MBA Midterm Fall 2009
1. A bank that specializes in granting loans to firms in a specific line of business:
A. May decrease its operating cost and decrease its credit risk
B. May increase both its operating cost and its credit risk
C. May increase its operating cost and decrease its credit risk
D. May decrease its operating costs and increase its credit risk
2. A bank's off-balance-sheet activities usually:
A. Increase both its assets and liabilities while reducing net income
B. Increase its net income but do not change its assets or liabilities
C. Increases a bank's liabilities but not its assets
D. Increases a bank's assets but not its liabilities
3. A bank's reserves include:
A. U. S. Treasury bills
B. Currency in the bank but not currency in the ATM machines
C. The bank's deposits at the Federal Reserve
D. U. S. Treasury bills and currency in the bank
4. If the Federal Reserve in the United States begins to purchase foreign currency and pay for these purchases with dollars, this should
cause:
A. The dollar to appreciate
B. The dollar to depreciate
C. Import prices to decrease
D. Exports to decrease
5. A country that exports more than it imports will:
A. Have a current account deficit and a capital account deficit
B. Have a current account surplus and a capital account surplus
C. Have a current account deficit and a capital account surplus
D. Have a current account surplus and a capital account deficit
6. If inflation in the United States averages more than inflation in Europe over a long period of time, we should expect:
A. The dollar to appreciate relative to the euro
B. The euro dollar exchange rate to stay relatively fixed
C. The dollar to depreciate relative to the euro
D. No effect; there isn't a link between inflation and exchange rates over the long run
7. If the euro/$ U.S. exchange rate is 1.1€/$ in New York but 1.05€/$ in London, we should see:
A. People selling $'s and buying euros in New York and then selling those euros and buying $'s in London
B. People selling euros and buying $'s in New York and then buying euros by selling $'s in London
C. The price differential between the markets increase as people seek to take advantage of the situation
D. The $ should appreciate in New York relative to the euro
8. If in late 2003 one U.S. dollar exchanged for 118 euros and in mid-2004 one U.S. dollar exchanged for 127 euros, then:
A. The euro appreciated relative to the dollar
B. The dollar appreciated relative to the euro
C. European goods became more expensive to Americans
D. American goods became more expensive to Americans
9. Interest-rate risk would not matter to which of the following bondholders?
A. A holder of a U.S. government bond
B. A holder of a U.S. government bond indexed for inflation
C. A holder of a U.S. government bond who plans on selling it in one year
D. A holder of a U.S. government bond that plans on holding it until it matures
10. Suppose that the return on assets other than bonds falls. In the bond market this will result in:
A. A movement down the bond demand curve
B. A shift to the left of the bond demand curve
C. An increase in the price of bonds
D. A shift to the left of the bond supply curve
11. If interest rates are expected to fall, bond prices will:
A. Fall as the demand for bonds decreases
B. Remain constant until interest rates actually change
C. Fall as people fear capital losses in the future
D. Increase due to the demand for bonds increasing
12. When expected inflation increases, for any given nominal interest rate:
A. The cost of borrowing increases and the desire to borrow decreases
B. The real interest rate increases
C. The bond supply curve shifts to the left
D. The cost of borrowing decreases and the desire to borrow increases
13. The bond demand curve slopes downward because:
A. At lower prices the reward for holding the bond increases
B. As bond prices fall so do yields
C. As bond prices fall bonds are less attractive
D. As bond prices rise yields increase
14. A 30-year Treasury bond as a face value of $1,000, price of $1,200 with a $50 coupon payment. Assume the price of this bond
decreases to $1,100 over the next year. The one-year holding period return is equal to:
A. -9.17%
B. -8.33%
C. -4.17%
D. -3.79%
15. Which of the following statements is incorrect?
A. If you can buy the same goods this year as you bought last year with less money there must have been deflation
B. If you can buy the same goods this year as you purchased one year ago with the same amount of money, prices are stable
C. If purchasing the same goods today that were purchased one year ago requires more money, there must have been inflation
D. If you can buy the same goods this year as you bought last year with the same money there must have been deflation
16. Which of the following statements is most correct?
A. Money is wealth but not all wealth is money
B. Money is a means of payment but is not part of wealth
C. In order to be considered part of a person's wealth, an asset must have a positive return
D. Wealth is a store of value but is not a means of payment
17. For every $100 in assets, a bank has $40 in interest-rate sensitive assets, and the other $60 in non-interest-rate sensitive assets. The
same bank has $50 for every $100 in liabilities in interest-rate sensitive liabilities, the other $50 are in liabilities that are not interest-rate
sensitive. If the interest rate on assets increases from 5 to 6 percent, and the interest rate on liabilities increases from 3 to 4, percent the
impact on the bank's profits per $100 of assets will be:
A. An increase of $0.10
B. A decrease of $0.10
C. A reduction of $1.00
D. Zero since the interest rates on assets and liabilities increased by the same amount
18. The problem for a central bank setting a zero inflation policy would be:
A. The risk of high employment
B. It is impossible to have zero inflation
C. Firms would have to cut nominal wages to reduce labor cost
D. Economic growth would also have to be zero
19. The consequences of an economy operating below its potential level include:
A. Higher unemployment, but there is no effect on the future standard of living
B. High rates of inflation
C. A lower standard of living in the future, but no effect on unemployment
D. Higher unemployment and a lower standard of living in the future
20. For fiscal policymakers, one of the results of an independent central bank is:
A. To finance government spending the Treasury has to order more currency from the central bank
B. Fiscal policymakers always have to borrow to increase spending
C. Fiscal policymakers cannot borrow unless the Federal Reserve prints more money
D. Increased government spending has to be financed with either higher taxes or increased government borrowing