Fin 6320, Fall 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.
In the case of a bank loan, the problem of
"asymmetric information" is that the
a.
lender knows more than the borrower
b. borrower
knows more than the lender
c.
borrower and lender have different goals
d. borrower
and lender know the future much less than they do the present
2.
Lenders must be concerned that borrowers
may do risky unauthorized things with the funds they are lent. This is the problem of
a.
moral hazard
b. asymmetric
information
c.
nondivisibility
d. adverse
selection
3.
Economies of scale in information production
are enjoyed by
a.
small borrowers
b. small
lenders
c.
large borrowers
d. large
lenders
4.
One type of financial intermediary now
rising in relative importance is
a.
pension funds
b. banks
c.
savings-and-loans
d. life
insurance companies
5.
Under the Glass Stegall Act banks were
prohibited from holding ________ in their portfolio of assets.
a.
commercial paper
b. local
government securities
c.
farm mortgages
d. corporate
stock
6.
Life insurance companies are supervised
and regulated by the
a.
Federal Home Loan Bank Board
b. Securities
and Exchange Commission
c.
States in which they operate
d. Federal
Reserve
7.
Compared with the average man, the average
woman pays
a.
less for health insurance but more for
life insurance
b. less
for life insurance but more for health insurance
c.
more for life and health insurance
d. less
for life and health insurance
8.
A clause in a loan contract disallowing
the borrower from acquiring other companies during the term of the loan is an
example of a
a.
guarantee
b. collateral
agreement
c.
restrictive covenant
d. moral
hazard
9.
Do underwriters normally run any kind of
risk?
a.
They risk being unable to sell the bonds
they underwrite
b. They
risk receiving a lower price than the commitment price to the bond issuer
c.
They risk default on the bonds
d. No,
their operations are generally risk-free
10.
Asymmetric information problems are worse
the _______ the borrowing firm, since there is ________ publicly available
information about those firms.
a.
larger, more
b. larger,
less
c.
smaller, more
d. smaller,
less
11.
The manager-stockholder conflict generally
becomes worse
a.
the smaller the firm
b. the
larger the firm
c.
the more the firm borrows from banks
d. the
less the firm borrows from banks
12.
Floating-rate business loans shift
interest-rate risk
a.
from lenders to borrowers
b.
from borrowers to lenders
c.
from lenders and borrowers onto third parties
d.
from the private sector to the public sector
13.
a.
securities
b. equities
c.
banking
d. markets
14.
The
Chicago Board of Trade promotes liquidity in the futures market by
a.
setting
prices
b.
establishing
a price floor
c.
allowing
the short or the long to renegotiate contract terms
d.
standardizing
contract terms
15.
Rather
than accept delivery, most traders in futures markets choose to make
a.
margin
payments
b.
settlement by offset (reversing the transaction).
c.
mark-to-market
settlement
d.
arbitrage
payments
16.
In order
to reduce market risk associated with bonds held in inventory, a dealer can
a.
take
a long position in bond futures
b.
take
a short position in bond futures
c.
purchase
bonds at the mark-to-market settlement price
d.
use
settlement-by-offset procedures
17.
Speculators
absorb additional risk in futures markets as a result of the actions of
a.
longs
b.
hedgers
c.
brokers
d.
shorts
18.
The
buyer of a put option on Boeing with a strike price of $75 and an expiration
date of November 2005 has the
a.
right
to buy 100 shares of Boeing at $75 on or before November 2005
b.
right
to sell 100 shares of Boeing at $75 on or before November 2005
c.
right
to buy 100 shares of Boeing at $75 on or after November 2005
d.
right
to sell 100 shares of Boeing at $75 on or after November 2005
19.
If a
buyer of a particular stock purchased a call option at a strike price of $48
and the stock is selling for $45 on the expiration date, the call option is
worth
a.
$93
b.
$45
c.
$3
d.
$0
20.
The more
we pay for a French franc, the _______ French goods are to us and the _______
French assets are to us.
a.
cheaper,
cheaper
b.
cheaper,
more expensive
c.
more
expensive, cheaper
d.
more
expensive, more expensive
21.
The
best general answer to the question "What determines exchange rates?"
is
a.
supply
and demand
b.
the
International Monetary Fund
c.
interest
rates
d.
differences
in money growth rates
22.
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
23.
Anything
that causes the
a.
demand,
right
b.
demand,
left
c.
supply,
right
d.
supply,
left
24.
A
a.
b.
c.
d.
a
and c of the above
25.
Country
A experiences inflation at the constant rate of 10% per year. Country B has no
inflation. Both countries grow at the rate of 5% per annum. It is to be
expected that
a.
A’s
currency will depreciate against B’s currency at the rate of 10% per year
b.
A’s
currency will depreciate against B’s currency at the rate of 5% per year
c.
A’s
currency will appreciate against B’s currency at the rate of 10% per year
d.
A’s
currency will appreciate against B’s currency at the rate of 5% per year
GRADE DISTRIBUTION:
If you score is greater than or equal to: your grade is
|
22 |
A |
|
21 |
B+ |
|
19 |
B |
|
18 |
B- |
|
15 |
C+ |
|
else |
C |
Solution