Q&A Hero

Q: China has used its current account surplus to: A. buy stocks on the New York Stock Exchange.B. buy German government and agency securities.C. buy U.S. government and agency securities.D. make loans to foreigners.

Q: Which of the following statements correctly identifies a disadvantage of fiat money?a. It is very expensive to manufacture.b. It cannot be used for international transactions. c. It is possible to create counterfeit fiat money.d. It can be created only in the private sector.

Q: For several years before the crisis of 2007-2009, people in U.S. business and government called for China to move away from its fixed-exchange rate regime because: A. hindering its own growth.B. building up inflation risks.C. adding to its current account deficit.D. exporting its inflation to the United States.

Q: U.S. currency is currently a. representative money. b. full-bodied money.c. inside money. d. fiat money.

Q: For several years before the crisis of 2007-2009, people in U.S. business and government called for China to move away from its fixed-exchange rate regime because: A. its pegged value was far below purchasing power parity estimates.B. its pegged value was far above purchasing power parity estimates.C. it was adding to China's current account deficit.D. it was exporting its inflation to the United States.

Q: Money that has value in large part by the government's proclamation is known as a. fiat money.b. M1.c. full-bodied money. d. inside money.

Q: The International Monetary Fund's primary role under the Bretton Woods System was to be: A. the issuer of gold.B. the clearinghouse for international transactions.C. a short-term lender for countries with an excess of imports over exports.D. the arbiter of trade disputes.

Q: Which of the following statements is true of commodity money?a. The manufacturing cost is cheaper than that of fiat money. b. Large quantities of commodity money may not be portable.c. The most common example of commodity money is paper currency.d. Commodity money has value because it is decreed by the government.

Q: The International Monetary Fund was created as a part of: A. the United Nations.B. the Bretton Woods System.C. the European Monetary Union.D. the Federal Reserve System.

Q: Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year.a. What is the stock's current yield?b. What is the stock's capital-gains yield?c. What is the stock's return?

Q: The Bretton Woods System failed in 1971 due to: A. high rates of inflation in the U.S.B. greater mobility of capital across international borders.C. the desire on the part of participating countries to have an independent monetary policy.D. all of the reasons given are correct.

Q: Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk.Investment A: Total return = 10 percent with probability 50 percent Total return = 20 percent with probability 50 percentInvestment B: Total return = 12 percent with probability 40 percent Total return = 14 percent with probability 60 percentInvestment C: Total return = 10 percent with probability 60 percent Total return = 30 percent with probability 40 percenta. Which investment provides the highest expected return? Show your work by calculating the expected return of all three investments.b. Calculate the standard deviation of all three investments.c. What type of investor might prefer investment A? Who might prefer investment B?

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: Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk.Investment A: Total return = 10 percent with probability 50 percent Total return = 20 percent with probability 50 percentInvestment B: Total return = 12 percent with probability 40 percent Total return = 18 percent with probability 60 percentInvestment C: Total return = 5 percent with probability 60 percent Total return = 25 percent with probability 40 percenta. Which investment provides the highest expected return? Show your work by calculating the expected return of all three investments.b. Calculate the standard deviation of all three investments.c. What type of investor might prefer investment A? Who might prefer investment B?

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: Consider the following four debt securities, which are identical in every characteristic except as noted:W: A corporate bond rated AAA X: A corporate bond rate BBBY: A corporate bond rated AAA with a shorter time to maturity than bonds W and XZ: A corporate bond rated AAA with the same time to maturity as bond Y that trades in a more liquid market than bonds W, X, or YList the bonds in the most likely order of the interest rates (yields to maturity) of the bonds from highest to lowest. Explain your work.

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: Suppose a discount bond costs $5,000 today and pays off some amount bin one year. Suppose that bis uncertain according to the following table of probabilities:b:$5,000$5,500$6,000$6,500$7,000Probability:0.10.20.30.20.2a. Calculate the return (in percent) for each value of b.(Note: you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.)b. Calculate the expected return.c.Suppose an investor has a choice between buying this security or purchasing a different security that also costs $5,000 today, but pays off $5,500 with certainty in one year. How is an investor's choice of which security to purchase related to her degree of risk aversion?

Q: The output gap can best be described as: A) the percentage difference between GDP and its potential B) the difference between GDP in the current year compared to the previous year C) the difference between a nation's GDP and that of the nation with the highest GDP D) the difference between GDP and its forecasted level

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: Consider three alternative bonds that you might invest in, each of which matures in one year. The following table shows the probability that you will receive each possible return. For example, if you buy bond A, the probability is 90 percent that your return will be 20 percent and the probability is 10 percent that your return will be −100 percent(in other words,you lose the entire amount invested).Bond Bond AProbability 90%Return 20%10%−100%Bond B75%40%25%−40%Bond C60%10%40%−10%a. Calculate the expected return for all three bonds in percentage terms.b.The standard deviations of the returns on these bonds are: Bond A, 0 percent; Bond B, 34.6 percent; Bond C, 8 percent. If you are extremely risk averse, which of the three bonds would you buy? Why?c. Would a risk-averse investor ever buy Bond A instead of one of the other bonds? Why or why not?Explain and show all your work. In your calculations, you may round after three significant digits.

Q: The inflation gap can best be described as: A) the percentage difference between GDP and its potential B) the difference between inflation and its target C) the change in the inflation rate from one year to the next D) the difference between the inflation rate and the average inflation rate of that of the nations with the 3 lowest inflation rates

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: Suppose the quantity demanded for a security isBD= 100 − 1b,and the quantity supplied of the security isBS= 50 + 1b,where bis the price of the security in dollars.a. Calculate the equilibrium price and quantity of the security.b. Suppose demand increases by 50, so that BD= 150 − 1b. Now, calculate the new equilibrium price and quantity of the security.

Q: In practice, the ECB has committed to what type of strategy for monetary policy? A) inflation targeting B) monetary targeting C) unclear as to inflation or monetary targeting D) exchange rate targeting

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: A security has a price of $3,000 and an amount to be repaid in a single payment of $3,400. What is the amount of interest on the security?

Q: Which central bank has its exchange rate as a focus of its monetary policy? A) Bank of Canada B) Bank of England C) European Central Bank D) Federal Reserve

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: Risk that can be eliminated by diversification is a. unsystematic risk.b. systematic risk. c. default risk.d. interest-rate risk.

Q: In 2006, the Bank of Japan adopted a policy framework focusing on A) expected inflation one to two years in the future. B) current inflation. C) maintaining a fixed exchange rate. D) the growth in the money supply.

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: Risk that cannot be eliminated by diversification is a. unsystematic risk.b. systematic risk. c. default risk.d. interest-rate risk.

Q: All of the following arguments are made against inflation targeting EXCEPT A) rigid numerical targets would diminish the flexibility of monetary policy. B) the Fed would need to depend on future forecasts of inflation since monetary policy acts with a lag. C) the Fed has little influence on inflation. D) Holding the Fed accountable for low inflation may make it difficult for elected officials to monitor whether the Fed is supporting good overall economic policy.

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: Risk that can be eliminated by diversification is a. idiosyncratic risk.b. market risk. c. default risk.d. interest-rate risk.

Q: All of the following arguments are presented in favor of inflation targeting EXCEPT A) it would draw attention to what the central bank can achieve in practice. B) it would provide an anchor for inflationary expectations. C) it would promote accountability by providing a yardstick by which policy can be measured. D) it would reduce the lags inherent in monetary policy.

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: Risk is the amount of uncertainty relating to the_____ a security.a. maturity ofb. principal ofc. liquidity ofd. return on

Q: Under which chair did the Fed implement the policy of inflation targeting? A) Volcker B) Bernanke C) Greenspan D) Geithner

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: The dollar value of a company's stock rose from $20 to $21 during a year. If the stock paid a dividend of $3, the return on the stock was____a. 20 percentb. 1 percentc. 3 percentd. 14 percent

Q: Which of the following describes the relationship between the actual federal funds rate and that suggested by Taylor's rule following the recovery from the 2001 recession? A) The federal funds rate was above that suggested by Taylor's rule. B) The federal funds rate was below that suggested by Taylor's rule. C) The federal funds rate was about equal to that suggested by Taylor's rule. D) There was not a clear relationship between the federal funds rate and that suggested by Taylor's rule.

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: If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's return is____ percent.a. −15b. −5c. 5d. 10

Q: According to Taylor's rule, all of the following variables help explain the behavior of the federal funds rate EXCEPT A) output gap. B) current inflation. C) inflation gap. D) yield curve.

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: If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's capital-gains yield is ___percent.a. −15b. −5c. 5d. 15

Q: Which of the following best describes a policy of inflation targeting? A) It's an inflexible rule that requires the central bank to always achieve a specified inflation rate. B) It allows monetary policy to focus on inflation and inflation forecasts except in the case of severe recession. C) It allows the central bank the flexibility of setting different inflation targets each year. D) It requires central banks to target current inflation rather than inflation forecasts.

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: If the price of a share of Aqua Inc. increased from $40 to $44 over a year, the capital-gains yield per share was_____.a. 10 percentb. 4 percentc. 11 percentd. 0.4 percent

Q: The benchmark default-free interest rate of the financial system is generally considered to be: A) the federal funds rate B) the interest rate on the 10-year Treasury note C) the discount rate D) the 30-year fixed rate mortgage

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: If a stock's price is $20 at the beginning of a year and $17 at the end of the year, and it pays a dividend of $2 during the year, then the stock's current yield is_____ percent.a. −15b. −5c. 5d. 10

Q: Which of the following is NOT an accurate description of open market operations prior to 2008? A) It was used to affect the market for bank reserves. B) It was used to control the federal funds rate. C) It involved buying and selling of short-term Treasury securities. D) It involved buying and selling long-term securities.

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: The price of a stock at the beginning of a year is $50. There is a 70 percent chance of its price rising to $55 by the end of the year and a 30 percent chance of its price falling to $45. The stock will pay an amount of $2 at the end of the year. The current yield of the security is____a. 4 percentb. 5 percentc. 70 percentd. 30 percent

Q: Which of the following statements accurately describes the Fed's control of discount policy? A) It controls discount policy more completely than it controls open market operations. B) It must abide by discount rates set by Congress. C) It controls discount policy less completely than it controls open market operations. D) It controls discount policy completely, just as it controls open market operations.

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: The income an investor receives in some period divided by the value of the security at the beginning of that period is known as______ yield.a. capital-gainsb. expectedc. currentd. realized

Q: The Fed tends not to use discount policy as its principal tool in influencing the money supply since A) discount loans do not affect the money supply. B) it does not have as much control over discount loans as it has on open market operations. C) it is prohibited from doing so by an act of Congress. D) it prefers to use reserve requirements.

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: Which of the following statements is true?a. Over the last fifty years, the risk spread between Aaa bonds and Baa bonds always remained positive except inb. The risk spread between Aaa bonds and Baa bonds became negative only in the mid-1960s.c. For most of the last twenty years, the risk bread between Aaa bonds and Baa bonds remained negative.d. Over the last fifty years, the risk spread between Aaa bonds and Baa bonds never became negative

Q: Which of the following statements concerning seasonal credit is true? A) It tends to have a lower interest rate than federal funds. B) It has become increasingly more important in recent years. C) Only firms receiving secondary credit are eligible to receive seasonal credit. D) Improvements in credit markets have reduced the need for a seasonal credit facility.

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: Risk that cannot be eliminated by diversification is referred to as a. idiosyncratic risk.b. market risk. c. default risk.d. interest-rate risk.

Q: Primary credit is only a backup source of funds for health banks since A) the primary credit rate is set above the federal funds rate. B) restrictions as to its use limit its benefits. C) the secondary credit rate pays 0.5% more. D) banks must seek funds from other sources prior to requesting a discount loan.

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: Consider three investments, where expected return is the expected value of the total return and risk is measured by the standard deviation. The investments are identical in every way except for their expected return and risk:Investment A: expected return = 2 percent, risk = 5 percentInvestment B: expected return = 5 percent, risk = 4 percentInvestment C: expected return = 14 percent, risk = 20 percentInvestment D expected return = 6 percent, risk = 12 percentIf a risk-averse investor can buy only one of the three investments and compares each investment with the other three, which investment option would he never choose?a. Investment A, because its expected return is lower than Investment B and its risk is higher.b. Investment B, because its expected return is so much lower than Investment C.c. Investment C, because its risk exceeds its expected return.d. Investments D, because the expected return to investment D is so much lower than Investment C.

Q: Which of the following statements is correct? A) The discount rate is generally above the federal funds rate. B) The discount rate is generally below the federal funds rate. C) The discount rate is generally equal to the federal funds rate. D) There is no general pattern to the relation between the discount rate and the federal funds rate.

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: A nonmarketable security is one that a. is not widely advertised.b. has a present value of zero.c. cannot be resold in a secondary market.d. has only a current yield and not a capital-gains yield.

Q: Temporary, short-term discount loans to banks in areas in which agriculture and tourism are important are known as A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.

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: Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which security has the least risk? Note: You can answer this question intuitively, without calculating the standard deviation. However, if you want to calculate the standard deviation, the equation is:Standard deviation = S = Investment A: total return = 10 percent with probability 50 percent total return = 20 percent with probability 50 percent Investment B: total return = 12 percent with probability 50 percent total return = 20 percent with probability 50 percent Investment C: total return = 5 percent with probability 60 percent total return = 25 percent with probability 40 percent Investment D: total return = 5 percent with probability 60 percent total return = 7 percent with probability 40 percenta. Investment Ab. Investment Bc. Investment Cd. Investment D

Q: Discount loans intended for banks that are not financially healthy are called A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.

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: Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which investment provides the highest expected return?Investment A: Total return = 10 percent with probability 50 percent Total return = 20 percent with probability 50 percent Investment B: Total return = 12 percent with probability 50 percent Total return = 20 percent with probability 50 percent Investment C: Total return = 5 percent with probability 60 percent Total return = 25 percent with probability 40 percent Investment D: Total return = 5 percent with probability 60 percent Total return = 7 percent with probability 40 percenta. Investment Ab. Investment Bc. Investment Cd. Investment D

Q: Discount loans available to health banks which can be used for any purpose are called A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.

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.