1.
Financial markets promote economic efficiency by
A. channeling funds from investors to savers.
B. creating inflation.
C. channeling funds from savers to investors.
D. reducing investment.
2. An increase in interest rates might ________ saving because more can be earned in interest
income.
A. encourage
B. discourage
C. disallow
D. invalidate
3. Everything else held constant, a decline in interest rates will cause demanding on housing (home
loan) to
A. fall.
B. remain unchanged.
C. either rise, fall, or remain the same.
D. rise
4. When stock prices fall,
A. an individual's wealth is not affected
B. a business firm will be more likely to sell stock to finance investment spending.
C. an individual's wealth may increase
D. an individual's wealth may decrease.
5. Countries that experience very high rates of inflation may also have
A. balanced budgets.
B. rapidly growing money supplies.
C. falling money supplies.
D. constant money supplies.
6. Which of the following is not a financial institution?
A. a life insurance company
B. a pension fund
C. a credit union
D. a corporation
7. A sharp decrease in the growth of the money supply is likely followed by
A. a recession.
B. a depression.
C. an increase in the inflation rate.
D. no change in the economy.
8. The management of money and interest rates is called ________ policy and is conducted by a
nation's ________ bank.
A. monetary; superior
B. fiscal; superior
C. fiscal; central
D. monetary; central
9. ________ is used to make purchases while ________ is the total collection of pieces of property
that serve to store value.
A. Money; income
B. Wealth; income
C. Income; money
D. Money; wealth
10. Currency includes
A. paper money and coins.
B. paper money, coins, and checks.
C. paper money and checks.
D. paper money, coins, checks, and savings deposits
11. The total collection of pieces of property that serve to store value is a personʹs
A. wealth.
B. income.
C. money.
D. credit.
12. ________ are the time and resources spent trying to exchange goods and services.
A. Bargaining costs.
B. Transaction costs.
C. Contracting costs.
D. Barter costs.
13. Monetary aggregates are
A. measures of the money supply reported by the central bank.
B. measures of the wealth of individuals.
C. never redefined since ʺmoneyʺ never changes.
D. reported by the Treasury Department annually
14. Fiat money:
A. is earned only by Italian autoworkers.
B. has an intrinsic value as a commodity equal to its value as currency.
C. is defined to be money by government decree.
D. is always convertible into commodity money through the central bank of an economy.
15. Of moneyʹs three functions, the one that distinguishes money from other assets is its function as
a
A. store of value.
B. unit of account.
C. standard of deferred payment.
D. medium of exchange
16. Which of the following is the most liquid asset?
A. a home with a swimming pool
B. a valuable art collection
C. an extensive collection of Barbie dolls
D. savings account balances
17. Which of the following is not included in M1?
A. coins
B. travelers' checks
C. savings deposits
D. currency
18. Well-functioning financial markets
A. cause inflation.
B. eliminate the need for indirect finance.
C. cause financial crises.
D. produce an efficient allocation of capital.
19. Which of the following can be described as direct finance?
A. You take out a mortgage from Vietcombank.
B. You borrow money from a friend.
C. You buy shares of common stock in the secondary market.
D. You buy shares in a mutual fund.
20. The Ho Chi Minh Exchange is an example of:
A. A financial instrument
B. A financial market
C. A financial institituion
D. All of them
21. If the maturity of a debt instrument is less than one year, the debt is called ________.
A. short-term
B. intermediate-term
C. long-term
D. prima- term
22. Which of the following statements about the characteristics of debt and equity is false?
A. They can both be long- term financial instruments.
B. They can both be short-term financial instruments.
C. They both involve a claim on the issuer's income.
D. They both enable a corporation to raise funds.
23. When an investment bank ________ securities, it guarantees a price for a corporation's
securities and then sells them to the public.
A. underwrites
B. undertakes
C. overwrites
D. overtakes
24. The principal lender-savers are:
A. governments
B. corporations
C. households
D. foreigners.
25. A short-term debt instrument issued by well- known corporations is called
A. commercial paper.
B. corporate bonds.
C. municipal bonds.
D. commercial mortgages
26. Which of the following is a depository institution?
A. A life insurance company
B. A commercial bank
C) A pension fund
D) A mutual fund
27. Which of the following is not a secondary market?
A. Foreign exchange market
B. Futures market
C. Exchange
D. IPO
28. A credit market instrument that requires the borrower to make the same payment every period
until the maturity date is known as a
A. simple loan.
B. fixed-payment loan.
C. coupon bond.
D. discount bond.
29. The dollar amount of the yearly coupon payment expressed as a percentage of the face value of
the bond is called the bondʹs
A. coupon rate.
B. maturity rate.
C. face value rate.
D. payment rate.
30. If a $5,000 coupon bond has a coupon rate of 10 percent, then the coupon payment every year is
A. $650.
B. $500.
C. $5030.
D. $1300.
31. An $8,000 coupon bond with a $800 coupon payment every year has a coupon rate of
A. 5 percent.
B. 8 percent.
C. 10 percent.
D. 40 percent
32. If the amount payable in two years is $2662 for a simple loan at 10 percent interest, the loan
amount is
A. $1000.
B. $1210.
C. $2000.
D. $2200.
33. A consol paying $10 annually when the interest rate is 5 percent has a price of
A. $100.
B. $200.
C. $400.
D. $800
34. The yield to maturity is ________ than the ________ rate when the bond price is ________ its
face value.
A. greater; coupon; above
B. greater; coupon; below
C. greater; perpetuity; above
D. less; perpetuity; below
35. The price paid for the rental of borrowed funds is commonly referred to as the
A. inflation rate.
B. exchange rate.
C. interest rate.
D. aggregate price level.
