BA4345 Money and Capital
Markets, Summer 2004 – Test 2. Peter Lewin.
Please read the following carefully:
Multiple
Choice – 25 questions. Please use a 50 question scantron (882-ES)
with a pencil. Hand in only the scantron
(you may keep this question paper).
This is a closed book
exam. Cheating will result in a zero
(among other possible sanctions).
Among
the possibilities given in each question select the best
alternative.
Solution and grade distribution at end.
1.
Exporting
a good gives rise to a _________ foreign exchange and a _________ the currency
of the exporting country in the foreign exchange market.
a.
demand
for, demand for
b.
demand
for, supply of
c.
supply
of, demand for
d.
supply
of, supply of
2.
Considerable
day-to-day volatility in major exchange rates is caused by
a.
shifts
in tastes or preferences for domestic versus foreign goods
b.
sudden
changes in productivity in one nation versus others
c.
highly
variable inflation rates in some industrialized countries
d.
international
capital mobility
3.
If
country A has a permanent inflation rate of 10% and country B has a permanent
deflationary rate of 5%
a.
country
A’s currency will depreciate against B’s currency at a rate of 15% per year
b.
country
A’s currency will depreciate against B’s currency at a rate of 5% per year
c.
country
B’s currency will depreciate against A’s currency at a rate of 15% per year
d.
country
B’s currency will depreciate against A’s currency at a rate of 5% per year
4.
If
a buyer of a particular stock purchased a call option at a strike price of $100
and the stock is selling for $110 on the expiration date, the call option is
worth
a.
$110
per share
b.
$800
per share
c.
$10
per share
d.
$0
per share
5.
If
a buyer of a particular stock purchased a put option at a strike price of $100
and the stock is selling for $110 on the expiration date, the put option is
worth
a.
$110
per share
b.
$800
per share
c.
$10
per share
d.
$0
per share
6.
If
person A buys a 1995 Treasury bond futures contract from person B, in market
terminology
a.
A
is the long and B is the short
b.
A
is the short and B is the long
c.
A
is the short and B is the broker
d.
A
is the long and B is the dealer
7.
Which
of the following is correct?
a.
the
holder of a put is a short
b.
the
holder of a call is a long
c.
the
seller of a put is a short
d.
the
seller of a call is a short
e.
c
and d of the above
8.
Which
of the following is defined as a standardized agreement which gives one the
right to buy or sell a particular asset or commodity at a future date at a currently
agreed upon price?
a.
an
option contract
b.
a
futures contract
c.
a
derivative asset
d.
a
financial contract
9.
Which
of the following is a derivative financial asset?
a.
mortgages
b.
commercial
paper
c.
Treasury
bills
d. an interest rate swap
10.
Which
of the following statements regarding the futures market is correct?
a.
buyers have rights; sellers have obligations.
b.
sellers have rights; buyers have obligations.
c.
buyers
and sellers have obligations but not rights
d.
buyers
and sellers each have rights and obligations
11.
The
measure of the money supply called M1 consists of
a.
currency
outside banks plus checkable accounts Eurodollars
b.
currency
outside banks plus checkable accounts plus money market deposit accounts
c.
currency
outside banks plus checkable accounts plus travelers' checks
d.
currency
outside banks plus checkable accounts plus small denomination time deposits
12.
The
principal policy-making committee of the Federal Reserve is the
a.
Federal
Advisory Council
b.
Board
of Governors
c.
president
of the
d.
Federal
Open Market Committee
13.
Which
of the following is the most important consideration in ensuring that the Fed
not engage in inflationary policy?
a.
the
Fed is geographically dispersed
b.
the
Fed is owned by the member banks
c.
the
Fed is independent of the various branches of government
d.
the
Fed is staffed by clever people
14.
Funding
for the operations of the Board of Governors of the Federal Reserve is derived
from
a.
taxes
collected from commercial banks
b.
the
governments of the states in which the district banks operate
c.
appropriations
from the United States Congress
d.
earnings
of the Federal Reserve district banks
15.
In
which of the following ways does money get created?
a.
the
Fed prints money
b.
the
Treasury prints money
c.
the
Treasury writes a check drawn on its newly created deposit at the Fed, the
funds for which come from the Fed purchasing Treasury bonds
d.
the
Treasury writes a check drawn on its newly created deposit at the Fed, the
funds for which come from the general public purchasing Treasury bonds
16.
Each
regional Federal Reserve Bank is owned by
a.
the
member banks in its district
b.
the
Federal Deposit Insurance Corporation
c.
those
who purchase its stock on the open market
d.
the
taxpayers in its district
17.
The
Board of Governors appoint ________ directors for each
Federal Reserve Bank and the member banks elect __________ for the Federal
Reserve Bank in their district.
a.
three,
three
b.
three,
six
c.
six,
three
d.
six,
six
18.
The
Federal Reserve's primary monetary policy-making body is the
a.
Federal
Open Market Committee
b.
Council
of Economic Advisors
c.
Federal
Advisory Council
d.
Federal
Deposit Insurance Corporation
19.
The
Federal Reserve Bank of
a.
executes
open market operations
b.
sets
reserve requirements
c.
establishes
the prime rate
d.
establishes
the three-month Treasury bill rate
20.
The
largest component of the money supply (M1) is
a.
time
deposits
b.
large
CDs
c.
demand
deposits
d.
coin
and currency
21.
The
Federal Reserve's ability to control the amount of demand deposits in the system
depends on its ability to
a.
clear
checks
b.
charter
national banks
c.
print
currency
d.
regulate
bank reserves
22.
Which
of the following is the basic ingredient controlled by the Fed necessary for
the creation of the money supply?
a.
reserves
b.
commercial
loans
c.
demand
deposits
d.
currency
23.
Which
of the following is classified as a liability for a commercial bank customer?
a.
a
car loan
b.
a
commercial loan
c.
a
demand deposit
d.
a
deposit with the Federal Reserve
24.
If
the required reserve ratio is .20, demand deposits are $400 million, and total
reserves are $150 million, then excess reserves are
a.
$25
million
b.
$50
million
c.
$70
million
d.
$125
million
25.
Assume
that excess reserves are $10 million, demand deposits are $500 million, and
total reserves are $110 million. The required
reserve ratio is
a.
.05
b.
.1
c.
.2
d.
.25
26.
Which
of the following are stated purposes of financial regulation?
a.
protect
the consumer
b.
promote
competition
c.
achieve
financial stability
d.
conduct
monetary policy
e.
all
of the above
27.
Which
of the following regulates the
a.
the
SEC
b.
the
CES
c.
the
Fed
d.
the
FDIC
28.
Which
of the following is true for the period 1970-2002?
a.
banks
have shifted out of loans into other assets
b.
banks
have shifted into loans out of other assets
c.
banks
have reduced their bank fees
d.
banks
have reduced the volume of mortgage loans they make
29.
Which
of the following is true for the period 1970-2002?
a.
banks
have increased the proportion of their liabilities accounted for by demand
deposits
b.
banks
have decreased the proportion of their liabilities accounted for by demand
deposits
c.
banks
no longer accept demand deposits
d.
banks
no longer use the funds from demand deposits
30.
Insurance
companies are regulated at
a.
the
federal level
b.
the
state level
c.
the
city level
d.
the
international level
31.
The
principles of the economics of insurance
works essentially on
a.
the
law of large numbers
b.
the
stupidity of the insurance holders
c.
the
greed of the insurance companies
d.
the
regularity of the seasons
32.
Which
of the following regulated branch banking?
a.
the
McFadden Act
b.
the
Glass-Stegall Act
c.
the
d.
the
Smith-Taylor Act
33.
Which
of the following regulated bank investment activities?
a.
the
McFadden Act
b.
the
Glass-Stegall Act
c.
the
d.
the
Smith-Taylor Act
34.
A
commercial bank's ability to lend is determined by its
a.
required
reserves
b.
excess
reserves
c.
total
reserves
d.
capital
35.
The
demand deposit multiplier __________ as the currency-deposit ratio _________
a.
increases,
increases
b.
increases,
decreases
c.
does
not change, increases
d.
does
not change, decreases
36.
Assume
that the M1 multiplier is 4 and the Federal Reserve sells $100 million worth of
government securities. Bank reserves
will
a.
rise
by $100 million
b.
fall
by $100 million
c.
fall
by $300 million
d.
fall
by $33.33 million
37.
Assume
that the M1 multiplier is 3 and the Federal Reserve sells $100 million worth of
government securities. The maximum
ultimate change in the supply of M1 will be to
a.
rise
by $100 million
b.
fall
by $100 million
c.
fall
by $300 million
d.
rise
by $300 million
38.
Which
of the following statements is inconsistent with Say's Law?
a.
The
economy has flexible wages and prices
b.
The
economy will produce at the full employment level of output.
c.
The
economy has an environment of "laissez faire."
d.
The
economy's level of saving depends solely on the level of income.
39.
In
the Classical view, the money supply determines
a.
interest
rates
b.
the
saving rate
c.
aggregate
supply
d.
the
price level
40.
Classical
monetary theory relies on
a.
aggregate
supply
b.
rational
expectations
c.
short-run
analysis
d.
Say's
Law
41.
In
the simple Keynesian framework, the price level
a.
is
fixed
b.
varies
directly with unemployment
c.
varies
inversely with wages
d.
is
indeterminate
42.
The
velocity of M1 is equal to
a.
M3
minus M1
b.
GDP
divided by M1
c.
GDP
multiplied by M1
d.
the
velocity of M2
43.
Which
of the following Schools favors a constant growth rate of the money supply?
a.
the
Keynesians
b.
the
Austrians
c.
the
Monetarists
d.
the
body snatchers
44.
Which
of the following is the biggest problem in conducting finely-tuned monetary
policy?
a.
we
don’t know what causes inflation
b.
we
don’t know where the money supply comes from
c.
there
are long and variable lags involved in implementing policy
d.
the
public knows too much
45.
Which
of the following Schools emphasizes the quantity of money as determining the
business cycle?
a.
the
Keynesians
b.
the
Monetarists
c.
the
Austrians
d.
all
of the above
e.
none
of the above
46.
Friedman
contended what about the unemployment rate?
a.
there
is a natural rate of unemployment
b.
unemployment
is unnecessary
c.
there
is a trade-off between inflation and unemployment
d.
there
is no trade-off between inflation and unemployment
e.
a
and d of the above
47.
Which
of the following may be said to essentially agree with Hayek on the question of
unemployment?
a.
Keynes
b.
Friedman
c.
d.
Samuelson
48.
Which
of the following was Keynes’s most effective rival?
a.
Hayek
b.
Mises
c.
Friedman
d.
Lucas
49.
Which
of the following was the originator of macroeconomics?
a.
Friederich
Hayek
b.
Lionel
Robbins
c.
John
Maynard Keynes
d.
John
Neville Keynes
50.
Adam
Smith was a member of which of the following schools of thought?
a.
the
Classical School
b.
the
Neoclassical School
c.
the
d.
the
If you total score (both tests) is
greater than or equal
to: your grade is
|
94 |
A+ |
|
85 |
A |
|
80 |
A- |
|
75 |
B+ |
|
70 |
B |
|
65 |
B- |
|
60 |
C+ |
|
55 |
C |
|
ELSE |
C- |
Solution:
1.
c
2.
d
3.
a
4.
c
5.
d
6.
a
7.
e
8.
b
9.
d
10.
d
11.
c
12.
d
13.
c
14.
d
15.
c
16.
a
17.
b
18.
a
19.
a
20.
c
21.
d
22.
a
23.
b
24.
c
25.
c
26.
e
27.
a
28.
a
29.
b
30.
b
31.
a
32.
a
33.
b
34.
b
35.
b
36.
b
37.
c
38.
d
39.
d
40.
d
41.
a
42.
b
43.
c
44.
c
45.
b
46.
e
47.
b
48.
a
49.
c
50.
a