1. Which of the following statements about financial instruments and money is NO
ID: 1094606 • Letter: 1
Question
1.
Which of the following statements about financial instruments and money is NOT correct?
2.
Which of the following statements is true?
3.
When money functions as a store of value
4.
U.S. currency
5.
In derivatives markets, speculators:
6.
In an interest rate swap, the size of payments swapped is determined by
7.
The WRITER of a _______ option has the obligation to ______ the underlying at the strike price.
8.
Under the efficient markets hypthesis:
9.
If a mutual fund managers is earning above-average returns and markets are efficient, one possible explanation for this is:
10.
What is the Dow Jones Industrial Average?
11.
Lori deposits funds into a CD at her bank. The CD has an annual interest of 5.0%. If Lori leaves the funds in the CD for two years she will have $1,146.60. What amount is Lori depositing?
12.
A lender, who makes a $1000 loan for one year and earns interest in the amount of $75, earns a nominal interest rate of ______and a real interest rate of _____ if inflation is 2 percent.
13.
Suppose you borrow with a mortgage at a 6% fixed rate. An unexpected DECREASE in inflation will
14.
The risk structure of interest rates says:
15.
Consider two bonds with the same rating and maturity: a tax exempt municipal with a 6% yield and a taxable corporate bond with a before-tax yield of 8%. Which of the following is true?
16.
A sluggish economy and tax revenues mean that the U.S. government continues to run a budget deficit and increase its borrowing. In the bond market this leads to
17.
If we observe a larger increase in bond supply with a smaller increase in bond demand this would be consistent with
18.
If expected inflation FALLs we would expect to see
19.
A risk-averse investor will
20.
A risk-averse investor will
21.
Assume that the expectations theory of the term structure is true. Then, if the current one-year interest rate is 4% and the two-year interest rate is 5%, then investors are expecting:
22.
Under the expectations theory of the term structure
23.
Consider a Big Mac, costing 15 Pesos in Mexico and $3 in the U.S. If the exchange rate is 15 Pesos/$, then
24.
During 2010, the Yen/$ exchange rate fell from 93 Yen/$ to 81 Yen/$. This meant that
25.
It is widely believed that China intervenes in foreign exchange markets to keep the yuan ____ against the U.S. dollar, in order to keep Chinese exports to the United States _____ in the U.S.
1.
Which of the following statements about financial instruments and money is NOT correct?
A) Both money and financial instruments can function as a store of value.B) Both money and financial instruments can transfer risk from on party to another.
C) Money is a better means of payment than financial instruments.
D) Money is more liquid than financial instruments.
2.
Which of the following statements is true?
A) M1 is always less than M2.B) M2 is always less than M1.
C) Demand deposits are only in M1.
D) US Treasury Bills are only in M2.
3.
When money functions as a store of value
A) It provides an immediate double coincidence of wants.B) It provides a way to store wealth over time.
C) It provides a way to measure prices and debts.
4.
U.S. currency
A) is considered commodity money because it is backed by gold reserves in Fort Knox.B) is considered commodity money only in international transactions.
C) is considered fiat money because it never circulates outside of the United States.
D) is considered fiat money because the government gives it value as legal tender.
5.
In derivatives markets, speculators:
A) are risk averse and avoid taking on additional risk.B) seek to offset risks faced in other markets.
C) take on additional risk by betting on asset price movements.
D) act as hedgers.
6.
In an interest rate swap, the size of payments swapped is determined by
A) a notional principle amount that is never transferred between counterparties.B) a notional principle held by a clearinghouse to guarantee payment.
C) a notional principle borrowed from a third party.
D) a notional principle amount that is transferred between counterparties when the swap is complete.
7.
The WRITER of a _______ option has the obligation to ______ the underlying at the strike price.
A) call; sellB) put; sell
C) call; buy
D) both b and c.
8.
Under the efficient markets hypthesis:
A) only bond prices reflect all available information.B) The prices of all financial instruments reflect all available information.
C) Stock prices are predictable.
D) The best approach to determining stock prices is to follow the chartists.
9.
If a mutual fund managers is earning above-average returns and markets are efficient, one possible explanation for this is:
A) the manager is taking on more risk.B) the manager is using technical analysis.
C) the manager is more experienced.
D) all of the above.
10.
What is the Dow Jones Industrial Average?
A) An index made up of the stock prices of 30 of the largest corporations in the U.SB) An index that measures the market value of 30 the firms that make up the index
C) The average price of stock in 500 of the largest companies in the U.S.
D) The broadest measure of stock market performance, tracking all public traded stocks
11.
Lori deposits funds into a CD at her bank. The CD has an annual interest of 5.0%. If Lori leaves the funds in the CD for two years she will have $1,146.60. What amount is Lori depositing?
A) $1264.13B) $1000
C) $1031.94
D) $1040
12.
A lender, who makes a $1000 loan for one year and earns interest in the amount of $75, earns a nominal interest rate of ______and a real interest rate of _____ if inflation is 2 percent.
A) 7.5%; 5.5%B) 13%; 5.5%
C) 9.5%; 7.5%
D) 9.5%; 5.5%
13.
Suppose you borrow with a mortgage at a 6% fixed rate. An unexpected DECREASE in inflation will
A) Decrease your real interest rate and your real cost of borrowing.B) Increase your real interest rate and your real cost of borrowing
C) Decrease your real interest rate and increase your real cost of borrowing
D) Increase your real interest rate and decrease your real cost of borrowing
14.
The risk structure of interest rates says:
A) Interest rates on different bonds are not correlated.B) Lower rated bonds will have lower yields
C) Lower rate bonds will have higher yields
D) Interest rates never compensate for risk
15.
Consider two bonds with the same rating and maturity: a tax exempt municipal with a 6% yield and a taxable corporate bond with a before-tax yield of 8%. Which of the following is true?
A) Bond buyers in a tax bracket of 20% will prefer the municipal bond.B) Bond buyers in a tax bracket of 20% will prefer the corporate bond.
C) Bond buyers in a tax bracket of 25% will prefer the municipal bond.
D) Bond buyers in a tax bracket of 25% will prefer the corporate bond.
16.
A sluggish economy and tax revenues mean that the U.S. government continues to run a budget deficit and increase its borrowing. In the bond market this leads to
A) falling interest rates as bond supply shifts right.B) falling interest rates as bond demand shifts left.
C) rising interest rates as bond supply shifts right.
D) rising interest rates as bond demand shifts right.
17.
If we observe a larger increase in bond supply with a smaller increase in bond demand this would be consistent with
A) Rising inflation expectations (the Fisher effect).B) The rising relative riskiness of bonds.
C) An economic slowdown
D) An economic recovery.
18.
If expected inflation FALLs we would expect to see
A) Bond supply increase.B) Bond demand decrease.
C) Nominal interest rates fall.
D) All of the above.
19.
A risk-averse investor will
A) Require a higher expected return when taking on greater risk.B) Choose investments with the lowest risk when expected returns are equal.
C) Be indifferent about expected return and care only about risk.
D) Both a and b.
E) All of the above.
20.
A risk-averse investor will
A) Always prefer an investment with certain return of 4% over an uncertain investment with an expected return of 5%.B) Be indifferent between an investment with certain return of 4% and an uncertain investment with an expected return of 4%.
C) Always avoid investments where the return is uncertain.
D) None of the above.
21.
Assume that the expectations theory of the term structure is true. Then, if the current one-year interest rate is 4% and the two-year interest rate is 5%, then investors are expecting:
A) The future one-year rate to be 4.5%B) The future one-year rate to be 9%
C) The future one-year rate to be 6%
D) The future one-year rate to be 5%
22.
Under the expectations theory of the term structure
A) the yield curve should usually be downward sloping.B) the slope of the yield curve depends on the expectations for future short term rates.
C) the slope of the yield curve should be close to flat.
D) The slope of the yield curve reflects the expectations for future short term rates and a risk premium associated with longer term bonds.
23.
Consider a Big Mac, costing 15 Pesos in Mexico and $3 in the U.S. If the exchange rate is 15 Pesos/$, then
A) the Law of One Price holds.B) the Big Mac is more expensive in Mexico.
C) the Big Mac is more expensive in the U.S..
24.
During 2010, the Yen/$ exchange rate fell from 93 Yen/$ to 81 Yen/$. This meant that
A) the yen had depreciated and the dollar has appreciated.B) the yen had appreciated and the dollar has depreciated.
C) U.S exports became cheaper in Japan.
D) Both a and c.
E) Both b and c.
25.
It is widely believed that China intervenes in foreign exchange markets to keep the yuan ____ against the U.S. dollar, in order to keep Chinese exports to the United States _____ in the U.S.
A) Weaker; cheaperB) Stronger; cheaper
C) Weaker; more expensive
D) Stronger; more expensive
Explanation / Answer
B A B D C D D B D A A A D D C D C B B A A B C B A
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