1.
The buyer of a Put option
a) pays the option premium and receives the right to sell shares at the strike price.
b) receives the option premium and assumes the obligation to sell shares at the strike price.
c) receives the option premium and assumes the obligation to buy shares at the strike price.
d) pays the option premium and assumes the obligation to buy shares at the strike price.
2.
Which of the graphs below best illustrates the profit line for a writer of a call option at expiry?
a)
c)
Profit
0
Profit
0
PSpot
b)
PSpot
d)
Profit
0
Profit
PSpot
0
PSpot
3.
The writer of a Put option
a) pays the option premium and receives the right to sell shares at the strike price.
b) receives the option premium and assumes the obligation to buy shares at the strike price.
c) receives the option premium and assumes the obligation to sell shares at the strike price.
d) pays the option premium and receives the right to buy shares at the strike price.
4.
The per share profit for a buyer of a call option at expiry equals:
a) −𝑀𝑎𝑥{0, 𝑃𝑆𝑝𝑜𝑡 − 𝑃𝑆𝑡𝑟𝑖𝑘𝑒 } + 𝑃𝑟𝑒𝑚𝑖𝑢𝑚
d) −𝑀𝑎𝑥{0, 𝑃𝑆𝑡𝑟𝑖𝑘𝑒 − 𝑃𝑆𝑝𝑜𝑡 } + 𝑃𝑟𝑒𝑚𝑖𝑢𝑚
b) 𝑀𝑎𝑥{0, 𝑃𝑆𝑡𝑟𝑖𝑘𝑒 − 𝑃𝑆𝑝𝑜𝑡 } − 𝑃𝑟𝑒𝑚𝑖𝑢𝑚
e) None of the above are correct.
c) 𝑀𝑎𝑥{0, 𝑃𝑆𝑝𝑜𝑡 − 𝑃𝑆𝑡𝑟𝑖𝑘𝑒 } − 𝑃𝑟𝑒𝑚𝑖𝑢𝑚
BLUE Final Exam
Page 1 of 9
Econ 380 – Fall 2021
5.
Assuming uncovered interest rate parity holds true, the impact of an increase in the expected future British
pound price of a U.S. dollar is best illustrated as:
a)
c)
£/$
R$
£/$
R$’
R$
R£
R£’
R£
E0
E0
E1
E1
Return
b)
Return
d)
£/$
R$
£/$
R£’
R$
R$’
R£
R£
E1
E1
E0
E0
Return
Return
e) NONE OF THE ABOVE ARE CORRECT
6.
If the segmented markets hypothesis is correct, an increase in the average term to maturity of the national debt
will cause the yield curve to __________.
a) become steeper
b) remain unchanged
c) become flatter
7.
Consider a bond which offers payments of $10,000 5 years from today, $7,500 10 years from today, and $5,000
15 years from today. The bond offers a yield to maturity of 8 percent. What is the Macaulay Duration of this
bond?
a) 7.79
b) 8.52
c) 9.24
d) 11.65
e) 13.84
8.
For commercial banks the GAP is typically _________. Hence a fall in interest rates leads to a _______ in
commercial bank profits.
a) negative; fall
b) positive; fall
c) positive; rise
d) negative; rise
BLUE Final Exam
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Econ 380 – Fall 2021
9.
Commercial banks typically have a __________ duration gap. A rise in interest rates will cause a _________ in
bank capital.
a) negative; fall
b) positive; fall
c) positive; rise
d) negative; rise
10.
If the rate of growth in real income in India is less than the rate of growth in real income in China we would
expect in the very long run
a) a real appreciation of the Indian Rupee against the Chinese Yuan.
b) a nominal appreciation of the Rupee against the Yuan.
c) a nominal appreciation of the Yuan against the Rupee.
d) a real appreciation of the Yuan against the Rupee.
11.
Suppose the currency to demand deposit ratio equals 0.10, the required reserve ratio for demand deposits is
0.08, and banker’s desired excess reserve to demand deposit ratio equals 0.04. An open market purchase of
securities by the FED of 200 million dollars will, ceteris paribus, cause a change in the M1 money supply equal to
_____ million dollars.
a) 200
b) 400
c) 600
d) 1,000
e) 2,000
12.
A flat, or horizontal, yield curve is explained under the Preferred Habitat or Liquidity Premium Hypothesis as
a) evidence that traders in U.S. Treasury Bills, Notes and Bonds are risk neutral.
b) evidence that traders in U.S. Treasury Bills, Notes and Bonds expect interest rates to fall in the future.
c) evidence that the supplies of U.S. Treasury debt obligations of different terms to maturity are equal.
d) evidence that there are no gains to diversification of portfolios of U.S. Treasury Bills, Notes and Bonds.
e) evidence that monetary policy is not expected to change in the future.
13.
Federal Deposit Insurance serves to reduce the severity of the _______ problem confronting depositors, but it
may magnify the _________ problem of bankers assuming greater risks in lending.
a) Principle Agent; Adverse Selection
c) Moral Hazard; Principle Agent
b) Adverse Selection; Moral Hazard
d) Moral Hazard; Adverse Selection
14.
Consider three interest rates relevant when we consider coupon bonds: the interest yield to maturity (iYTM), the
current yield (iCurrent) and the coupon rate (iCoupon). For a coupon bond that sells at a price above PAR, we will
have
a) iCoupon < iCurrent < iYTM
d) iYTM < iCurrent < iCoupon
b) iCoupon < iYTM < iCurrent
e) iCurrent < iCoupon < iYTM
c) iYTM < iCoupon < iCurrent
15.
Suppose the current long run equilibrium real rate of interest is 1.25 percent, the desired or target rate of
inflation is 2.0 percent, the current rate of inflation equals 2.4 percent, the current level of real GDP is 1,025
million and the level of potential or full employment real income is 1,000 million. If the central bank is following
the Taylor Rule, its overnight federal funds rate target will equal ____________ percent.
a) 2.58
b) 3.85
c) 4.16
d) 4.74
e) 5.08
BLUE Final Exam
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Econ 380 – Fall 2021
16.
If Uncovered Interest Rate Parity holds between Great Britain and Japan, and interest yields to 3 month bonds in
Great Britain are greater than interest yields offered on 3 month bonds in Japan, we can conclude (assuming no
currency premium):
a) the Pound Sterling is expected to appreciate in value against the Japanese Yen.
b) the Pound Sterling is expected to depreciate in value against the Japanese Yen.
c) the rate of inflation in Japan exceeds the rate of inflation in Great Britain.
d) the rate of inflation in Great Britain exceeds the rate of inflation in Japan.
17.
If indeed financial markets are efficient perhaps the best investment advice you could offer a friend is to:
a) hold a fraction of her wealth in U.S. government Treasury Bills, with her remaining wealth invested in one or
more mutual funds.
b) buy stocks whose prices have been falling over the past several years and sell stocks whose prices have
rising.
c) contact a full service broker, who can find for her high yield, low risk investment options in exchange for a
nominal brokerage fee.
d) execute her own trades, avoiding brokerage fees, and only buy stocks in companies who have been
successful in the past.
18.
Sometimes one observes that the price of a company’s stock falls after the announcement of favorable earnings.
This phenomenon is
a) inconsistent with the theory of efficient capital markets since disappointing earnings should cause
a firm’s stock price to fall.
b) consistent with the theory of efficient capital markets if the announced earnings were lower than had been
anticipated.
c) inconsistent with the theory of efficient capital markets, implying that technical analysis may provide better
forecasts of stock price movements.
d) consistent with the random walk hypothesis, which argues that stock prices are unpredictable, are not
related to company earnings or performance.
19.
As the economy moves from recessions to booms to recessions over the business cycle, empirical evidence
suggests that the supply of and demand for bonds
a) move in opposite directions, with shifts in supply being greater than shifts in demand.
b) move in opposite directions, with shifts in supply being smaller than shifts in demand.
c) move in the same directions, with shifts in supply being smaller than shifts in demand.
d) move in the same direction, with shifts in supply being greater than shifts in demand.
20.
If you sell futures contracts you are assuming a __________ position in the futures market. If the price of the
underlying asset rises your margin account with the exchange will be ________.
a) short; credited
b) short; debited
c) long; debited
d) long; credited
21.
The monetary base will increase following
a) a rise in the level of reserves in the banking system.
b) an open market purchase by the FED.
c) an increase in currency held by the public.
d) All of the above are correct.
BLUE Final Exam
Page 4 of 9
Econ 380 – Fall 2021
22.
The neoclassical short run impact of an increase in the interest rate paid by the FED on bank reserves with
flexible exchange rates is best illustrated in the AS-AD model as:
a)
c)
P
AS’
P
AS
P1
P1
P0
P0
AS
AD’
AD
Y0 Y1
AD
Y1 Y0
Y
b)
Y
d)
P
P
AS
AS
AS’
P0
P0
P1
P1
AD
Y0 Y1
AD’ AD
Y1 Y0
Y
Y
23.
In the neoclassical short run with flexible exchange rates, following an increase in the interest rate paid by the
FED on bank reserves, firm investment will ________ and net exports will ________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
24.
In the neoclassical short run with flexible exchange rates, following an increase in the interest rate paid by the
FED on bank reserves, household consumption will ________ and the average propensity to consume will
________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
25.
In the neoclassical short run with flexible exchange rates, following an increase in the interest rate paid by the
FED on bank reserves, nominal wages will ________ and real wages will ________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) None of the above are correct.
c) increase; decrease
BLUE Final Exam
Page 5 of 9
Econ 380 – Fall 2021
26.
Ajax, Inc. pays out $3.00 per share in dividends. Its annual dividends are expected to grow at a rate of six (6)
percent per year into an indefinite future. If the price of a share of Ajax, Inc. is $120 we can determine that
required return on equity for this firm’s stock equals _______ percent.
a) 5.85
b) 7.25
c) 7.95
d) 8.65
e) None of the above.
27.
The Keynesian very short run impact of a decrease in the expected profitability of capital with flexible exchange
rates is best illustrated in the AS-AD model as:
a)
c)
P
P
P0
AS
P1
AS’
AS
P0
AD’
AD
Y0 Y1
AD
Y0
Y
b)
Y1
Y
d)
P
P
AS
P0
P1
AS’
P0
AS
AD’ AD
Y1
Y0
AD
Y1
Y
Y0
Y
28.
In the Keynesian very short run with flexible exchange rates, following a decrease in the expected profitability of
capital, consumption will ________ and the average propensity to consume will ________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
29.
In the Keynesian very short run with flexible exchange rates, following a decrease in the expected profitability of
capital, the relative price of domestic goods in terms of foreign goods will ________ and net exports will
________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
BLUE Final Exam
Page 6 of 9
Econ 380 – Fall 2021
30.
In the labor market, the Keynesian very short run impact of a decrease in the expected profitability of capital
with flexible exchange rates is illustrated as: ( = Real Wage)
a)
c)


S’
S
S
1
0
0
MPN
D
N0
b)
MPN
D’
N
N1
N1
d)

N
N0

S
S
S’
0
0
1
MPN
MPN
D’
N1
D
N0
N
N0 N1
N
31. In the LONG run, with flexible exchange rates, a decrease in the expected profitability of capital will cause the
current account (trade) surplus to _______ and the capital (financial) account surplus to ________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain the same; remain the same
c) increase; decrease
32. Ceteris paribus, following a decrease in expected profitability of capital with flexible exchange rates, the FED should
______ its overnight federal funds rate target to avoid spiraling ______ in the long run.
a) lower; inflation
b) lower; deflation
c) raise; deflation
d) raise; inflation
e) None of the above are correct.
BLUE Final Exam
Page 7 of 9
Econ 380 – Fall 2021
33.
Ceteris paribus, as the equity or bank capital to asset ratio rises, return on equity for shareholders ______ and
insolvency risk associated with interest rate changes ______.
a) falls; falls
b) falls; rises
c) rises; falls
d) rises; rises
34.
Ellen, having lunch with her friend Kim, remarks: “Do you remember that coupon bond I bought one year ago,
the one that offered a current yield of 3.0 percent? Well, I just collected my first coupon and sold the bond for
974.40 dollars. My rate of return was 4.5 percent.” Kim does a few calculations in her head and replies: “You
must have paid ___________ dollars for that bond.”
a) 934.50
b) 948.25
c) 960.00
d) 982.75
e) None of the above are correct.
35.
With fixed exchange rates, the neoclassical short run impact of a devaluation of the domestic currency is best
illustrated in the AS-AD model as:
a)
c)
P
AS’
P
AS
P1
P1
P0
P0
AS
AD’
AD
Y0 Y1
AD
Y1 Y0
Y
b)
Y
d)
P
P
AS
AS
AS’
P0
P0
P1
P1
AD
Y0 Y1
BLUE Final Exam
AD’ AD
Y1 Y0
Y
Page 8 of 9
Y
Econ 380 – Fall 2021
36.
To support a devaluation of the domestic currency, the central bank must _________ foreign exchange and or
securities, which will ________ reserves in the domestic banking system.
a) sell; decrease
b) sell; increase
c) buy; increase
d) buy; decrease
37.
This devaluation of the domestic currency will cause firm investment to ________ and net exports to ________
in the neoclassical short run.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
38.
Following a devaluation of the domestic currency household consumption will ________ and the average
propensity to consume will ________ in the neoclassical short run.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
39.
Following a devaluation of the domestic currency, net tax revenue will ________ and the government budget
deficit will ________ in the neoclassical short run.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
40.
In the long run, following a devaluation of the domestic currency, net exports will _________ and investment
will __________.
a) decrease; decrease
d) increase; increase
b) decrease; increase
e) remain unchanged; remain unchanged
c) increase; decrease
41.
Suppose that your marginal federal income tax rate is 30%, the sum of your marginal state and local tax rates is
5%, and the yield on a thirty-year corporate bond is 8%. You would be indifferent between buying this corporate
bond and buying a thirty-year municipal bond issued within your state (assuming no differences in liquidity, risk,
and costs of information) if the municipal bond offers a yield of ___________ percent.
a) 5.2
b) 5.6
c) 6.4
d) 7.2
e) 8%
42.
If the rate of inflation in India is less than the rate of inflation in China, purchasing power parity predicts
a) a real appreciation of the Indian Rupee against the Chinese Yuan.
b) a nominal appreciation of the Rupee against the Yuan.
c) a nominal appreciation of the Yuan against the Rupee.
d) a real appreciation of the Yuan against the Rupee.
BLUE Final Exam
Page 9 of 9
Econ 380 – Fall 2021