1. If the economy grows over the next year, you forecast your investment portfolio will provide a return of 20%. If the economy goes into recession, you forecast a rate of return of 0%.
The probability of growth is believed to be 0.6, and the only other scenario is a recession. What is the expected return on your portfolio and what is its level of (standard deviation) risk?
2 Which of the following is not a source of funding for commercial banks?
A. Deposits
B. Loans to customers
C. The money market
D. Bonds
E. Ordinary shares
3. Which of the following statements about the cash rate is incorrect?
A. The cash rate is the rate of interest on overnight inter-bank loans on the Australian money market.
B . The RBA increases the money supply when it wishes to reduce the cash rate.
C. The RBA pays an interest rate on exchange settlement account funds of 25 basis points below the target cash rate.
D. The RBA is prepared to lend overnight to solvent banks at a quarter of a per cent above its target for the the cash rate.
E. The RBA changes the cash rate over time when necessary is an attempt to keep the rate of consumer price inflation within its target range of 2-3%
4. Which of the following is not able to accept retail deposits in Australia?
A. A mutual bank
B. Subsidiary of a foreign bank
C. Building society
D. A credit union
E A branch of a foreign bank
5. Which of the following implies that there is an inverted yield curve?
A. The yield to maturity of longer duration bonds being above the yield to maturity on shorter duration bonds.
B. The yield to maturity on corporate bonds being above the expected return on the stock market.
C. The yield to maturity on corporate bonds being below the yield to maturity on government bonds.
D. The yield to maturity on corporate bonds being above the yield to maturity on government bonds.
E. The yield to maturity of longer duration bonds being below the yield to maturity on shorter duration bonds.
6. A financial system will be more robust when
A. There are many ponzu balance sheets, few speculative balance sheets and virtually no hedge balance sheets (given the high risks taken by hedge funds).
B. There are many speculative balance sheets, few ponzi balance sheets and virtually no hedge balance sheets (given the high risks taken by hedge funds).
C. The government avoids running a structural budget deficit.
D. There are many hedge balance sheets, few speculative balance sheets and virtually no ponzi balance sheets.
E. There are many speculative balance sheets, few hedge balance sheets and virtually no ponzi balance sheets.