1. In general, the more liquid an asset the ______. A. less it is likely to yield B. greater its risk of default C. lower its market price will be D. more it will add to bank profits 2. The interest rate printed on the face of a bond is called the ______. A. coupon rate B. prime rate C. printed rate D. nominal rate 3. A rise in interest rates leads to ______. A. capital gains for bondholders B. capital losses for bondholders C. income gains for bondholders D. income losses for bondholders 4. If the reserve requirement ratio were equal to zero, then ______. A. the deposit multiplier would be infinitely large B. required reserves would be equal to zero C. the banking system would theoretically be able to create an infinitely large amount of demand deposits D. all of the above 5. Financial intermediaries' primary function in financial markets is to serve as ______. A. ultimate borrowers B. ultimate lenders C. ultimate savers D. middlemen 6. Suppose the Fed buys $10 million in government securities from a commercial bank. If the required reserve ratio is 0.25, what is the maximum amount by which checkable deposits in the banking system can change? ______. A. +$10000000 B. +$25000000 C. +$40000000 D. -$40000000 7. Suppose the annualized yield on a 91-day Treasury bill is 1.25%. If you invested $10 000 in this bill, how much would you have to pay for this security? ______. A. $11 250 B. $10012.50 C. $9998.75 D. $9968.93 8. Who are the first to bear financial losses incurred by the bank? ______. A. The depositors B. The debtors C. The bank capital shareholders D. The bank employees 9. A government is faced with a balance of payments deficit. It may take action to deal with this by doing all of the following except ______. A. devalue the currency B. reduce interest rates C. restrict consumer spending D. restrict imports 10. According to the principle of comparative advantage, countries ______. A. should specialize in producing goods they have lower opportunity cost for B. should export goods they can produce at lower input costs C. will specialize in producing goods which they can produce at lower input costs D. should specialize in producing goods they have lower absolute costs for 11. A currency depreciation on the foreign exchange market will ______. A. encourage imports to the country whose currency has depreciated B. discourage imports to the country whose currency has depreciated C. discourage exports to the country whose currency has depreciated D. encourage foreign travel by the citizens of the country whose currency has depreciated 12. The difference between fiscal policy and monetary policy is that ______. A. fiscal policy is macroeconomic policy and monetary policy is microeconomic policy B. monetary policy is macroeconomic policy and fiscal policy is microeconomic policy C. fiscal policy involves regulation of natural monopolies and monetary policy involves the provision of public goods D. monetary policy involves regulation of the money supply and fiscal policy involves government spending and taxing 13. When economists speak of the utility of a certain good, they are referring to ______. A. the demand for the good B. the usefulness of the good in consumption C. the satisfaction gained from consuming the good D. the rate at which consumers are willing to exchange one good for another 14. How are financial ratios used in decision making? ______. A. They remove the uncertainty of the business environment B. They give clear signals about the appropriate action to take C. They can help identify the reasons for success and failure in business, but decision making requires information beyond the ratios D. They aren't useful because decision making is too complex. 15. A good is called an inferior good if sales ______. A. are unaffected by income B. rise as price increases C. decline as price increases D. decline as income increases 16. Interest rates are made up of ______. A. the real rate and the inflation premium B. the risk-free rate and the period rate C. the risk premium D. A and C E. B and C 17. Most stocks are traded on ______. A. primary markets B. secondary markets C. credit markets D. capital markets 18. The president or CEO of a corporation reports to ______. A. the treasurer B. the CFO C. the board of directors D. the shareholders 19. Term structure of interest rates refers to the relationship between ______. A. interest rates of different terms B. risky and riskless securities C. the real rate of return and the inflation premium D. increase profits 20. The demand deposit expansion multiplier is determined by ______. A. the amount of excess reserves in the banking system B. the ratio of bank assets to bank liabilities C. the prime rate of interest D. the required reserve ratio
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