lOMoARcPSD|4529514 EC223 - Clickers Canadian Banking (Wilfrid Laurier University) StuDocu is not sponsored or endorsed by any college or university Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 EC223 – Clickers Clickers – September 19, 2018 ____________________________________________________________________________ 6) Which of the following statements about the characteristics of debt and equity is false? a. b. c. d. They both involve a claim on the issuer’s income. They can both be long term financial instruments. They both ena … raise funds They can both … instruments 7) a corporation acquires new funds only when its securities are sold in the ___. a. b. c. d. secondary market by a commercial bank secondary market by a securities dealer primary market by a stock exchange. Primary market by an investment bank 8) overnight funds are ___. a. b. c. d. Loans made by the Bank of Canada to banks Loans made by banks to the bank of Canada Loans made by banks to each other Funds raised by the fed. Gov’t in the bond market. 9) an ex. of economics of scale in provision of financial services is ____. a. b. c. d. Spreading the cost of writing a standardized contract over many borrowers. Investing in a diversified collection of assets Spreading the cost of borrowed funds over many customers. Providing depositors with a variety of saving certificates. 16) The primary assets of a finance company are _____. a. b. c. d. Corporate stocks and bonds mortgages Consumer and business loans Municipal bonds 18) the liquidity of assets in contractual saving institutions is ______. a. An undertaking b. Restricted Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 c. Not an important consideration d. An important consideration Clickers – September 24, 2018 ____________________________________________________________________________ 8) Ranking assets from most liquid to least liquid, the correct order is a. currency; savings bonds; house b. currency; house; savings bonds 9) The evolution of the payments system from barter to precious metals, then to fiat money, then to cheques can best be understood as a consequence of _____. a. government regulations designed to improve the efficiency of the payment system b. government regulations designed to improve the effiency of the payments system c. competition among firms to make it easier for customers to purchase their products. d. innovations that reduced the costs of exchanging goods and services 11) Which of the following sequences describes the evolution of the payment system? a. Barter, cheques, paper currency, coins, precious metals, e-money d. Barter coins made of precious metals, paper currency, cheques, electronic funds transfers. 13) which of the following statements accurately describes the 2 measures of the money supply a. the two measure mo c. the two measure do NOT move together, so they can’t be used interchangeable by policymakers . d) 14) An electronic payments system has not completely replaced the paper sytem because all of the following reasons but a. privacy b. security c. transportation d. . 15) Which of the following statements is correct? a. Bitcoin does not satisfy any of the three functions of money b. Bitcoin functions as a unit of account c. Bitcoin functions as a medium of exchange. Clickers – September 26, 2018 Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 ____________________________________________________________________________ N/A Clickers – October 1, 2018 ____________________________________________________________________________ Chapter questions: https://www.easynotecards.com/notecard_set/67799 5) a credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a ____. a) fixed-payment loan b) simple loan c) coupon bond d) discount bond 6) a bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a ____? a. discount bond 10) If 22,050 is the amount payable in two years for a 20,000 loan made today. The I/R is ____. a. 5% use PV= CF / (1+i)^n If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? a. 10% 12. Which of the following are TRUE for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are positively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) The yield is less than the coupon rate when the bond price is below the par value. 14) The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. a. greater; coupon; above b. greater; coupon; below Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 c. greater; perpetuity; above d. less; perpetuity; below 15) A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of A. 14 percent B. 10 percent. C. 12 percent. D. 8 percent. Yield to maturity 16) Which of the following $1,000 face-value securities has the highest yield to maturity? A) a 5 percent coupon bond selling for $1,000 B) a 10 percent coupon bond selling for $1,000 C) a 12 percent coupon bond selling for $1,000 D) a 12 percent coupon bond selling for $1,100 Reason: Higher coupon rate = gives you a higher coupon level. Same rate, lower price gives you higher yield to maturity Which of the following bonds would you prefer to be buying? A) B) C) D) a $10,000 face-value security with a 7 percent coupon selling for $10,000 a $10,000 face-value security with a 9 percent coupon selling for $10,000 a $10,000 face-value security with a 10 percent coupon selling for $10,000 a $10,000 face-value security with a 10 percent coupon selling for $9,000 Clickers – October 15, 2018 ____________________________________________________________________________ Q4: 1. Are you more or less willing to buy long term air Canada bonds a. trading in these bonds increases, making them easier to sell b. you expect a bear market in stocks c. you expect interest rates to rise d. brokerage commissions on stocks fall e. brokerage commissions on bonds fall Clickers – October 17, 2018 ____________________________________________________________________________ Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 6) When the price of a bond is above the equilibrium price, there is excess ________ in the bond market and the price will ________. A) demand; rise B) supply; fall C) demand; fall D) supply; rise A movement along the bond demand or supply curve occurs when ___ changes A) B) C) D) Wealth Bond price Expected return Income Everything else held constant, an increase in the liquidity of bonds results in a ____ in demand for bonds and demand for curve shifts to the _____. A) Rise; right B) Rise; left C) Fall;left Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ___ as business perceive more profitable investment opportunites, while the demand for bonds shifts to the ____ as a result of the increase in wealth generated in expansion. A: Right, right Normally the demand for bonds _____, the supply of bonds ______, and the interest rate ______, everything else held constant A: decreases, decreases, falls Clickers – October 22, 2018 ____________________________________________________________________________ 20) a lower level of income cause the demand for money to _____, and the interest rate to _____. decreases, decreases 22) in the Keynesian liquidity performance Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 23) of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is _____. 39. Which is the price of a 8% coupon bond with a face value of $100, and 20 years to maturity, when the yield to maturity is 12% C. 70 Clickers – October 24, 2018 ____________________________________________________________________________ 1.The risk structure of interest rates is ______. a) The relationship amount interest rates of different bonds with the same maturity 2.Default risk is the risk that a bond issuer is unable to make a profit and pay the face value of maturity 8.The spread between interest rate on low quality corporate bonds and Canada bonds ______ Widens significantly during recessions 10. bonds with relatively low risk of default are called Investment grade securities and have a rating of Baa or BBB and above, bonds with ratings below Baa or BBB have a higher default risk and are called junk bonds 11. Which of the following long-term bonds has the highest I/R a. b. c. d. Corporate Aaa bonds Corporate Baa bonds Provincial bonds Canada bonds Practice midterm ____________________________________________________________________________ 1. What is the return on a 5% coupon bond $1000 bond that initially sells for $1,000 and sells for $1,200 next year? A) -15% B) 25% C) 5% D) -5% (5% x 1000 / 1000) + (1200 – 1000 / 1000) = 5% + 20% Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 2. Suppose you are holding a 5% coupon bond maturing in one year with a yield to maturity of 10%. If the I/R on one-year bonds drops from 15% to 8% over the course of the year, what is the yearly return on the bond you are holding? A) 15% B) 5% C) 10% D) 8% 1 year, so the yearly return on bond = YTM 3. The primary assets of credit unions are _____. A) consumer loans B) mortgages C) Municipal bonds D) Business loand 4. Consider a coupon bond with a face value of $1500, the yield to maturity is 10% and 10 years to maturity. Calculate the coupon rate when the bond price is $1000. 1000 = C / 10% [ 1 – (1/1.1^10) + (1500 / (1.1)^10) 1000 = c /10% (1-0.386) + 578.3 421.7 = c / 0.1 x .614 C = 421.7 x 0.1 / 0.614 = 68.68 C = C / FV = 68.68 / 1000 =4.6 A) 10% B) 8.6% C) 6.6% D) 4.6% 7) which $1000 bond has the higher yield to maturity: a 20-year bond selling for $1200 with a coupon rate of 15% of a one-year bond selling for $800 with a coupon rate %5? A) B) C) D) Both have the same yield Not enough information to decide 20 year bond 1 year bond P = C/i (1 – 1/(1+i)^n) + FV / (1+i)^n Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 8. In the figure above, the decrease in the Interest rate from i1 to I2 can be explained by _____. A) a decline in the expected price level B) a decrease in money growth C) an increase in the expected price level\ D) an increase in income Clickers – October 29, 2018 ____________________________________________________________________________ 14) THE TERM STRUCTURE OF I/R rates is ____. a) the relationship among i/r on bond with different maturities 16) Typically, yield curves are: a) Bowl shaped b) Flat c) Gently upward sloping d) Mound shaped 17) When yield curves are steeply upward sloping, ____ a) short-term i/r are bout the same as long term i/r b) long-term i/r are above s-t i/r c) s-t i/r are above l-t i/r d) medium long term i/r are about 21) the ______ of the term structure of i/r states that the i/r on a long term bond will equal the average of s-t i/r’s that individuals expect to occur over the life of the l-t bond, and investors have no preference for s-t bonds relative to l-t bonds. a) segmented markets b) separable markets theory c) liquidity premium theory d) expectations theory Clickers – Nov. 5, 2018 ____________________________________________________________________________ Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 7 in the one-period valuation model, an increase in the required return on investments in equity ____. a) Increases the current price of a stock b) Reduces the current price of a stock c) Reduces the expected sales price of a stock d) Increases the expected sales price of a stock 10) using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the current price of the stock would be____. a) 96.19 b) 101.00 c) 110.00 d) 100.00 12) in the generalized dividend model, a future sales price far in the future does not affect the current stock price because _____. a) the sales price does not affect the current price b) the present value cannot be computed c) the present value is almost zero d) the stock may never be sold 15) Using the Golden growth formula, if D1 is $2.00, ke is 12% or 0.12 and g is 10% or .10, then the current stock price is _____. a) 20 b) 100 c) 150 d) 50 Clickers – Nov. 7, 2018 ____________________________________________________________________________ 22) the subprime financial crisis lead to a decline in stock price because ________. a) Higher expected future stock prices b) Higher current dividends c) of a lowered expected dividend growth rate d) of a lowered required return on investment in equity 24) An increase in uncertainty for the economy will ________. a) increase stock prices due to a higher required return Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 b) increase stock prices due to a lower required return c) not affect stock price d) depress stock prices due to a higher required return 25) the disclosure of dishonest corporate accounting procedure would cause stock prices to ________. a) increase due to higher expected dividend growth and lower required return b) remain unchanged c) decrease due to lower expected dividend growth and higher required return d) decrease due to lower expected dividend growth and lower required return 35) If a forecast made using all available information is not perfectly accurate, then it is ________. a) A second best expectation b) An adaptive expectation c) Still a rational expectation d) Not a rational expectation 36) an expectation may fail to be rational if ______. a) b) c) d) Relevant information is available but ignored at the time the forecast is made Information was available to insiders only Information changes after the forecast is made Relevant information was not available at the time the forecast is made 37) if your read a story in the newspaper announcing the proposed merger of dell computer and gateway. The merger is expected to greatly A normal return since stock prices adjust to reflect expected changes in profitability almost immediately. _____ and ____ may provide an explanation for stock market bubbles a) Underconfidence; social isolationism b) Overconfidence; social contagion c) Underconfidence; social contagion d) Overconfidence; social isolationism 8) With regard to external sources of financing for nonfinancial businesses in Canada, which of the following are accurate statements? a) indirect finance accounts for a larger share of external business financing in Canada than direct finance. If a bad credit risks are the ones who most actively seek loans then financial intermediaries face the problem of______ Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 a) b) c) d) Adverse selection Costly state verification Free-riding Moral hazard The problem with adverse selection _____ A sharp decline in the stock market means that the ____ of corporations has fallen making lenders willing to lend a) b) c) d) Liability; less Liability; more Net worth; more Net worth; less If the anatomy of a financial crisis is thought of as a sequence of events, which of the following events would be least likely to be the initiating cause of the financial crisis? a) Increase in uncertainty b) Bank panic c) Stock market decline d) Bank balance sheet deteriorate Clickers – Nov. 14, 2018 ____________________________________________________________________________ Debt deflation occurs when _____. a) Lenders reduce their lending due to declining stock prices (equity deflation) that lowers the value of collateral. b) Corporation pay back their loans before the schedule maturirty date. c) An economic downturn causes the price level to fall and a deterioration in firms’ net worth because of the increased burden of indebtedness d) rising interest rates worsen adverse selection and moral hazard problems. 15) the originate-to-distribute business model is when ______. a) mortgage originators distributed the mortgage to an investor as an underlying asset in a security b) homeowners could refinance their houses with larger loans when their homes appreciated in value c) mortgage originators were the credit rating agencies d) mortgage originators made sure that the mortgage was a good credit risk. 17) Agency problems in the subprime mortgage market included all of the following except Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 A) homeowners could refinance their houses with larger loans when their homes appreciated in value. B) mortgage originators had little incentives to make sure that the mortgage is a good credit risk. C) underwriters of mortgage-backed securities had weak incentives to make sure that the holders of the securities would be paid back. D) the evaluators of securities, the credit rating agencies, were subject to conflicts of interest. 22) Comparing 2007 crisis when great depression, which statement is incorrect? a) During both crises, the credit spread increases b) Both crises are following asset market booms and bust c) They both lead to the same degree of contraction in the economy d) The bank balance sheets deteriorate during both crises 17) Credit rating agencies were subject to conflicts of interest in the subprime mortgage market because _____. a) they were earning fees from rating the mortgage-backed securities and from advising clients on how to structure the securities to get the highest rating. b) they had weak incentives to make sure that the holders of the securities would be paid back c) banks were earning large fees by underwriting the mortgage-backed securities d) they had little incentives to make sure that the mortgage was a good credit 23) which of the following factor is not why Canada bank is the envy of the world? a) Canadian banks are more conservative in their lending practice b) Canadian banks does not have any subprime mortgage c) Canadian banks hold a large proportion of their mortgage on their balance sheet d) Canadian banks are more diversified 38) U.S.S firms affected by the financial crisis included _____. a) capital one and BNP Paribas b) Bear Stearns and Merrill Lynch c) Manulife and RBC d) AIG and JP Morgan The result of the too-big fail policy is that ______ banks will take on _______risks, making bank failures more likely. a) Big, greater The Basel Accord, an international agreement, requires banks to hold capital based on _____. a) The total value of assets b) Deposits c) Liabilities d) Risk-weighted assets Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 14) banks engage in regulatory arbitrage by _____. a) keeping low-risk assets on their books while removing high-risk assets with the same capital requirement b) buying risky assets from arbitragers c) keeping high-risk assets on their books while removing low-risk assets with the same capital requirement d) hiding risky assets from regulators 16) the chartering process is especially designed to deal with the ____ program, and regular bank examinations help to reduce the _____ problem. A) B) C) D) Moral hazard; moral hazard Moral hazard; adverse selection adverse selection; adverse selection adverse selection; moral hazard which of the following is not a reason financial regulation and supervision is difficult in real life? a) Unintended consequences may happen if details in the regulations are not precise. b) Financial institutions have strong incentive to avoid existing regulations c) Regulated firms lobby politicians to lean on regulators to ease the rules d) Financial institutions are not required to follow the rules Clickers – Nov. 26, 2018 ____________________________________________________________________________ if a bank has $100,000 of demand deposits, a desired reserve ratio of 20%, and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is _______. a) 20,000 b) 25,000 c) 30,000 d) 10,000 A: 40,000 – x = (1000,000 -x) * .20 21) bankers concerns regarding to optimal mix of excess reserves, borrowing from the Bank of Canada, and borrowing from other baks to deal with deposit iutflows is an example of a) liquidity management b) liability management managing interest reate risk e) Managing credit line Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 22) if, adter a deposit outflow, a bank needs an additional $3M to meet its reserves, the bank can _____. a) repay its advances from the bank of Canada b) increase loans by $3 c) reduce deposits by $3M d) sell $2M of securites In gernal, banks would prefer to acquire funds quickly by ___ rather than _____. a) Borrowing from the Bank of Canada reducing costs b) Calling in loans, selling securittes c) Reducing, borrowing d) Reducing, selling securites 26) which of the following statement most accurately describes the task of bank asset management? a) . b) . c) Banks seek the highest returns possible subject to minimizing risk and making adequate provisinos for liquidity Modern liability management has resulted in A) increased sales of certificates of deposits to raise funds. B) increase importance of deposits as a source of funds. C) reduced borrowing by banks in the overnight loan market. D) failure by banks to coordinate management of assets and liabilities. 31) holding large amounts of bank capital helps prevent banks failures because ____. a) It can be used to absord the losses resulting from bad loans b) It makes it easier to call in loan c) It makes loans easier to sell d) It means you can make a higher income 35) bank capital has both benefits and costs for the bank owners. Higher bank capital ____ the likelihood of bankruptcy, but high bank capital ___ the return on equity given return to good. a) reduces, reduces b) reduces, increases c) increase, increases increases, reduces Clickers – Nov. 28, 2018 ____________________________________________________________________________ 1) The thrww player in the money supply process are: a) Banks, depositors, and the central bank Downloaded by Ansh Varma (ianshvarma@gmail.com) lOMoARcPSD|4529514 b) Banks, depositors and the department of finance c) Banks, borrowers 2) Both ____ and ____ are bank of Canada assets. a) Government secruities, reserves b) Govt securitees; advances to banks c) Notes in circulation; reserves d) Notes in circulation; government securites 3) a) b) c) d) The monetary base consists of ____. Notes in circulation and Canada bonds Notes in circulation and reserves Notes in circulation and securites Reserves and Canada bonds 4) When the bank of Canada purchases a government bond from a bank, reserves in the banking system ____ and the monetary base ______, everthing held constant. a) increase; increase b) Increase, Decrease c) Decrease, Decrease d) Decrease, Increase 22) there are two ways in which the bank can proved additional reserves to the banking system: it can _____ government bonds or it can _____- advances to banks to commercial banks. a) purchase; call in b) purchase; extend c) sell; extend d) sell; call in Downloaded by Ansh Varma (ianshvarma@gmail.com)
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