1. Banks establish long-term commitments as a way of managing credit risk.

True

False

2. Which of the following affects both the supply and demand for bonds?

A. Liquidity

B. Real return

C. None of the above

D. Inflation

3. If the gap on a bank's balance sheet is $10,000 and interest rates rise by 5%, then bank profits

A. fall by $500.

B. fall by $50,000.

C. rise by $500.

D. rise by $50,000.

4. A two-year discount bond with face value $1,000 and price $950 has a yield of

A. 4.9%.

B. 5%.

C. 5.3%.

D. none of the above.

5. When the Treasury Department recapitalized some banks, it was:

A. engaged in a bailout.

B. operating as a lender of last resort.

C. decreasing the money supply.

D. all of the above.