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- 1A discount bond involvesPayment by the borrower to the lender of the face value of the loan at maturity
- 2Which of the following is not a key financial sevice provided by the financial systemprofitability
- 3A primary market is amarket in which newly issued claims are sole to buyers by borrowers
- 4Financial intermediaries (general question)include banks and other depository institutions
- 5Which of the following can be described as indirect finance?getting a mortgage from the bank
- 6A corporation issues a two year bond with a coupon of $50 and a face value of $1000, a year later market interest rates have declined to 4%. What is the price of the bond a year after is was issued?The formula to use here is:
P = C * (1-(1+i)^-n / i) + FV / (1+i)^n
after plugging in coupon, interest, number of years and the face value, you get 1018.06 - 7If you deposit 500$ in a savings account at an annual interest rate of 5%, how much will you have in the account at the end of five years?The formula to use here is:
FV = amount * (1+i)^n
after plugging in the initial amount, interest rate and number of years, you get 638.14 - 8if, while you are holding a coupon bond, its market price rises, you can be sure thatthe interest rate on other similar bonds must have fallen as when interest rate rise , market price of coupon bond falls as they an inverse relationship.
- 9in which of the following situation would it be least advantageous to be taking out a mortgage?in the situations, you see the nominal interest rate and expected inflation rate. We know that real interest rate is equal to nom interest rate - expected inflation rate, look for the choice where this number is highest
- 10suppose that for a price of $950, you purchase a 10 year treasury note that has a face value of $1000 and a coupon rate of 4%. if you sell the bond one year later for $1150, what was your rate of return for that one year holding period?use holding period return formula:
HPR = (coupon interest + capital gain) / purchase price
40 + 200 / 950 = 25.26% - 11Which of the following $1000 face value securities has the highest yield to maturity?you need to get the coupon payment by multiplying the % by the FACE VALUE. then to find r (coupon rate), r = C / PV
when you go through the choices, a 10% coupon bond selling for $1000 has the highest yield to maturity - 12According to the money market model, ________ in real GDP will have the same effect on short-term nominal interest rates as ________ in price level or an increase in the money supply.a decrease, a decrease
- 13According to the money market model, an increase in real GDP will have the same effect on short-term nominal interest rates as ________ in price level or an _______ in the money supply.an increase , a decrease
- 14if a government experiences higher govt budget deficits, the supply of bonds _______ and their yields to maturity ___________, everything else held constant.increase, increases
- 15Many economists assume that a boom in the stock market is a sign that profitable business opportunities are expected in the future. In other words, the expected return on stocks increases. Which of the following is correct?The equilibrium interest raise will rise
- 16The demand curve for bonds would be shifted left byan increase in expected returns on other assets.
- 17The demand curve for bonds would be shifted left byincrease in expected inflation
- 18when nominal interest rates rise on financial assets such as us treasury bills, the amount of interest that households and firms ...lose by holding money increases.
when nom interest rates rise, you lose money by holding.
when nom interest rates fall, you gain money by holding - 19when the economy slips into a recession, normally the demand for bond _____, and the supply of bonds ______. everything else held constantdecreases, decreases
- 20when the expected inflation rate increases, the real cost of borrowing _______ and the supply of bond ______, everything else held constantdecreases, increases
when expected inflation rises, cost of borrowing goes down and supply of bonds go up
when expected inflation goes down, cost of borrowing goes up and the supply of bonds go down - 21Which of the following will cause the money demand curve to shift to the right?an increase in the price level
when things get more expensive you need more money - 22a one year bond currently pays 5% interest. It is expected that it will pay 6% next year and 7% the following year. the two year premium is 0.2% while the three year premium is 0.35%. what is the interest rate on a three year bond?you add the interest rates till the third year and divide by 3 then add the premium as a percentage.
in this case for 3 years: its 6.35%
if it was for 2 years: 5.7% - 23According to the Segmented markets theory of the term structure, which of the following statements is TRUE?bonds of one maturity are not substitutes for bonds of other maturities, therefore, interest rates on bonds of different maturities do not move together
investors' strong preference for short-term relative to long-term bond explains why the yield curves typically slope upward
the interest rate for each maturity bond is determined by supply and demand for that maturity bon - 24According to the liquidity premium theory of the term structure, a downward-sloping yield curve indicates thatshort-term interest rates are expected to decline sharply in the future.
- 25In 2016, as investors became more concerned with the default risk of bonds issued by the governments of Greece and Portugal relative to the default risk of bonds issued by the governments of Germany, France, and the Netherlands, the price of bonds issued by Greece and Portugal would have most likely ________ and the yield on these bonds would have most likely ________.decreased; increased
- 26Risk premiums on corporate bonds tend to _______ during business cycle expansions and ______ during recessions, everything else held constant.decrease; increase
- 27Suppose that the U.S. government enacts an across-the-board increase in income tax rates. Everything else held constant, this would cause the yields on U.S Treasury bonds to________ and the yields on municipal bonds to________.increase; decrease
- 28Which of the following assets is considered to be default-risk free?a three-month Treasury bill.
- 29Which of the following is not a key fact about the term structure?Interest rates on short-term bonds are usually higher than interest rates on long-term bonds.
- 30Which of the following theories of the term structure can explain the empirical fact that interest rates on bonds of different maturities tend to move together?Both expectations theory and liquidity premium theory
- 31________of interest rates refers to the relationship among the interest rates on bonds with _________ maturities and _________ characteristics.Risk structure; similar; different
- 32If commercial banks are holding excess reserves, then the size of money multiplieris less than the simple deposit multiplier
- 33If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will showan increase in discount loans of $2 million and an increase in bank reserves of $2 million.
- 34If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million....whether the public holds the proceeds as currency or deposits them as checkable deposits.
- 35If the Fed purchases $10,000 worth of securities and the required reserve ratio is 8%, by how much will deposits change (assuming no change in excess reserves or the nonbank public's currency holdings)?you need to find the multiplier first.
multiplier = 1 / reserve ratio
therefore, 1/ .08 = 12.5
now multiply 12.5 by 10,000 or whatever the amount of securities bought is.
$125,000 - 36If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will showa decrease in securities held of $10 million and an increase in bank reserves of $10 million.
- 37Suppose Bash the Investor deposits $1 million of currency into his checking account. Bash's action, everything else held constant, will cause total reserves in the banking system to______ and the monetary base to______.increase; remain unchanged
- 38Suppose the currency-to-checkable deposit ratio decreases while, at the same time, the excess reserve-to-checkable deposit ratio also decreases. Everything else held constant, these changes would ______ the money supply.increase
- 39Suppose the required reserve ratio is 10% and the Fed purchases $100 million worth of Treasury bills from Wells Fargo. What is the maximum amount that Wells Fargo can lend out?$100 million.
- 40Suppose, while cleaning out its closets, a worker at the Federal Reserve Bank of Atlanta discovers a painting of Elvis (medium oil on velvet) that used to grace the walls of the conference room. Suppose further that, at a public auction, the bank sells the painting for $24.95. This sale will cause ______ in the monetary base, everything else held constant.a decrease of $24.95
- 41Which of the following increases the M2 multiplier?an increase in the nonbank public's preference for nontransaction accounts relative to checkable deposits
- 42After 2008, an expansionary monetary policy involves _________.decreasing both interest rates on reserve balances and ON RRP rate
- 43After 2008, what were two most important monetary policy tools that the Fed relied on?paying interest on bank reserves and overnight reverse repos
- 44Before 2008, if the Fed desired to reduce the federal funds rateit would conduct an open market purchase, increasing reserve supply.
- 45Before 2008, what was the most important monetary policy tool that the Fed relied on?Open market operations
- 46The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This statement shows the FOMC using a monetary policy tool. Briefly explain which monetary policy tool it was.Open market operations, since the Fed plans to keep buying securities to keep the federal funds rate at its target rate.
- 47In an interview in July 2020, during the Covid-19 pandemic, Federal Reserve Bank of Dallas President Robert Kaplan stated: "I just don't want to pull out one objective . . . pulling out inflation . . . without regard to other considerations, and without regard to the second part of the dual mandate." What was Kaplan referring to as the "second part of the dual mandate"?High employment
- 48In 2019, a Federal Reserve publication stated: "The Federal Reserve can no longer effectively influence the FFR by small changes in the supply of reserves." Is this statement true?Yes, since the 20072009 financial crisis, banks have held substantial excess reserves, so small changes in reserves by the Fed do not significantly influence the FFR.
- 49Suppose the Bank of Japan's deposits at the Fed are expected to decrease permanently. Everything else held constant, the most appropriate action for the Fed to take to combat this situation would be a _____ open market _____ of bonds.dynamic; sale
- 50When economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to?It is when short-term interest rates are close to zero, meaning the Fed can no longer use changes in interest rates to stimulate the economy.
- 51When reserves are limited, in order to reduce its target for the federal funds rate, the Fed would normallyconduct open market purchases.
- 52According to the Phillips Curve, which of the following may have taken place if both the unemployment rate and inflation have risen?a negative supply shock
- 53All of the following tend to occur when unemployment is above the natural rate EXCEPTwages are likely to increase.
- 54Assume that the economy is initially in long-run equilibrium. Everything else held constant, a decrease in labor productivity will shift the Phillips curve ______ resulting in ______ in inflation rate. To combat this situation, the appropriate policy action would be for the Fed to _______ its target for the federal funds rate.up; an increase; increase
- 55In the _______ channel, a contractionary monetary policy _______ aggregate expenditure through the _____ availability of bank loans to bank-dependent borrowers.bank lending; decreases; decreased
- 56Suppose the federal government decides to cut the corporate profits tax. Everything else held constant, this action causes the output gap to become _____ and the inflation rate to ______. For the real GDP to return to its potential level, the Fed should ______ the federal funds rate.positive; increase; increase
- 57Suppose the government conducts a contractionary fiscal policy. Everything else held constant, this causes the output gap to become______ and inflation rate to_______. If the Fed wants to offset the effect of a contractionary fiscal policy, the Fed should _______ the real interest rate.negative; decrease; decrease
- 58The MP curve representsthe Fed's monetary policy actions in setting a target for the federal funds rate.
- 59What factors cause the Phillips curve to shift?supply shocks and changes in the expected inflation rate
- 60Which of the following is the interest rate channel?The Fed changes the real interest rate, which affects the components of aggregate expenditure, thereby changing the output gap and the inflation rate.
- 61Which of the following would NOT cause the IS curve to shift to the left?an increase in consumer confidence
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- economics Karteikarten am Ohne Titel, erstellt von Joshua Kim am 11/12/2023.
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