Question No. 1: (5 +5= 10 Marks)

1. Choose the Right answer from the options provided for the following questions: (5marks)

1. ____________: Setting of the money supply by policymakers in the central bank.

1. Controlling interest rates
2. Monetary policy
3. Federal Reserve
4. Currency

2. A _________ person prefers investing in stocks which returns are uncertain.

1. Risk-averse
2. Risk-manager
3. Risk-lover
4. None of the above

3. A low rate of interest can ________investments?

1. discourage
2. decrease
3. encourage
4. None of the above

4. Which one is a tool of the Federal Reserve?

1. Banking for banks
2. Controlling inflation
3. Banking for the government
4. Selective credit controls

5. _________is a promise by a bank to lend the cardholder money with which to make purchases.

1. Debit Card
2. Money exchange
3. E-Money
4. None of the above

2. Determine whether the sentences are True Or False (5marks)

1. Stabilizing the economy is the primary function of Commercial banks ( -------------- )
2. The Credit creation activity can raise aggregate demand which leads to more production in the economy ( -------------- )
3. Risk aversion is the difference between the return on a risky asset and less risky asset, which serves as compensation for investors to hold riskier securities ( -------------- )
4. The transfer of risk occurs in the capital markets ( -------------- )
5. The tighter the probability distributions of expected future returns, the higher the risk of a given investment (-------------- ).