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ECON 50 MCQs Assignment




Question;Question 1The central bank of the United States is:Answera. The Bank of Americab The Federal Reserve System.c. The U.S. Treasuryd Citibank.0.5 pointsQuestion 2In the United States control of the money supply is givento:Answera. The Presidentb The Federal Reserve System.c. The Bureau of Printing and Engravingd The Department of the Treasury.0.5 pointsQuestion 3Which best describes money as a means of payment?Answera. Money provides an immediate double coincidence of wantsb Money makes sure a double coincidence of wants never occurs.c. Money requires at least two transactions to obtain the double coincidence of wantsd To obtain a double coincidence of wants without money is impossible.0.5 pointsQuestion 4Money as a means of payments refers only to:Answera. Actual currencyb Coins and currency.c. Coins, currency and credit cardsd Anything that is generally accepted as payment for goods and services.0.5 pointsQuestion 5The statement "risk requires compensation" implies thatpeople:Answera. Do not take riskb Only accept risk when they absolutely have to.c. Will only accept risk when they are rewarded for doing sod Avoid risk at all cost.0.5 pointsQuestion 6Which of the following statements best describesfinancial instruments?Answera. All financial instruments are a means of paymentb Financial instruments can transfer resources between people but not risk.c. Financial instruments can transfer resources and risk between peopled Financial instruments can transfer risk but not resources between people.0.5 pointsQuestion 7Which of the following statements best describes financialmarkets?AnswerFinancial markets are a good example of unregulated marketsFinancial markets increase the speed of buying and selling, but they also increase thecost since people are earning fees for these transactionsFinancial markets today offer fewer instruments than they did in the pastFinancial markets lower the cost and increase the speed of buying and sellingfinancial instruments0.5 pointsQuestion 8Identify which item is not one of the six parts of the financialsystem.AnswerCredit cardsFinancial institutionsCentral banksFinancial markets0.5 pointsQuestion 9Identify which of the following is not one of the five coreprinciples of money and banking?AnswerInformation is the basis for decisionsTime has valueRisk requires compensationStability creates risk0.5 pointsQuestion 10Checks are:Answera. Not a means of paymentb Not money.c. Not a promise of any kindd Not acceptable by the U.S. Government for payment of. taxes0.5 pointsQuestion 11The use of money makes us more efficient because:Answera. We spend more time trading and more time producingb People can specialize in what they do well.c. With money we borrow lessd Money increases in value over time.0.5 pointsQuestion 12The high transaction costs associated with a bartersystem refers to:Answera. The fact that, often times, these exchanges are taxed by governmentsb The risk associated with having to carry an inventory of goods to trade.c. The high cost associated with finding someone with whom to exchanged The cost of drawing up complete contracts.0.5 pointsQuestion 13The expected value of an investment:Answera. Is what the owner will receive when the investment is soldb Is the sum of the payoffs.c. Is the probability-weighted sum of the possible outcomesd Cannot be determined in advance.0.5 pointsQuestion 14Another name for the expected value of an investmentwould be:Answera. The mean valueb The upper-end value.c. The certain valued The risk-free value.0.5 pointsQuestion 15The expected value of an investment:AnswerIs what the owner will receive when the investment is soldIs the sum of the payoffsIs the probability-weighted sum of the possible outcomesCannot be determined in advance0.5 pointsQuestion 16Another name for the expected value of an investmentwould be:AnswerThe mean valueThe risk-free valueThe certain valueThe upper end value0.5 pointsQuestion 17Given a choice between two investments with the sameexpected payoff:Answera. Most people will choose the one with the lower standard deviationb Most people will opt for the one with the higher standard deviation.c. Most people will be indifferent since the expected payoffs are the samed Most people will calculate the variance to assess the relative risks of the two. choices0.5 pointsQuestion 18The money aggregate M2 includes:AnswerStock and bond mutual fund sharesLarge denomination time depositsM1Savings deposits but not money market deposit accounts0.5 pointsQuestion 19An advantage that money has over other assets is that it:AnswerProvides a higher return to the ownerIs a safer asset to hold during times of inflation.Increases in value over timeHas lower transaction costs to use as a means of payment than other assets0.5 pointsQuestion 20An automobile is an asset, but it is not liquid because:AnswerThe automobile may not be in good repairThe owner may still be making payments on the loanThe automobile cannot be sold without a loss in valueThe transactions costs for the used automobile market are high0.5 pointsQuestion 21To say an asset is liquid implies that:AnswerWe are only considering U.S. currencyWe are considering any asset that can be soldWe are focusing on a category of assets that are in a physically liquid form, like oilWe are considering assets that may be readily converted into a means of payment0.5 pointsQuestion 22The risk premium for an investment:AnswerIs negative for U.S. Treasury SecuritiesIs zero (0) for risk-averse investorsIncreases with riskIs a fixed amount added to the risk-free return, regardless of the level of risk0.5 pointsQuestion 23A risk-averse investor will:AnswerAlways accept a greater risk with a greater expected returnOnly invest in assets providing certain returnsSometimes accept a lower expected return if it means less riNever accept lower risk if it means accepting a lower expected return0.5 pointsQuestion 24Which of the following investment strategies involvesgenerating a higher expected rate of return throughincreasing risk?AnswerLeverageValue at riskDiversifyingHedging risk0.5 pointsQuestion 25In order to benefit from diversification, the returns on assets ina portfolio must:AnswerNot be perfectly positively correlatedHave the same idiosyncratic risksBe perfectly positively correlatedBe perfectly negatively correlated0.5 pointsQuestion 26When a loan is amortized, it means:AnswerThe principal is never repaid, only interestThe principal and interest are paid off by the borrower over the life of the loanThe borrower is in defaultThe interest is due entirely at the maturity date0.5 pointsQuestion 27When the price of a bond equals the face value:AnswerThe yield to maturity will be below the coupon rateThe yield to maturity is greater than the current yieldThe yield to maturity will be above the coupon rateThe current yield is equal to the coupon rate0.5 pointsQuestion 28If the quantity of bonds demanded exceeds the quantity ofbonds supplied, bond prices:AnswerWill rise and yields would increaseWould fall and yields would increaseWould rise and yields would fallWill rise and yields will remain constant0.5 pointsQuestion 29Interest-rate risk results from:AnswerBond prices being fixed over the life of the bondInflation being uncertainA mismatch between an individual's investment horizon and a bond's maturityThe fact that most people hold bonds until they mature0.5 pointsQuestion 30The bid price for a bond quote is:AnswerFixed over the life of a bondThe price at which the bond dealer is willing to purchase the bondThe price at which the bond dealer is willing to sell the bondDetermined solely by the time left to maturity0.5 pointsQuestion 31A zero-coupon bond refers to a bond which:Answera. Does not pay any coupon payments because the issuer is in defaultb Promises a single future payment.c. Pays coupons only once a yeard Pays coupons only if the bond price is above face value.0.5 pointsQuestion 32The most common form of zero-coupon bonds found inthe United States is:Answera. AAA rated corporate bondsb U.S. Treasury bills.c. 30-year U.S. Treasury bondsd Municipal bonds.0.5 pointsQuestion 33A 10-year Treasury note has a face value of $1,000, priceof $1,200, and a 7.5% coupon rate. Based on thisinformation, we know:Answera. The present value is greater than its priceb The current yield is equal to 8.33%.c. The coupon payment on this bond is equal to $750.5 pointsQuestion 34In quoting exchange rates:Answera. One should always quote these as units of foreign currency over a unit of domesticcurrencyb One should always quote the rate as the units of domestic currency over a unit of. foreign currencyc. Usually one should quote the rate in such a way that the value is greater than oned Each country's central bank determines how the rate is to be quoted.0.5 pointsQuestion 35The real exchange rate is defined as:Answera. The nominal exchange rate plus the rate of inflationb The spot exchange rate.c. The rate at which one can exchange the goods and services from one country forthe goods and services from another countryd The exchange rate that would exist if nominal rates were not fixed by government.0.5 pointsQuestion 36An American traveling to Europe will find it easier tomake purchases now because:Answera. Most countries in Europe accept U.S. dollarsb Most of the countries of Europe have adopted the British pounds as the standard. currencyc. Many of the countries in Europe now use the same currency, the eurod All of the countries in Europe now use the same currency, the euro.0.5 pointsQuestion 37If an American traveling abroad can obtain 115 euros for$100 U.S, the current euro per $ exchange rate is:Answera. 0.870 euros/$b 1.15 euros/$.c. 115euros/$d 1euro/1.15$.0.5 pointsQuestion 38If the Japanese yen appreciates against the U.S. dollar:Answera. Americans should find Japanese goods are now less expensiveb Japanese residents would find Japanese goods are relatively less expensive than. American goodsc. U.S. goods should have an easier time competing against Japanese goods in bothcountriesd Japanese goods should have an easier time competing against U.S. goods in both. countries0.5 pointsQuestion 39Users of commodities are:AnswerUsually not participants in futures contracts.Speculators preferring to get the large returns which result from large risk.Buyers of futuresLikely to take the short position in a futures contract.0.5 pointsQuestion 40A key use of interest-rate swaps is to:AnswerEarn the fees for constructing the swapsProvide a hedge against interest-rate riskManage government revenues.Eliminate risk for both parties involved in the transaction0.5 pointsQuestion 41Forward contracts are:AnswerContracts usually involving the exchange of a commodity or financial instrument.Easily resoldAlways standardizedAn agreement between more than two parties0.5 pointsQuestion 42The strike price of an option is:AnswerThe market price at the time the option is exercisedThe market price at the time the option is writtenAlways above the market priceThe price at which the option holder has the right to buy or sell0.5 pointsQuestion 43Interest-rate swaps are:AnswerExchanges of equity securities for debt securitiesAgreements involving swapping of option contractsAgreements that allow both parties to convert floating interest rates to fixed interestrates.Agreements between two parties to exchange periodic interest-rate payments oversome future period0.5 pointsQuestion 44An expected appreciation of the dollar, everything else heldconstant, should causeAnswerThe supply of dollars to increaseThe demand for dollars to increaseThe dollar to depreciate now relative to other currenciesThe demand for dollars to decrease0.5 pointsQuestion 45A foreign exchange intervention is:AnswerSynonymous with a fixed exchange rateThe use of public statements by government officials to impactThe buying/selling of currencies to affect supply or demand which impacts theexchange rateOnly used in crisis situations0.5 pointsQuestion 46The nominal exchange rate:AnswerIs the amount of one country's goods that could be obtained with the same goods ofanother countryIs a synonymous term for the swap rateIs the rate that one can exchange the currency of one country for the currency ofanother countryIs always expressed as units of a foreign currency per U.S. dollar0.5 pointsQuestion 47The theory of purchasing power parity says:AnswerThe real exchange rate is always greater than oneThe real exchange rate is always less than oneThe dollar price of a basket of goods in the U.S. should equal the yen price of abasket of goods in JapanA dollar should buy the same goods no matter where in the world you g0.5 pointsQuestion 48The forward exchange rate:AnswerIs the same as the spot rateIs a synonymous term for the nominal exchange rateIs the rate at which Foreign Exchange Basics dealers are willing to commit to buyingor selling a currency in the futureIs always above the spot rate since it carries greater risk0.5 pointsQuestion 49Current U.S. monetary policy is best described as:Answera. Aimed at keeping inflation low and stable and growth high and stableb Determining the denominations of a country's currency.c. One of the most important functions of Congressd Attempting to keep inflation constant at zero percent.0.5 pointsQuestion 50The primary function of central banks is to:Answera. Increase risk and volatility to increase compensationb Control inflation and help reduce business cycle fluctuations.c. Increase the uncertainty that firms face in making investment decisionsd Eliminate the need for banks to collect financial information.


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