 0 selling assets owned by the government. Question 22 (2 points) U.S. debt management is generally designed to Q complement Federal Reserve monetary policy. 0 encourage orderly economic growth and stability. 0 stimulate economic activity. 0 lower interest rates. Question 23 (2 points) Assume that a banking system must keep reserves of 20% against deposits. The bank receives a primary deposit of $20,000. What would be the maximum amount of loan that could be made by the system? 0 $16,000 Q $40,000 0 $80,000 0 $100,000 HUCSLIUII 4'1- \\4 pUII'ILS) Federal Reserve open market operations, setting reserve requirement, and lending to depositories are 0 usually conducted simultaneously. 0 all designed to have their effect by influencing the reserves of depository institutions. 0 of equal importance in their effort. 0 functions shared with the US. Treasury. Question 25 (2 points) Under required reserves of 10%, the maximum to which the money supply could be expanded by the banking system is O ten times a new primary deposit. 0 fifteen times a new primary deposit. 0 twenty times a new primary deposit. 0 fifty times a new primary deposit. Question 26 (2 points) In our financial system, the money multiplier O is not affected by the Federal Reserve 0 can fluctuate over time Q is not affected by the nonbank public 0 is not affected by the US. Treasury Question 27 (2 points) All of the following affect the balance of the capital account except 0 Bank deposits. 0 Purchases of government and corporate securities. 0 Purchases of goods and services. 0 Loans. Question 28 (2 points) Foreign exchange markets may be described as 0 specific locations in major industrial cities. 0 major financial centers connected by good communications systems. 0 money markets outside of the United States. 0 facilities of central banks for foreign exchange. Question 29 (2 points) The effect of arbitrage activities in foreign exchange markets is to 0 create disparity among the rates of various currencies. O eliminate or reduce exchange rate quotation differentials. O hinder the otherwise smooth functioning of the exchange markets. 0 create wide swings in quotations from period to period. Question 30 (2 points) If the U.S. inflation rate is expected to be 3 percent next year, the European inflation rate is expected to be 4% next year, and the spot rate between the euro and dollar is $1.30, then according to purchasing power parity, we would expect the dollar to _________ against the euro from $1.30 to __________ . O appreciate, $12875 O appreciate, $13126 O depreciate, $12875 O depreciate, $13126 Question 31 (2 points) A promise of future payment issued bya firm guaranteed by a bank is called a(n) 0 bill of exchange. 0 commercial letter of credit. 0 banker's acceptance. 0 documentary draft. Question 32 (2 points) The Federal Reserve System 0 permits member banks to accept drafts, but only for exports. O actively encourages member banks to assist in financing international transactions. 0 discourages its member banks from accepting foreign drafts. O limits the type of international transactions for which member banks may accept drafts. Question 33 (2 points) Key factors that influence currency exchange rates include which of the following 0 production cost relationships 0 inflation rates 0 shipping rates 0 reserve requirements Question 34 (2 points) If the exchange rate in New York for British pounds sterling is quoted at 1 pound = $1.60, and in London the rate is quoted at 1 pound = $1.62, financial arbitragers might 0 buy pounds in New York. 0 sell dollars in London. 0 simultaneously sell pounds in New York and buy dollars in London. 0 simultaneously buy pounds in New York and sell dollars in London. \\(UCDLIUII OJ \\L IJUIIILD] Personal consumption expenditures (PCE) include: 0 individual expenditures for durable goods 0 business expenditures for nondurable goods 0 government purchases of goods for individuals 0 foreign purchase of nondurable goods Question 36 (2 points) If personal consumption expenditures are $6 billion, government purchases are $10 billion, gross private domestic investments are $4 billion and net exports are $negative 3 billion, then GDP is: Q $23 billion 0 $20 billion 0 $17 billion Q $16 billion Question 37 (2 points) A business deposit in a commercial bank represents: 0 a liability of the bank and an asset to the business 0 an asset of the bank and a liability to the business 0 liability to the bank and capital to the business 0 liability to Joe's and capital to the business Question 38 (2 points) The major factors which influence the level of savings are the level of: 0 income and the life stage of the individual saver 0 income, economic expectations, cyclical influence, and the life stage of the individual saver 0 income, interest rates, and the life stage cycle of the individual saver 0 income and interest rates Question 39 (2 points) Capital formation refers to the: 0 total accumulation of monetary savings in the nation 0 distribution of savings among thrift institutions 0 total of equity accounts with business corporations 0 creation of physical productive facilities Question 40 (2 points) All of the following encouraged individuals to enter into risky mortgages during the 2000's EXCEPT: 0 Financial institution lenders 0 Local government officials O Government-supported agencies 0 Mortgage originators Question 41 (2 points) Direct payments to individuals from the Federal government do not include: 0 Social Security payments 0 Medicare payments 0 Bank interest rate rebates 0 Health expenditures Question 42 (2 points) The basic price that equates the demand for and supply of loanable funds in the financial markets is the 0 interest rate 0 yield curve 0 term structure 0 cash price Question 43 (2 points) As interest rates fall, the prices of existing bonds will: 0 rise 0 stay the same 0 fall O either a or b, depending on the state of the economy If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace under the simplest form of market interest rates? 04% 07% 02% 01% Question 45 (2 points) Which one of the following is not a marketable government security? 0 Treasury stock 0 Treasury bill 0 Treasury note 0 Treasury bond Question 46 (2 points) Treasury bills are: 0 issued on a premium basis and pay a fixed annual interest rate. Q issued on a discount basis and mature at par. 0 issued on a premium basis and mature at par. 0 issued on a discount basis and pay a fixed annual interest rate. Question 47 (2 points) As the economy begins moving out of a recessionary period, the yield curve is generally: 0 upward sloping O flattened out 0 downward sloping O discontinuous Question 48 (2 points) When investors expect __________ inflation rates they will require __________ nominal interest rates so that a real rate of return will remain after the inflation. 0 higher, higher 0 higher, lower 0 lower, higher 0 level, higher Question 49 (2 points) A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on: O a Treasury bill and a Treasury bond 0 a Treasury bill and a long-term corporate bond 0 a Treasury bill and the commercial paper rate Q a risky security and a comparable maturity U.S. Treasury security Question 50 (2 points) The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds. 0 Aaa, Baa O Baa, Aaa O Baa, Caa O Caa, Baa