1. Idiosyncratic risk is:
- Common to everyone.
- Represented by Beta.
- Specific to a particular business.
- Due to changes in the interest rate.
2. Bond prices (and yields) are determind by supply and demand in the bond market. The demand for bonds increases when:
- Wealth falls
- Expected future interests rises
- Expected inflation falls
- Government needs to borrow more
3. The current yield is:
- Coupon rate divided by price
- Coupon rate divided by face value
- Coupon rate divided by principle value
- Present value of bond future payments at a price of zero
4. The term structure of interest rates is the relationship between time to maturity and:
- Coupon to yield maturity (CPN)
- Current yield to maturity (CYM)
- Average yield to maturity (AYM)
- Yield to maturity (YTM)
5. Financial markets are essential to the operation of our economic system because they do all but one of the following:
- Derive their value from an underlying security
- Offer savers and borrowers liquidity
- Pool and communicate information through prices
- Allow for the sharing of risk
6. Stock prices are a central element in a market economy because they:
- Provide equity
- Crashes distort the economy
- Ensure resources flow to profitable areas
- Act as the other side of bonds
7. The intrinsic and time value of an option depend on all but:
- Strike price
- Original price of option
- Price and volatility of underlying asset
- Time to expiration
8. The real exchange rate is strongly related to the:
- Purchasing power parity
- Technical specifications
- Inflation differential
- Government yield rate
9. Adverse selection means:
- Borrower may not use the borrowed funds productively
- Borrower safeguards the funds in an improper location
- Least creditworthy borrowers are the ones who borrow
- The problem of distinguishing a good credit risk from a bad credit risk.
10. The risks faced by banks in day-to-day operations include:
- Default
- Liquidity
- Credit
- All of the above
11. Banks assets are all but:
- Loans
- Deposits
- Reserves
- Securities
12. Banks make a profit for their owners. Banks typically measure their own profitability by all except:
- Interest coverage
- Net interest income
- Net interest margin
- Return on assets
13. All of the following are non-depository institutions except:
- Banks
- Insurance companies
- Pension funds
- Finance companies
14. A bank run can place a bank into which of the following positions?
- Illiquidity
- Stability
- Receivership
- None of the above
15. Government is involved in every part of the financial system. Government officials may intervene in the financial system in order to do all but:
- Protect small depositors
- Protect large depositors
- Safeguard the stability of the financial system
- Government can intervene to do all of the above
16. Functions of the modern central bank is to do all but:
- Adjust interest rates and other tools to control quantity of money and credit in the economy
- Assure a free market economy without regulation
- Oversee the financial system
- Lend to sound banks during times of stress
17. Which of the following does not describe the Federal Open Market Committee (FOMC):
- Sets interest rates
- Has 12 voting members
- Is controlled largely by the chair
- Meets every month
18. Money multiplier depends on:
- Reserve requirement
- Banks' desire to hold excess reserves
- Public's desire to hold currency
- All of the above
19. The six core principles include all but:
- Time has value
- Risks requires compensation
- Instability improves welfare
- Markets develop prices and allocate resources
20. Changes in the amount of money in the economy are related to changes in all but:
- Interest Rates
- Diversity Rates
- Inflation Rates
- Monetary Policy