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Banking
Q:
Required reserves are
A) the portion of demand deposits and NOW accounts banks must hold.
B) zero on demand deposits.
C) zero on NOW accounts.
D) imposed on all deposits at commercial banks.
Q:
Most responsible central banks publish their balance sheet: A. at least once a year.B. quarterly.C. at least monthly.D. semi-annually.
Q:
Which of the following is NOT considered a cash item by banks?
A) U.S. Treasury bills
B) deposits at other banks
C) deposits at the Federal Reserve
D) vault cash
Q:
Monetary policy operations for central banks are run through changes in the liability category of: A. government's accounts.B. currency.C. reserves.D. gold.
Q:
Which of the following is a bank asset?
A) checkable deposits
B) savings deposits
C) borrowings in the federal funds market
D) cash items in the process of collection
Q:
Vault cash is not included in the central bank's liability category of currency because: A. only non-bank currency is in the liability category of currency.B. vault cash really is only electronic funds.C. vault cash is in the asset category of reserves.D. it is the liability of the U.S. Treasury.
Q:
Banks use repurchase agreements to
A) ensure that payments on consumer loans are made on time.
B) borrow funds from business firms or other banks.
C) guard against price fluctuations on long-term bonds.
D) ensure that they always have enough funds on hand to meet their federal tax liabilities.
Q:
Vault cash is: A. equal to the total amount of reserves and is an asset of the central bank.B. not reserves but is a liability of the central bank.C. a part of reserves and an asset of commercial banks.D. not reserves but is an asset of central banks.
Q:
The interest rate on unsecured loans between banks is called the
A) discount rate.
B) repurchase rate.
C) T-bill rate.
D) federal funds rate.
Q:
Reserves are: A. assets of the central bank and liabilities of the commercial bank.B. assets of the commercial banks and liabilities of the central bank.C. liabilities of the commercial and central banks.D. assets and liabilities for the central bank.
Q:
Federal funds are
A) the tax revenues of the Federal government.
B) loans by the Federal Reserve to banks.
C) loans by banks to the Federal Reserve.
D) short-term loans between banks.
Q:
Which of the following statements is most correct? A. Reserves are assets of the central bank and liabilities of the U.S. Treasury.B. Reserves are assets of the central bank and liabilities of the commercial banks.C. Reserves are liabilities of the commercial banks and assets of the U.S. Treasury.D. Reserves are assets of the commercial banks and liabilities of the central bank.
Q:
Loans by the Federal Reserve to banks are known as
A) repurchase agreements.
B) Federal funds.
C) discount loans.
D) cash items in the process of collection.
Q:
As a portion of total assets measured in billions of dollars, the least important asset on the Fed's balance sheet is: A. gold.B. securities.C. foreign exchange reserves.D. loans.
Q:
On a bank's balance sheet, "borrowings" are
A) loans to households.
B) loans to businesses.
C) nondeposit liabilities.
D) U.S. Treasury securities.
Q:
Gold is: A. the most important asset on the Fed's balance sheet.B. extremely important as an asset for the Fed.C. a small portion of the Fed's assets.D. very important for monetary policy in the U.S.
Q:
What is the current limit on balances that are covered by federal deposit insurance?
A) $100,000
B) $250,000
C) $500,000
D) $1,000,000
Q:
As a portion of total assets measured in billions of dollars, the most important asset on the Fed's balance sheet is: A. gold.B. securities.C. foreign exchange reserves.D. loans.
Q:
A key difference between small-denomination and large-denomination time deposits is that
A) small-denomination time deposits pay no interest.
B) large-denomination time deposits may be bought and sold on secondary markets.
C) large-denomination time deposits carry a significant penalty for early withdrawal.
D) small-denomination time deposits carry a significant penalty for early withdrawal.
Q:
Liabilities of commercial banks show up on the Fed's balance sheet as part of its: A. liabilities.B. securities.C. foreign exchange reserves.D. loans.
Q:
Bonds issued by the U.S. Treasury would: A. not be held by the Fed.B. be held by the Fed as part of its securities.C. be held by the Fed as part of its foreign exchange reserves.D. be held by the Fed as part of its loans.
Q:
The free-rider problem faced by private information-collection firms results in their
A) usually going out of business within a few years.
B) collecting less than all the available information about the firms they investigate.
C) being plagued by lawsuits.
D) charging fees higher than can be justified by market conditions.
Q:
Bonds issued by a foreign government in its own currency would: A. not be held by the Fed.B. be held by the Fed as part of its securities.C. be held by the Fed as part of its foreign exchange reserves.D. be held by the Fed as part of its loans.
Q:
Private information-collection firms fail to eliminate the adverse selection problem because
A) the law does not allow them to disclose private information about the creditworthiness of firms.
B) they do not monitor borrowers after loans have been made.
C) some investors who do not pay for their services will still profit from them.
D) most companies refuse to provide them with any information.
Q:
Which of the following statements is most correct? A. Discount loans are initiated by the Federal Reserve.B. Discount loans are made when banks need relatively small amounts of cash for the long term.C. Discount loans are made when banks need relatively large amounts of cash for the long term.D. Discount loans are made when banks need relatively small amounts of cash for the short term.
Q:
Which of the following is NOT a company that collects information on individual borrowers and sells it to savers?
A) Moody's Investor Service
B) Value Line
C) NASDAQ
D) Dun and Bradstreet
Q:
In the U.S., loans made by Federal Reserve to banks fall in the categories of: A. discount loans.B. reserves.C. discount loans and reserves.D. discount loans and foreign exchange reserves.
Q:
Moody's Investors Service is able to make a profit because
A) most investors are irrational.
B) of the existence of adverse selection problems.
C) fluctuations in interest rates make default risk on corporate bonds difficult to gauge.
D) small investors like the mutual funds they sell.
Q:
The quantity of securities held by the Federal Reserve is controlled through: A. the U.S. Treasury.B. the Fed's annual budget.C. open market operations.D. the purchases made by the regional Reserve banks.
Q:
Requirements for information disclosure for firms that desire to sell securities in financial markets
A) are very common in industrialized countries, including the United States.
B) are common in other industrialized countries, but have not yet been adopted in the United States.
C) have been adopted in the United States, but have not yet been adopted in other industrialized countries.
D) have yet to be adopted in the United States or other industrialized countries.
Q:
A central bank holds foreign exchange reserves for: A. diversification purposes.B. foreign exchange interventions.C. safekeeping.D. diversification and safekeeping.
Q:
Government regulations requiring firms that desire to sell securities in financial markets to disclose all available information
A) eliminate the adverse selection problem (when rigorously enforced).
B) increase the difficulty that young firms may have in raising funds.
C) eliminate the moral hazard problem in securities markets.
D) fail to eliminate the adverse selection problem, in part because they do not greatly reduce the difficulty that young firms have in raising funds.
Q:
If the Federal Reserve is to be independent, then the quantity of securities it purchases is determined by: A. the Federal Reserve itself.B. Congress.C. the amount the public does not want to purchase at the going price.D. the Treasury.
Q:
When there's asymmetric information, who tends to have the better information?
A) lender
B) borrower
C) intermediary
D) equally likely to be the borrower or the lender
Q:
For the Federal Reserve's balance sheet, the asset listed Securities would include: A. private and public debt.B. mainly U.S. Treasury and municipal bonds.C. bonds issued by commercial banks.D. U.S. Treasury securities.
Q:
Symmetric information
A) is the same as perfect information.
B) holds under the assumption of rational expectations.
C) is true only in efficient markets.
D) means that savers and borrowers have the same information.
Q:
A liability of the central bank in functioning as the bankers' bank is: A. accounts of commercial banks.B. securities.C. loans.D. currency.
Q:
All of the following are consequences of adverse selection on good firms EXCEPT
A) the cost of external financing increases.
B) firms need to rely more on internal funds.
C) firms need to rely more on accumulated profits.
D) firms will only be able to attain financing from the government.
Q:
The main asset held by a central bank in its role as the Banker's Bank is: A. foreign exchange reserves.B. currency.C. loans.D. securities.
Q:
One reaction of firms to the adverse selection problem is to
A) rely on internal funds to finance investment.
B) use the stock market rather than the bond market to raise funds.
C) use the bond market rather than the stock market to raise funds.
D) borrow long-term rather than short-term.
Q:
A central bank's balance sheet would categorize each of the following as liabilities, except: A. currency.B. loans.C. the government's account.D. accounts of the commercial banks.
Q:
Credit rationing refers to
A) the increase in the interest rate that occurs when the demand for credit increases.
B) the increase in the interest rate that occurs when the supply of credit increases.
C) the increase in the interest rate that occurs when the supply of credit decreases.
D) a restriction in the availability of credit.
Q:
A central bank's balance sheet will categorize the following as liabilities: A. currency.B. loans.C. securities.D. foreign exchange reserves.
Q:
One method that lenders use to mitigate the adverse selection problem is to
A) charge higher interest rates to less creditworthy borrowers.
B) monitor closely the behavior of borrowers after a loan is made.
C) ration credit.
D) provide default insurance.
Q:
Each of the following items would appear as assets on the central bank's balance sheet, except: A. loans.B. securities.C. currency.D. foreign exchange reserves.
Q:
Why do higher interest rates increase adverse selection problems in the loan market?
A) Higher interest rates reduce the gains from economies of scale.
B) As interest rates rise, the creditworthiness of the average loan applicant declines.
C) Higher interest rates reduce information problems in the loan market.
D) At higher interest rates fewer investment projects are profitable.
Q:
The collapse of the Thai currency, the baht, was partially due to: A. inaction by the Federal Reserve.B. the European Central Bank.C. information provided by the central bank of Thailand.D. information not provided by the central bank of Thailand.
Q:
To help offset the costs from loan defaults, the First National Bank of Gotham decides to increase the interest rate it charges on its business loans. As a result of this increase in the interest rate, the creditworthiness of Gotham's loan applicants is likely to
A) improve.
B) deteriorate.
C) be unchanged.
D) be unchanged, unless the economy enters a recession at the same time as the interest rate is increased.
Q:
What are the three branches that make up the Federal Reserve System?
Q:
Why is adverse selection more likely in financial markets when interest rates rise?
A) The remaining borrowers are more likely to be risky.
B) Higher interest rates are likely to hurt the economy.
C) If firms have to pay higher interest rates, they may choose to use the funds differently than they first intended.
D) Banks eliminate risky borrowers by raising interest rates.
Q:
Why did it take almost 150 years before the U.S. had a permanent central bank?
Q:
When interest rates in the bond market rise,
A) adverse selection problems increase.
B) adverse selection problems are mitigated.
C) moral hazard problems increase.
D) moral hazard problems are mitigated.
Q:
Based on the membership of the Eurosystem in 2014, the median country is likely to be: A. very large.B. fairly small.C. Italy.D. growing more rapidly than the others.
Q:
If there were no adverse selection problems in the stock market,
A) some well-run firms would pay more to raise funds.
B) some poorly-run firms would pay less to raise funds.
C) the willingness of savers to invest in the market would be increased.
D) the volume of new stock issues would be lower.
Q:
The make-up of the Governing Council of the European Central Bank and the methods used to calculate price stability for the monetary system can potentially result in: A. small countries having undue influence on the decisions of the Council.B. monetary policy that is well suited for some countries but ill-suited for others.C. a policy for the median country rather than a policy well suited for any country.D. all of the results listed are possible.
Q:
You own a 2007 Ford Explorer. Although it has high mileage, you have maintained it very well. You want to sell it, but after checking the prices other owners of 2007 Ford Explorers are able to get for their cars in the used car market, you decide the prices are too low and you decide not to sell. This is an example of
A) the "lemons problem."
B) moral hazard.
C) economies of scale.
D) low information costs.
Q:
The method used by the ECB to measure inflation for meeting its objectives: A. gives equal weight to each member country.B. gives greater relative weight to smaller countries.C. can result in a contractionary monetary policy being used in a country where inflation is already very low.D. is based on wholesale rather than retail prices.
Q:
The "lemons problem" is overcome in the used car market by
A) strict government regulation of private deals between individual buyers and sellers of used cars.
B) most used cars selling for well below their true values.
C) "lemon insurance" policies being offered by insurance companies.
D) the existence of used car dealers who are concerned about maintaining their reputations.
Q:
The ECB's Governing Council has price stability as a primary objective. It has defined price stability as: A. a zero rate of inflation.B. an inflation rate less than 5 percent.C. an inflation rate below, but close to, 2 percent over the medium term.D. an inflation rate in the three to five percent range.
Q:
Which economist is credited with having been the first to discuss the "lemons problem"?
A) George Akerlof
B) Milton Friedman
C) Robert Shiller
D) James Tobin
Q:
The European Central Bank has ensured independence by: A. explicitly forbidding the Governing Council from taking instructions from any government.B. making sure the ECB's financial interests supports member countries' political organizations.C. by appointing the Executive board members for life.D. not taking votes on policy matters.
Q:
The "lemons problem" exists in the market for goods because
A) sellers tend to try to take advantage of buyers.
B) buyers tend to try to take advantage of sellers.
C) differences in the quality of the goods being exchanged.
D) of moral hazard.
Q:
The European Central Bank has ensured independence by appointing Executive Board members for: A. life.B. eight-year non-renewable terms.C. fourteen-year terms.D. twenty-year terms.
Q:
The "lemons problem" in the used car market arises from
A) the difficulty U.S. producers have in making reliable cars.
B) the difficulty buyers have in distinguishing good cars from lemons.
C) the tendency of buyers of used cars to pay for them with bad checks.
D) the reluctance of many car dealers to handle used cars.
Q:
As of 2014, the euro had become the currency for: A. 7 countries.B. 12 countries.C. 18 countries.D. 25 countries.
Q:
It is generally agreed that
A) the financial system would be more efficient if intermediaries were eliminated.
B) small- and medium-sized firms benefit by the actions of intermediaries.
C) the addition of intermediaries adds to transactions costs.
D) intermediaries should not seek to profit from reducing transactions costs.
Q:
France, Germany, and Italy are: A. all members of the European Union and the Euro system.B. all members of the Euro system but not the European Union.C. all members of the European Union but not the Euro system.D. not members of either the Euro system or the European Union; they have their own economic union.
Q:
Small investors face
A) high transactions costs in financial markets.
B) low transactions costs in financial markets.
C) high transactions costs in financial intermediaries.
D) high information costs in financial intermediaries.
Q:
Great Britain is: A. a member of the European Union but not a member of the Euro system.B. a member of the Euro system but not a member of the European Union.C. not a member of the Euro system or the European Union.D. a member of both the European Union and the Euro system.
Q:
Which of the following is NOT an example of transactions costs?
A) high interest rates
B) lawyers' fees
C) brokerage commissions
D) minimum investment requirements
Q:
In the meetings of the Governing Council of the European Central Bank, formal votes are: A. taken and published immediately.B. not taken, since formal voting could get in the way of good policy.C. taken but not published for five years.D. taken and released two years after the meetings.
Q:
The presence of transactions costs and information costs
A) lowers the cost of funds to borrowers.
B) raises the expected return to lenders.
C) lowers the expected return to lenders.
D) increases the efficiency of the financial system.
Q:
Member countries of the Eurosystem agree to: A. pursue independent domestic monetary policies based on what is best for their own country, but not all member countries have adopted the euro as their currency.B. share a common monetary policy and fiscal policy.C. use the euro as their currency, but each country still pursues an independent monetary policy.D. share a common monetary policy and use the euro as their currency.
Q:
Information costs
A) are the costs of buying and selling financial claims.
B) include the costs that savers incur to determine the credit worthiness of borrowers.
C) include the costs borrowers incur to discover the best investments to make with the money they have borrowed.
D) are zero in financial markets, but high for transactions carried out through financial intermediaries.
Q:
The Treaty of Maastricht was signed in: A. 1999.B. 2001.C. 1992.D. 1997.
Q:
Transactions costs are
A) zero in financial markets.
B) zero in financial intermediaries.
C) the costs of direct financial transactions.
D) equal to the taxes imposed on financial transactions.
Q:
Executive board members of the European System of Central Banks are appointed by: A. a committee made up of bank presidents in the member countries.B. a committee made up of heads of state of member countries.C. the finance ministers of member countries.D. the directors of the National Central Banks.
Q:
What are the three key features of the financial system that result from the existence of transactions and information costs?
Q:
Comparing the European and the U.S. central bank systems, the Governing Council of the European system resembles: A. the Board of Governors.B. the Presidents of the Regional Federal Reserve Banks.C. the FOMC.D. the Chairman of the Board of Governors of the Fed.
Q:
Which of the following concerns were raised as a result of record low interest rates in 2012?
A) high perceived risk of default
B) high interest rate risk
C) corporations facing a lack of demand for bonds
D) high risk premiums on investment-grade corporate bonds