Q&A Hero

Q: What does it mean to "cover a short"?

Q: Consider a coupon bond that pays $100 every year and repays its principal amount of $1,000 at the end of four years. If the annual rate of discount is 8 percent, the present value of the bond isa. $671.01. b. $1,066.24 c. $1,134.20. d. $1,250.00.

Q: In comparing futures contracts with options contracts, we can say that A) in a futures contract, the buyer and seller have symmetric rights, whereas in an options contract, the buyer and seller have asymmetric rights. B) in a futures contract, the buyer and seller have asymmetric rights, whereas in an options contract, the buyer and seller have symmetric rights. C) in both futures and options contracts, the buyer and seller have symmetric rights. D) in both futures and options contracts, the buyer and seller have asymmetric rights.

Q: Under the Bretton Woods System each participating country had to: A. be willing to exchange their own currency for gold.B. hold ample reserves of currency of each of the participating countries.C. stand ready to exchange its own currency for U.S. dollars at a fixed exchange rate.D. adopt capital controls.

Q: Which of the following best completes the sentence; "Under a gold standard a central bank … "? A. can have too much gold.B. can have too little gold but never have too much.C. wants to keep their gold reserves fixed.D. will have gold reserves depleted when exports exceed imports.

Q: Consider a two-year coupon bond that has a present value of $10,000. If the annual rate of discount is 3 percent, and the payment made at the end of each year is $250, the principal amount to be repaid at the end of two years isa. $10,101.50. b. $10,300.00. c. $13,333.33. d. $13,583.33.

Q: Consider a two-year coupon bond that has a present value of $10,000. If the rate of discount is 3 percent, and the payment made at the end of each year is $300, the principal amount to be repaid at the end of two years isa. $10,000.00. b. $10,300.00. c. $33,333.33. d. $333,333.33.

Q: One difference between futures and options contracts is A) funds change hands daily in the case of options but not with futures. B) funds change hands daily in the case of futures, but not with options. C) in the case of futures funds only change hands when they are exercised. D) futures are designed to reduce risk while options are not.

Q: The Breton Woods System was an agreement that: A. required each participating country to peg their currency to the U.S. dollar.B. required each participating country to abolish all trade barriers.C. required each participating country to stay on the gold standard.D. standardized tariffs across all participating countries.

Q: If the U.S. were to revert to a gold standard, trade deficits would: A. result in gold reserves in the U.S. increasing.B. result in higher domestic interest rates.C. quickly disappear.D. result in high inflation.

Q: Consider a one-year coupon bond that has a present value of $2,000. If the annual rate of discount is 5 percent, and the payment made at the end of each year is $140, the principal amount to be repaid at the end of one year isa. $1,234.65. b. $1,363.32. c. $1,960.00. d. $2,000.00.

Q: Consider a three-year coupon bond that has a present value of $2,000. If the annual rate of discount is 7 percent, and the payment made at the end of each year is $140, the principal amount to be repaid at the end of three years isa. $1,860.00. b. $2,000.00. c. $2,140.00. d. $2,156.40.

Q: An options contract A) confers the rights to buy or sell an underlying asset at a predetermined price by a predetermined time. B) is another name for a futures contract. C) may be written for debt instruments, but not equities. D) may be written for equities, but not for debt instruments.

Q: Fixed exchange rate regimes include each of the following, except: A. the Bretton Woods exchange rate system.B. exchange rate pegs.C. dollarization.D. currency boards.

Q: Consider a coupon bond that pays $150 every year and repays its principal amount of $1,500 at the end of five years.If the annual rate of discount is 7 percent, the present value of the bond is approximatelya. $214.29.b. $808.39.c. $1,684.50.d. $1,742.52.

Q: If the U.S. were to revert to a gold standard, trade deficits would: A. result in gold reserves in the U.S. decreasing.B. result in lower domestic interest rates.C. quickly disappear.D. result in high inflation.

Q: Consider a coupon bond that pays $105 every year and repays its principal amount of $1,500 at the end of 3 years. If the annual rate of discount is 7 percent, the present value of the bond is approximatelya. $735.35. b. $765.00.c. $1,395.00. d. $1,500.00.

Q: How do exchanges seek to reduce default risk in the futures market?

Q: Most economic historians believe that: A. if more countries would have been on the gold standard the Great Depression would have been averted.B. the gold standard didn't play a major role in the Great Depression.C. the gold flows played a central role in spreading the Great Depression.D. countries that held on to the gold standard recovered from the Great Depression the quickest.

Q: Most economists do not advocate a return to the gold standard because: A. it forces the central bank to fix the price of something we don't really care about while other prices can fluctuate a lot.B. past willingness to exit the Gold Standard casts doubt on the credibility of committing to it again.C. inflation will depend on the rate that gold is mined.D. all of the answers given are correct.

Q: Consider a coupon bond that pays $100 every year and repays its principal amount of $1,000 at the end of 10 years.If the annual rate of discount is 10 percent, the present value of the bond is approximately a. $909.09.b. $990.00.c. $1,000.00. d. $1,100.00.

Q: Southwest Airlines relies on jet fuel to operate its planes. If it chooses to hedge against future changes in fuel prices, what positions (long or short) will it take in the spot and futures markets?

Q: Which of the following statements about the presence of speculators in futures markets is correct? A) Their main objective is to reduce their exposure to risk. B) They aid hedgers by increasing the liquidity in futures markets. C) They make it difficult for hedgers to find someone to take the opposite side of their positions. D) Once a futures market participant is known to be a speculator he or she is no longer allowed to participate in the market.

Q: Which of the following statements best completes the following sentence; "Prior to World War I, when the U.S. was on the gold standard, inflation in the U.S.…"? A. averaged 3.5 percent per year but was highly variable.B. averaged less than one percent per year and was highly variable.C. averaged less than one percent per year and was stable.D. averaged 3.5 percent per year and was stable.

Q: The amount repaid by a coupon bond at maturity is called its_____ value.a. presentb. futurec. faced. coupon

Q: Why must the spot price equal the futures price on the settlement date?

Q: If the price of a futures contract increases, then A) the exchange will collect the amount of the increase from the seller of the contract and transfer it to the account of the buyer of the contract. B) the exchange will collect the amount of the increase from the buyer of the contract and transfer it to the account of the seller of the contract. C) the exchange will collect the amount of the increase from both the buyer and the seller and place it in escrow until the delivery date. D) the additional funds will be required from either the buyer or the seller until the delivery date.

Q: A country that suffers from bouts of high inflation and wants to fix its exchange rate should tie its currency to the currency of a: A. country with a strong reputation for low inflation.B. larger country.C. country with similar inflation performance.D. country that is still on the gold standard.

Q: Consider a five-year fixed-payment security that has a present value of $1,500. If the annual rate of discount is 2 percent, the payment made at the end of each year isa. $231.77. b. $288.24. c. $300.00. d. $310.00.

Q: Why do futures have lower information costs and higher liquidity than forward contracts?

Q: Futures trading practices in the United States are regulated by A) the Chicago Board of Trade. B) the Chicago Mercantile Exchange. C) the Commodities Futures Trading Commission. D) the Board of Futures Trading.

Q: One reason a country would be better off fixing its exchange rate is if: A. it has a strong reputation for controlling inflation on its own.B. it lacks ample foreign exchange reserves.C. it is well-integrated with the economy of the country to whose currency its currency is fixed.D. its own macroeconomic characteristics are inversely correlated with the macroeconomic characteristics of the country to whose currency its currency is fixed.

Q: Consider a fixed­payment security that pays $100 at the end of every year for five years. If the annual rate ofdiscount is 7 percent, the present value of the security is a. $142.64.b. $410.02. c. $789.34. d. $999.63.

Q: Why may some investors prefer forward contracts to futures?

Q: The terms of futures contracts traded in the United States are A) standardized as to amount or value, but not as to settlement dates. B) standardized as to settlement dates, but not as to amount or value. C) not standardized, but are determined entirely on the basis of the agreement entered into by the buyer and seller. D) standardized as to amount or value and as to settlement dates.

Q: The present value of a security isa. directly related to the discount rate.b. inversely related to the time until maturity. c. directly related to the principal amount.d. is not related to the discount rate.

Q: Which of the following statements is most correct? A. A fixed exchange rate policy is a lack of a monetary policy.B. A fixed exchange rate policy is appropriate for a country that lacks a central bank.C. A fixed exchange rate policy is only appropriate for countries with little international reserves.D. A fixed exchange rate policy is a monetary policy.

Q: Consider a three-year fixed-payment security that has a present value of $1,000. If the annual rate of discount is 7 percent, the payment made at the end of each year isa. $70.00. b. $107.00. c. $142.86. d. $381.05.

Q: A country with a fixed exchange rate policy and free cross-border capital flows that is experiencing an economic slowdown will find: A. their central bank will reduce the domestic interest rate in order to fend off the slowdown.B. their currency will depreciate to stimulate exports.C. their corporate equities will become more attractive to foreign investors.D. monetary policy in not available as an economic stabilization tool.

Q: Which of the following statements is true?a. Everything else remaining unchanged, higher the future value of an investment, higher will be the present value.b. Everything else remaining unchanged, higher the rate of discount on an investment, higher will be the present value.c. The future value of an investment is unrelated to the principal amount invested.d. The future value of an investment is unrelated to the ongoing rate of interest.

Q: Marking to market refers to A) the determination of the prices of options contracts by the interaction of demand and supply. B) the determination of the prices of futures contracts by the interaction of demand and supply. C) the settlement of gains and losses on futures contracts each day. D) the settlement of gains and losses on forward contracts each day.

Q: Speculative attacks: A. can only result from irresponsible fiscal policy.B. can always be stopped by the country's central bank if they act quickly.C. can be triggered even when domestic policymakers are acting responsibly.D. are illegal, and if caught, speculators are assessed large fines.

Q: A bond that makes a regular interest payment until maturity, at which time the face value is repaid is referred to as a a. coupon bond.b. fixed-payment security. c. discount bond.d. perpetuity.

Q: All of the following are associated with a fixed exchange rate policy except: A. sacrificing control of the domestic inflation rate.B. higher import prices.C. the need to maintain ample international reserves.D. it means importing monetary policy.

Q: Discounting is the process of dividing a future value by the to obtain the value. a. discount factor; pastb. discount factor; present c. rate of discount; pastd. rate of discount; present

Q: If you sell a futures contract for U.S. Treasury bills and on the delivery date the interest rate of T-bills is higher than you expected, you will have A) lost money on your long position. B) gained money on your long position. C) lost money on your short position. D) gained money on your short position.

Q: In 1997, there was a speculative attack on the Thai baht. This resulted from the: A. belief by speculators that the Thai central bank had an oversupply of U.S. dollar reserves.B. belief by speculators that the Thai central bank didn't have sufficient U.S. dollar reserves to maintain the current fixed rate.C. revelation that the Thai central bank had converted its gold reserves into foreign exchange.D. overthrow of the Thai president and the central bank.

Q: Consider a fixed-payment security that pays $100 at the end of every year for three years. If the annual rate of discount is 10 percent, the present value of the security isa. $24.87. b. $248.69. c. $294.10.d. $1,000.00.

Q: Fixing an exchange rate between two countries makes the most sense when: A. the countries macroeconomic fluctuations are positively correlated.B. the countries macroeconomic fluctuations are negatively correlated.C. the countries' macroeconomic fluctuations are uncorrelated.D. one country has a lot of international reserves and the other doesn't.

Q: In the one-period present-value equation, P=F/(1 + i), the term iis known as a. future value.b. present value.c. the rate of discount. d. the discount factor.

Q: If you buy a futures contract for U.S. Treasury bills and on the delivery date the interest rate on T-bills is lower than you expected, you will have A) lost money on your long position. B) gained money on your long position. C) lost money on your short position. D) gained money on your short position.

Q: A speculative attack on a country with a fixed exchange rate occurs when: A. financial market participants believe the government will have to devalue its currency.B. financial market participants believe the government has a large excess of international reserves.C. financial market participants believe the currency is undervalued.D. the country converts its gold reserves into foreign exchange.

Q: In the one-period present-value equation, P=F/(1 + i), the term 1 + i is referred to as a. future value.b. present value.c. the rate of discount. d. the discount factor.

Q: On the day of delivery A) the spot price will equal the futures price. B) the spot price will be greater than the futures price by an amount equal to the current interest rate times the futures price. C) the futures price will be greater than the spot price by an amount equal to the current interest rate times the spot price. D) there is no necessary relation between the spot price and the futures price.

Q: When Argentina fixed the exchange rate of their peso to the U.S. dollar, one outcome was: A. Argentinean central bankers regained control of their domestic interest rate.B. Argentinean central bankers were finally able to focus their attention on domestic monetary policy.C. Argentinean central bankers effectively gave control of their domestic interest rate to the FOMC.D. Argentineans began using the U.S. dollar for all of their transactions.

Q: Marking to market involves A) changing the futures price to the spot price each day. B) engaging in arbitrage so as to reduce the risk involved with futures contracts. C) crediting or debiting the margin account based on the net change in the value of the futures contract. D) updating the futures price after the market closes each day.

Q: Earning interest on the interest that was earned in prior years is referred to as a. discounting.b. compounding.c. present valuing. d. bonding.

Q: As the time of delivery in a futures contract gets closer A) the futures price gets closer to the spot price. B) the futures price generally rises further above the spot price. C) the futures price generally falls further below the spot price. D) the futures and spot prices remain the same as they were when the contract was first created.

Q: A fixed exchange rate policy: A. decreases central bank policy accountability and transparency.B. strengthens domestic interest rate policy.C. will likely make domestic inflation more volatile.D. imports monetary policy.

Q: The initial deposit required by a buyer or seller of a futures contract is known as A) credit. B) margin requirement. C) debit. D) marking.

Q: An advantage of fixed exchange rates for a country that suffers from bouts of high inflation is: A. it makes imports less expensive.B. it establishes a credible low inflation policy.C. it unties policymakers' hands so they can alter the reserves of the banking system as needed.D. policymakers will have increased control over domestic interest rates.

Q: Which of the following is NOT an advantage of a futures contract over a forward contract? A) reduced counterparty risk B) increased flexibility C) lower information cost D) increased liquidity

Q: If the interest accumulated on a principal amount of $5,000 at the end of a year is $400, the annual rate of interest must bea. 4%.b. 6%.c. 8%.d. 20%.

Q: The role of the Commodity Futures Trading Commission is to A) set the prices of futures contracts. B) operate the Chicago Mercantile Exchange. C) operate the Chicago Board of Trade. D) monitor potential price manipulation in futures trading.

Q: A U.S. resident purchases a bond issued by the Canadian government. If the Canadian dollar appreciates relative to the U.S. dollar over the term of the bond, the U.S. investor will: A. see a higher return on her investment as a result.B. see a lower return on her investment as a result.C. not see her return affected since exchange rates are flexible.D. none of the answers provided is correct.

Q: a.You buy a government bond that pays interest twice a year. The interest payment is $300 each six months. The bond matures in six years. The face value of the bond is $10,000. The annual market interest rate is 6 percent. What is the present value of the bond? Show yourwork.A formula that may be useful to you is: .b.After six months go by, you receive the first interest payment of $300. The annual market b. interest rate has declined to 5 percent and you decide to sell the bond. What is the bond's present value when you sell it? Show your work.c. What is your total return from owning the bond for six months (expressed at an annual rate, in percentage points, with two decimals)? Show your work.

Q: The futures price A) reflects traders' expectations of the spot price on the day of delivery. B) is always above the spot price on the day of delivery. C) is always below the spot price on the day of delivery. D) is always equal to the spot price at every point in time.

Q: Financial futures contracts are regulated by A) the Commodity Futures Trading Commission. B) the Federal Trade Commission. C) the Interstate Commerce Commission. D) the Options and Futures Commission.

Q: Currently in the United States, money in checking accounts is a. commodity money.b. outside money. c. inside money. d. illegal tender.

Q: Suppose that you purchase a Korean government bond and the number of won needed to purchase one dollar increases. Your return on the bond: A. decreases by the amount of the dollar's appreciation.B. decreases by more than the amount of the dollar's appreciation.C. decreases by less than the amount of the dollar's appreciation.D. increases by the amount of the dollar's appreciation.

Q: a.You are negotiating a book deal for your newest novel in which an economist single-handedly saves the world. The publisher offers to pay you an advance of $1 million today plus $500,000 at the end of each of the next three years. What is the present value of these payments, given the annual rate of discount is 5percent?Show your work.b.You counter the publisher's offer with a counteroffer that will pay you $1.5 million today plus $5 per book sold in each of the next three years. You think you will sell 80,000 books each year in the next three years, but the publisher thinks you will only sell 40,000 books each year.Explain why both you and the publisher like this counteroffer better than the deal in part a. Show your work.

Q: A foreign exchange intervention that alters the domestic monetary base is: A. sterilized.B. unsterilized.C. not likely to change domestic interest rates.D. impossible.

Q: A mechanism by which a short-term loan is made, allowing a shopper to purchase goods or services today and pay for it at a later date, is known as a card.a. debitb. commodity c. creditd. fiat

Q: Which of the following financial futures contracts are traded in the United States? A) Interest rates B) Stock indexes C) Currencies D) All of the above

Q: In September of 2000, the Federal Reserve Bank of New York sold dollars in exchange for euro. To keep the federal funds rate on target, the Open Market desk: A. sold U.S. Treasury bonds.B. bought U.S. Treasury bonds.C. bought dollars.D. sold dollars.

Q: Costs of trading are referred to as ............ costs. a. tradingb. menuc. shoe-leather d. transactions

Q: If the Fed were to purchase euros for dollars and at the same time sell U.S. Treasury securities in the open market, this would be an example of: A. an unsterilized foreign exchange intervention.B. the Fed not changing their balance sheet at all.C. a sterilized foreign exchange intervention.D. the Fed altering the domestic monetary base.

Q: Which of the following statements correctly identifies an advantage of checking accounts over cash?a. Checks are more convenient to use for day to day transactions.b. Checks are accepted by almost all sellers while cash may not be accepted.c. Checks are more liquid than cash.d. Lost or stolen checks cannot be used unless they have the account holder's signature.

Q: Futures trading has traditionally been dominated by A) the New York Stock Exchange. B) the Chicago Board of Trade and the New York Mercantile Exchange. C) the London Stock Exchange. D) the Omaha Grain Exchange.

Q: Which of the following statements is most correct? A. A sterilized foreign exchange intervention will alter the composition of a central bank's assets and alter commercial bank reserves.B. A sterilized foreign exchange intervention will not alter the composition of a central bank's assets.C. An unsterilized foreign exchange intervention will alter commercial bank reserves.D. A sterilized foreign exchange intervention will leave the central bank's holdings of foreign reserves unchanged.