1-The functions of money can be generally classified into three categories:
a- Medium of exchange
b- Store of value
c- Unit of account
d-All the above.
2-Money As a unit of account: a
a- “Money” becomes the yardstick for measuring the values and prices of goods and
services.
b- Allows individuals to separate their sales of goods and services from the purchases of
goods and services because money allows them to store their value or purchasing power.
c- It facilitates the exchange of goods and services between individuals.
3-Money as a Store of value:
a- It allows individuals to separate their sales of goods and services from the purchases of
goods and services because money allows them to store their value or purchasing power.
b-It facilitates the exchange of goods and services between individuals.
c-“Money” becomes the yardstick for measuring the values and prices of goods and
services.
4-Money can be used to store two types of purchasing power: a
a- Temporary and permanent purchasing power.
b- Variable and fixed purchasing power.
c- All the above.
5-Temporary purchasing power represents : a
a- Transaction that we intend to conduct in the very near future.
b- Transaction that we intend to conduct in the very beyond future.
c- Transaction that we intend to conduct in the very near and beyond future.
6-Permanent purchasing power represents : a
a- The store of value for the very distant future.
b- The store of value for ever.
c- All the above.
7-Money As a medium of exchange,b
a-It barriers the exchange of goods and services between individuals.
b-Allows individuals to separate their sales of goods and services from the purchases of
goods and services because money allows them to store their value or purchasing power.
c-All the above.
8-It is important to know that : d
a- Cash is not the only asset available for storing value on a permanent basis.
b- There are other assets that also serve the function of store of value.
c- Some examples are stocks, bonds, real estate, collectibles, etc.
d- All right above.
9-M1 is: a
a- The narrowest measure of money.
b- A broader measure of money than M2.
c- A broader measure of money than M1,M2.
10- M2 is: a
a- A broader measure of money than M1.
b- The narrowest measure of money.
c- The broadest measure for money and it includes some of the “longer-term” money
market instruments.
11- M3 is: c
a- A broader measure of money than M1.
b- The narrowest measure of money.
c- The broadest measure for money and it includes some of the “longer-term” money
market instruments.
12- L is: a
a-The components of L (other than M3): are highly liquid assets (i.e. short-term money
market instruments).
b- The broadest measure for money and it includes some of the “longer-term” money
market instruments.
c-The narrowest measure of money.
13-when the quantity of money (or cash) increases in the economy: a
a-Interest rate falls.
b-Interest rate rises.
c-Interest rate falls or rises.
14- when The quantity of money increases in the economy, c
a- the “price” of money will drop (according to the demand and supply theory)
b- Interest rate will fall.(true, falls).
c- All the above.
15-when the quantity of money increases in the economy, If the economy is not
producing at its full capacity: d
a- The price level will fall.
b- The price level remains the same.
c- All the above.
16- The quantity of money increases in the economy ,If the economy is producing at
its full capacity : a
a- an increase in the demand for goods and services will simply lead to an increase
in price level (i.e. inflation).
b- the price level will fall.
c- the price level remains the same.
d- All the above.
17-Money (or currency) has taken on many different forms , c
a- It has been represented by a number of different commodities and species over
time.
b- today is represented by pieces of paper .(true or falls).
c- All the above.
18-Commodity money such as tobacco, wheat, wampum, rice, etc. d
a- have been used as monetary substitutes in the early periods history,
b- They lack the characteristics for a good medium of exchange: portability,
divisibility, durability, scarcity, etc.
c- Precious metals such as gold and silver were adopted as the choice currency.
d- All above.
19-Specie coins: c
a- As the demand for gold and silver as a medium of exchange increased,
b- they are divided into easily recognizable pieces known as coins.
c- All the above.
20-The government recognizable Specie coins for the following reasons: d
(a) Government-issued coins are more uniform and more reliable.
(b) Government can earn revenue from seigniorage by short weighting or debasing the
coins.
(c) Government-issued coins are more uniform and more reliable and can earn revenue
from seigniorage.
(d) all the above.
21- Specie currency such gold and silver coins: c
(a ) have a weight problem,.
(b ) it gets too heavy to carry around bags of coins.
( c) have a weight problem and it gets too heavy to carry around bags of coins.
22 - Paper currencies, issued by merchants and banks: a
a- Can be redeemed for the equivalent gold and silver coins on demand.
b- The paper currency wasn’t backed by the appropriate commodity currency.
c- Government paper currency issues by commercial banks and was originally
representative currency.
d- All the above.
23-Interest rate plays a very important role in the economy because it determines
the spending and savings behaviors of individuals and companies. c
a- If interest rate rises, the “cost” of spending increases and hence individuals and
companies save more.
b- If interest rate falls, the “cost” of spending decreases and hence individuals and
companies spend more.
c- All the above.
24- Interest rate plays a very important role in the economy because c
a- It determines the spending and savings behaviors of individuals and companies.
b- It determines the demand and supply of money quantity.
c-All the above.
25- The amount of interest paid/received depends on: d
a-The amount loaned or borrowed (i.e. the principal).
b-The length of time the amount is loaned or borrowed (i.e. the term of the credit).
c-The stated (or nominal) interest rate.
d- All the above.
26-
Bid price: the price that a broker (or dealer) is willing to
a- buy
27-
b-sell
c- buy and sell
d- none of above.
Ask price: the price that a broker (or dealer) is willing to :
a- buy
b-sell
c- buy and sell
d- none of above.
28- Treasury bills (T-bills) is:
a- the shortest security offered by the federal government
b- has a life of 91 days (13 weeks or 3 months), 182 days (26 weeks or 6 months),
and 52 weeks (1 year)
c- Has a face value of $10,000.
d-All the above.
e- None the above.
29- T-bill does not pay interest payment.
a-The “interest payment” receives by an investor comes in the form of the interest rate.
b-The “interest payment” receives by an investor comes in the form of the discount rate.
c-The “interest payment” receives by an investor comes in the form of the discount
receives.
30- The price of a T-bill is computed using:
a-200-days calendar year rather than a 100-days calendar year, which is common in
computing the yield of most financial instruments.
b- 360-days calendar year rather than a 365-days calendar year, which is common in
computing the yield of most financial instruments.
c- 91-days calendar year rather than a 256-days calendar year, which is common in
computing the yield of most financial instruments.
31- All commercial banks and depository institutions are :
a-Required by law to hold reserves for the deposits at its branches with state
Governments.
b-Required by law to hold reserves for the deposits at its branches with its district
Federal Reserve Bank.
c-Required by law to hold reserves for the deposits at its branches with another
commercial banks.
32 - If a bank is temporarily short of its required reserve:
a- It can borrow from other banks that have shortage reserves.
b- It can borrow from other banks that have not reserves.
C-It can borrow from other banks that have excess reserves.
d-None the above.
33- The banks can trade reserves among themselves. The amount of money traded
for this purpose is known as
a- Federal funds.
b- State funds.
c- Federal and state funds
d- non the above
34- Commercial paper one of the short-term financing sources for:
a- A firm to meet its fixed obligations.
b- They are short-term (usually more than 365 days) and secured (i.e. backed by any
asset) promissory notes with a fixed maturity.
C-Commercial papers usually have a very large face value.
d-All the above.
35- Negotiable certificates of deposits (CD):
a- Issued by banks and S&Ls.
b- They have a very large denomination (or face value).
c- Unlike most other money market instruments, such CDs do pay interest to
their holders on the maturity date.
d-they are negotiable, and can be sold to another person.
e-All the above.
36- Eurodollar deposits are US dollar-denominated deposits kept at
banks:
a- outside the United States.
b- These are large time deposits with a maturity of less than 6 months.
c- Most of these deposits are concentrated in London
d- All the above.
e- Non the above.
37- Banker’s acceptance is simply a promissory note issued by a credit worthy bank
guaranteeing:
a- The exporter will make the payment once the shipment has been received.
b- Are usually traded at discount once it is issued.
c- The last holder of the banker’s acceptance will receive the face value from the
exporter’s bank.
d- All the above.
e- None of the above.
38- Repurchasing agreements (Repos):
a- is simply the sale of securities (usually treasury securities) with the promise of
buying them back at a higher price at a later date.
b- They are usually issued by corporations, state and local governments, and some
other big non-bank institutions.
c- All the above.
d- None the above.
39- Broker’s calls:
a- can borrow part of the money from your broker.
b-the broker can borrow the money from a bank.
C-Margin account.
D-All the above.
e- None the above.
40- Money market instruments are :
A- very homogenous financial securities.
b- The rates (or yields) for each type of money market instruments are pretty
standardized regardless of the issuers.
c- The rates (or yields) for each type of money market instruments are pretty
standardized regardless of the issuers, very homogenous financial securities.
41-There are three different types of municipal bonds (one right only):
a. Revenue bonds: These are bonds issued to finance a particular project, Revenues
generated by the project will be used to pay the interest payments and don’t repay the
principal.
b. General Obligation bonds (GOs): These are bonds that are backed simply by the full
faith and credit of the governmental units that they will make the interest payments
and don’t repay the principal.
c. Industrial Development bonds (IDBs): These are bonds used to finance the purchase or
construction of industrial facilities that will be leased to firms at favorable rates.
42-There is an inverse relationship between the market interest rate and the price of a
bond, i.e. a-if the market interest rate goes up, then the price of the bond will go down.
b-if the market interest rate goes up, then the price of the bond will go (up).
c- if the market interest rate goes (down), then the price of the bond will go down.
43- The price of the bond is affected by :
a-the relationship between its coupon rate and the market interest rate.
b- the relationship between its coupon rate and the stock market rate.
c-All the above.
44-which right from the following:
A-Coupon rate > market rate  market price > par  sold at premium
B-Coupon rate = market rate  market price = par  sold at par
C-Coupon rate < market rate  market price < par  sold at discount
D- all the above.
45- Which right from the following:
a-The lower the coupon rate of a bond (with the same term to maturity), the more
sensitive it is to interest changes.
b- Longer-term bonds are more sensitive to interest rate changes than shorter-term bonds
(with the same coupon rate).
C- Longer-term bonds are considered to be riskier than shorter-term bonds.
D-all the above.
46- There are two major variables (or factors) that strongly influence the asset demand or
portfolio choice of an individual or a firm is the rate of return and the risk level of the
asset.
a- The rate of return of an asset represents the positive aspect of the asset. Individuals
and firms seek assets that provide the highest rates of return.
b-The risk level (i.e. the uncertainty of the return) of an asset represents the negative
aspect of the asset. Individuals and firms seek assets that provide the higher levels of
risk.
c- The risk level (i.e. the uncertainty of the return) of an asset represents the positive
aspect of the asset. Individuals and firms seek assets that provide the higher levels of
risk.
47- Unfortunately, there is a tradeoff between risk and return.
A-When an asset provides a high level of return, it usually also has a high level of risk.
b-when an asset provides a low level of risk, it usually also has a low level of return.
C-all the above.
d-none of the above.
48- The risk level of an asset can be categorized into two groups:
a- Diversifiable and non-diversifiable risks.
b- Diversifiable implies that an individual (or a firm) allocates his/her wealth among
several types of assets rather than just one asset.
c- Diversification means spreading the risk of a portfolio by investing in several
different types of assets rather than putting all the money in one asset.
d- All the above.
e- None of the above.
49- Diversifiable risk (or non-systematic risk):
a- Is the part of an asset’s risk that can be eliminated through diversification. This
type of risk is usually event specific.
b- Is the part of an asset’s risk that can’t be eliminated through diversification. This
type of risk is usually event specific.
c- All the above.
50- Non-diversifiable risk (or systematic risk):
a- is the part of an asset’s risk that cannot be eliminated through diversification. This type
of risk is also known as the market risk.
b-Is the part of an asset’s risk that can be eliminated through diversification. This type of
risk is also known as the market risk.
c-all the above.
51- As a result, the non-diversifiable risk of an asset is more important than its
diversifiable risk. A- When an individual holds a well-diversified portfolio, the only
remaining risk is the non-diversifiable risk.
b- the individual will be compensated, in the form of the rate of return, for the portfolio’s
non-diversifiable risk (but not the diversifiable risk).
c-all the above.
52- There are a few relations between the non-diversifiable risk of an asset and its rate of
return:
a-The higher the non-diversifiable risk the higher the rate of return needed to compensate
an individual.
b- For a given rate of return, the higher the non-diversifiable risk the lower the demand
for an asset.
c- For a given level of non-diversifiable risk, the higher the rate of return, the higher the
demand for an asset.
d-all the above.
53- Factors affecting asset demand:
a- Wealth, Expected returns, Risk, Liquidity.
b- Income, Expected returns, Risk, Liquidity.
c- Real income, Expected returns, Risk, Liquidity.
54- Wealth represents:
a- The total accumulation of an individual’s permanent purchasing power stored in
various types of assets.
b- It represents the resources available to the individual.
c- All the above.
d- None of the above.
55- There are 3 general types of assets: inferior, necessity and luxury.
a- An inferior asset is an asset whose demand decreases as an individual’s wealth
increases.
b- A necessity asset is an asset whose demand increases as an individual’s wealth
increases.
c- A necessity asset will have a wealth elasticity of less than 1, while a luxury asset will
have a wealth elasticity of more than 1.
d-all the above.
56-Which right from the following:
a- the increase in the asset’s demand is at a lower rate than the increase in the individual’s
wealth.
b- A necessity asset will have a wealth elasticity of less than 1, while a luxury asset will
have a wealth elasticity of more than 1.
c-all the above.
57-Which right from the following:
a- the increase in the asset’s demand is at a lower rate than the increase in the individual’s
wealth.
b-A necessity asset will have a wealth elasticity of less than 1, while a luxury asset will
have a wealth elasticity of more than 1.
c- the expected return of an asset is simply the weighted average of all the possible
returns.
d-all the above.
58- Which right from the following:
a- Given everything else remains the same, as the expected return of an asset increases,
the demand of that asset also decreases.
b- Given everything else remains the same, as the expected return of an asset decreases,
the demand of that asset also increases.
c- Given everything else remains the same, as the expected return of an asset increases,
the demand of that asset also increases.
59- Which right from the following:
a-Since a particular asset is always competing with other assets as store of values, the
changes in the expected returns of competing assets will also affect the demand of the
asset.
b-Given everything else remains the same, as the expected returns of competing assets
decrease, the demand of the asset increases.
c-all the above.
60- Which right from the following:
a- relative expected return of an asset (in relation to its competition) rather than its
absolute expected return.
b- Given everything else remains the same, as the relative expected return of an asset
increases, the demand of that asset also increases.
c- All the above.
61- Most investors are risk averse, i.e. having a low tolerance for risk. As a result:
a- given everything else remains the same.
b- an asset with lower level of risk is more attractive than an asset with higher level
of risk.
c- All the above .
d- Not interested.
62Which right from the following:
a- Given everything else remains the same, as the relative risk level of the asset
decreases, the demand for the asset increases.
b-Given everything else remains the same, as the relative risk level of the asset
increases, the demand for the asset increases.
c-Given everything else remains the same, as the relative risk level of the asset
decreases, the demand for the asset decreases.
63- Which right from the following:
a-The liquidity of an asset represents how fast it can be converted into cash without
having a major impact on its price.
b- In the U.S., Treasury bill is one of the most liquid assets, while an office building is
one of the least liquid assets.
c-Given everything else remains the same, as the relative liquidity of an asset increases,
the demand for the asset increases.
e- All the above.
f- None the above.
64. A rise (fall) in interest rates is always associated with a fall (rise) in existing bond
prices, resulting in
a- capital losses (gains) for existing bonds.
b-capital losses (gains) for supplied bonds.
c-capital losses (gains) for demanded bonds.
65- The longer (shorter) the term to maturity, the greater (smaller) the price change when
a-interest rates change (in either direction)
b- Longer (shorter) term bonds are more
c-(less) price sensitive to interest rate changes.
d-all the above.
66-The initial yield and the rate of return:
a- could be the SAME for a bond held until maturity.
a- could be different for a bond held until maturity.
a- none the above.
67- A bond's coupon rate (and current yield) are always:
a- positive, but its actualized return can be negative due to capital losses.
b- Negative, but its actualized return can be negative due to capital losses.
c-none of the above.
68-INTEREST RATE RISK :
a- The uncertainty about future interest rates and the effect it will have.
b- The certainty about future interest rates and the effect it will have.
c- None of the above.
67-Two types of interest rate risk for bonds:
a- Price risk or capital risk. and Reinvestment risk or Income risk.
b- Fixed risk or capital risk. and variable risk or Income risk.
c- Constant risk or capital risk .and valuation risk or Income risk.
68- Price risk or capital risk.
abcde-
The uncertainty about future value of the bond, due to interest rate changes.
b- Interest rates RISING and bond prices falling.
Capital risk is most associated with LONG term bonds.
All the above.
None of above.
69- Reinvestment risk, Income risk.
a-The risk that interest rates will FALL and you will have to reinvest interest payments
(income) or proceeds from maturing bonds at LOWER interest rates.
b- Income Risk is more associated with SHORT term bonds whose proceeds will
be reinvested, or HIGH INCOME bonds, or MORTGAGES.
c- All the above.
d- None of above.
70- The theory of asset demand or portfolio choice.
a- That explains the individual’s asset allocation decision.
b- That explains the firm’s asset allocation decision.
c- That explains the individual’s or the firm’s asset allocation decision.
71- There are two major variables (or factors) that strongly influence the asset demand or
portfolio choice of an individual or a firm is:
a- The internal rate of return .
b- The rate of return and the risk level of the asset.
c- the risk level of the asset.
72- The rate of return of an asset represents:
a- the positive aspect of the asset.
b- Individuals and firms seek assets that provide the highest rates of return.
c- A,b
d- None of above.
73- The risk level ( the uncertainty of the return) of an asset represents:
a- the negative aspect of the asset.
b-
Individuals and firms seek assets that provide the lowest levels of risk.
c- A,b
d- None of above.
74- There is a tradeoff between risk and return.
a-
When an asset provides a high level of return, it usually also has a high level of risk.
b-
when an asset provides a low level of risk, it usually also has a low level of return.
c- All the above.
d- None of above.
75- It is important to understand that the risk level of an asset can be categorized into two
groups:
a-
Diversifiable and non-diversifiable risks.
b- Financial and non- financial.
c- Life and non-life insurance.
76- The act of diversification implies that :
a- An individual (or a firm) allocates his/her wealth among several types of assets
rather than just one asset.
b-
Diversification means spreading the risk of a portfolio by investing in several
different types of assets rather than putting all the money in one asset. This is
similar to the old saying: Never put all your eggs in one basket.
c-
A, b
d- None of above.
77- Diversifiable risk is the part of an asset’s risk that can be eliminated through
diversification.
a-
This type of risk is usually event specific.
b- non- systematic risk.
c- All the above.
d- None of above.
78- Non-diversifiable risk (or) :
a- is the part of an asset’s risk that cannot be eliminated through diversification.
b- This type of risk is also known as the market risk.
c- systematic risk.
d- All the above.
e- None of above.
79- There are a few relations between the non-diversifiable risk of an asset and its rate
of return:
a- The higher the non-diversifiable risk the higher the rate of return needed to
compensate an individual.
b- For a given rate of return, the higher the non-diversifiable risk the lower the
demand for an asset.
c- For a given level of non-diversifiable risk, the higher the rate of return, the
higher the demand for an asset.
d-all the above.
80- Factors affecting asset demand:
a- Wealth, Expected returns, risk, Liquidity.
b- Wealth, Expected returns, risk, Liquidity, income.
c- Wealth, Expected returns, risk, Liquidity. Expect income.
81- The liquidity of an asset represents
a- how fast it can be converted into cash without having a major impact on its
price
b- how converted into cash without having a major impact on its price
c- how fast it can be converted into another asset without having a major impact
on its price
82- Given everything else remains the same, :
a- as the relative liquidity of an asset increases, the demand for the asset
increases.
b- as the relative liquidity of an asset increases, the demand for the asset
decreases.
c- as the relative liquidity of an asset decreases, the demand for the asset
increases.
83- risk represents the negative aspect of an asset, which right from sentences:
a- Most investors are risk averse having a low tolerance for risk.
b- An asset with lower level of risk is more attractive than an asset with higher
level of risk.
c- As the relative risk level of the asset decreases, the demand for the asset
increases.
d- All the above.
e- None of above.
84- Wealth represents
a-
the total accumulation of an individual’s permanent purchasing power stored in
various types of assets.
b-
It represents the resources available to the individual.
c- All the above.
d- None of above.
85- we know that the expected return of an asset is simply
a-
The weighted average of all the possible returns.
b- The weighted average of all the possible assets.
c- The weighted average of all the possible funds.