Since M-2 excludes time deposits, M-2 is a less comprehensive measure of the money supply than M-1.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
2.
When individuals withdraw cash from checking accounts, the money supply is unaffected.
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
3.
What serves for money in France may not be money in another country country..
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
1/18
4.
Since investors prefer short-term securities to longer-term securities, the yield curve is always positively sloped.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
5.
The underwriting of an issue of securities guarantees the firm issuing the securities a specified amount of money.
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
6.
If an issue of securities is overpriced, the underwriters may let the price fall to sell the securities.
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
2/18
7.
The larger the margin requirement, the greater the proportion of a stock purchase the investor may borrow.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
8.
When funds are deposited in a savings account, the excess reserves of banks are unaffected.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
9.
A financial intermediary creates claims on itself, when it accepts depositors' funds.
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
3/18
10.
If a firm issues securities that are sold to a commercial bank, individuals' savings are directly transferred to the firm.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
11.
Only large commercial banks are subject to the regulation of the Federal Reserve.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
12.
If the Treasury borrows from the Federal Reserve, the lending capacity of banks is reduced.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
4/18
13.
If the Treasury sells debt that is purchased by corporations and uses the funds to purchase military equipment, the excess reserves of the banking system are not affected.
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
14.
The President of the United States appoints the Federal Open Market Committee.
ANSWER:
F
POINTS:
0/1
FEEDBACK: REF:
15.
Under a system of fluctuating exchange rates, a currency will depreciate if supply exceeds the demand for the currency.
ANSWER:
T
POINTS:
0/1
FEEDBACK: REF:
Multiple Choice Identify the choice that best completes the statement or answers the question.
5/18
16.
The term structure of interest rates relates a.
risk and yields
b.
yields and bond ratings
c.
term and yields
d.
stock and bond yields
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
17.
The term structure of interest rates indicates the a.
relationship between risk and yields
b.
relationship between the time and yields
c.
the difference between borrowing and lending
d.
the difference between the yield (interest rate) on government and corporate debt
ANSWER:
B
POINTS:
0/1
FEEDBACK: REF:
6/18
18.
M-2 includes 1.
demand deposits
2.
savings accounts
3.
small certificates of deposit
a.
1 and 2
b.
2 and 3
c.
1 and 3
d.
all three
ANSWER:
D
POINTS:
0/1
FEEDBACK: REF:
19.
Which of the following is not part of the underwriting process? a.
the prospectus
b.
the Federal Reserve
c.
the Securities and Exchange Commission
d.
the syndicate
ANSWER:
B
POINTS:
0/1
FEEDBACK: REF:
7/18
20.
An investment banker is not a financial intermediary because a.
it does not transfer money from investors to firms
b.
it does not create claims on itself
c.
it does facilitate the transfer of funds
d.
it creates claims on itself
ANSWER:
B
POINTS:
0/1
FEEDBACK: REF:
21.
The regulation of security markets a.
protects investors from poor investments
b.
is enforced by the Federal Reserve
c.
is enforced by the SEC
d.
applies only to government securities
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
8/18
22.
The individual (or firm) who makes a market 1.
guarantees to buy at specified (bid) prices
2.
guarantees to buy at specified (ask) prices
3.
guarantees to sell at specified (bid) prices
4.
guarantees to sell at specified (ask) prices
a.
1 and 3
b.
1 and 4
c.
2 and 3
d.
2 and 4
ANSWER:
B
POINTS:
0/1
FEEDBACK: REF:
23.
The New York Stock Exchange a.
is a financial intermediary
b.
is a secondary market
c.
transfers funds to businesses
d.
forbids buying stock on margin
ANSWER:
B
POINTS:
0/1
FEEDBACK: REF:
9/18
24.
Over-the-counter stock quotes are obtained through a.
Nasdaq
b.
SEC
c.
SIPC
d.
FDIC
ANSWER: POINTS:
A 0/1
FEEDBACK: REF:
25.
The efficient market hypothesis a.
suggests that the market for securities is becoming less efficient
b.
implies that investor can consistently outperform the market
c.
is built upon competition and the rapid dissemination of information
d.
suggests that security prices change slowly over time
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
10/18
26.
The primary assets of life insurance companies include a.
life insurance
b.
corporate securities
c.
municipal securities
d.
insurance policies
ANSWER:
B
POINTS:
0/1
FEEDBACK: REF:
27.
Withdrawing cash from a checking account does not decrease a.
the money supply
b.
demand deposits
c.
total reserves
d.
excess reserves
ANSWER: POINTS:
A 0/1
FEEDBACK: REF:
11/18
28.
The structure of the Federal Reserve includes 1.
all commercial banks
2.
the twelve district banks
3.
the Board of Governors
a.
1 and 2
b.
1 and 3
c.
2 and 3
d.
1, 2, and 3
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
29.
The members of the Board of Governors are a.
elected by the member banks
b.
appointed by the Senate
c.
appointed by the President of the United States
d.
elected by the Federal Open Market Committee
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
12/18
30.
The Federal Reserve may contract the money supply by 1.
selling securities
2.
buying securities
3.
raising reserve requirements
4.
lowering reserve requirements
a.
1 and 3
b.
1 and 4
c.
2 and 3
d.
2 and 4
ANSWER: POINTS:
A 0/1
FEEDBACK: REF:
13/18
31.
If the federal government runs a deficit and finances the deficit by borrowing from the Federal Reserve, 1.
the reserves of commercial banks are reduced
2.
the reserves of commercial banks are increased
3.
the required reserves of commercial banks are increased
4.
the required reserves of commercial banks are reduced
a.
1 and 3
b.
1 and 4
c.
2 and 3
d.
2 and 4
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
32.
If commercial banks grant loans, a.
the money supply is increased
b.
total reserves are increased
c.
excess reserves are increased
d.
the money supply is reduced
ANSWER: POINTS:
A 0/1
FEEDBACK: REF:
14/18
33.
Commercial banks may borrow reserves from each other in the a.
reserves market
b.
stock market
c.
bank market
d.
federal funds market
ANSWER:
D
POINTS:
0/1
FEEDBACK: REF:
34.
The tools of monetary policy include a.
open market operations
b.
the purchase of corporate stock
c.
the federal government deficit
d.
taxation
ANSWER: POINTS:
A 0/1
FEEDBACK: REF:
15/18
35.
During a period of recession the Federal Reserve 1.
increases the federal funds rate
2.
buys government securities
3.
sells government securities
4.
lowers the federal funds are
a.
1 and 2
b.
1 and 3
c.
2 and 4
d.
3 and 4
ANSWER:
C
POINTS:
0/1
FEEDBACK: REF:
Problem
36.
If the price of the European euro is $1.26, how many euros are necessary to purchase $1.00?
RESPONSE: ANSWER: POINTS:
A dollar is worth 0.79365 euros ($1/1.26). -- / 1
REF:
37.
What is a nation's cash inflow (outflow) on its current account and its capital account given the following information? Was there a net currency inflow or outflow?
imports
$145
16/18
exports
211
direct investments abroad
72
foreign investments in the country
143
foreign purchases of domestic securities
86
purchases of foreign securities
29
net income from foreign investments
37
government spending abroad
22
RESPONSE: ANSWER:
Debit
Credit
Current account exports
$211
imports
$145
government spending abroad
22
net income from investment abroad
37
Balance on current account
$81
Capital account direct investment abroad
72
foreign investment in U.S. purchases of foreign securities foreign purchases of U.S. securities Balance on capital account
143 29 86 $128
In this problem there is a net credit balance on both the current and capital accounts, which means there is a currency inflow. This inflow may be used to increase foreign reserves or repay any loans from the IMF.
