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ECON 3303 Money and Banking
Exam 1
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Bonds that are sold in a foreign country and are denominated in a currency other than that of the
country in which it is sold are known as
A) equity bonds.
B) country bonds.
C) Eurobonds.
D) foreign bonds.
1)
2) Which of the following instruments is not traded in a money market?
A) Residential mortgages.
B) Commercial paper.
C) Eurodollars.
D) U.S. Treasury Bills.
2)
3) Everything else held constant, a decline in interest rates will cause spending on housing to
A) either rise, fall, or remain the same.
B) remain unchanged.
C) fall.
D) rise.
3)
4) Securities are ________ for the person who buys them, but are ________ for the individual or firm
that issues them.
A) liabilities; assets
B) nonnegotiable; negotiable
C) assets; liabilities
D) negotiable; nonnegotiable
4)
5) Currency includes
A) paper money and checks.
B) paper money and coins.
C) paper money, coins, and checks.
D) paper money, coins, checks, and savings deposits.
5)
6) Bonds issued by state and local governments are called ________ bonds.
A) commercial
B) Treasury
C) municipal
6)
D) corporate
7) An important function of secondary markets is to
A) make it easier for governments to raise taxes.
B) raise funds for corporations through the sale of securities.
C) create a market for newly constructed houses.
D) make it easier to sell financial instruments to raise funds.
7)
8) Which of the following statements uses the economistsʹ definition of money?
A) I hope that I have enough money to buy my lunch today.
B) Betsy is richshe has a lot of money.
C) I plan to earn a lot of money over the summer.
D) The job with New Company gave me the opportunity to earn more money.
8)
9) When money prices are used to facilitate comparisons of value, money is said to function as a
A) medium of exchange.
B) store of value.
C) payments-system ruler.
D) unit of account.
9)
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10) Financial markets promote economic efficiency by
A) channeling funds from investors to savers.
B) channeling funds from savers to investors.
C) reducing investment.
D) creating inflation.
10)
11) In the United States, loans from ________ are far ________ important for corporate finance than
are securities markets.
A) government agencies; less
B) government agencies; more
C) financial intermediaries; less
D) financial intermediaries; more
11)
12) Economists group commercial banks, savings and loan associations, credit unions, mutual funds,
mutual savings banks, insurance companies, pension funds, and finance companies together under
the heading financial intermediaries. Financial intermediaries
A) hold very little of the average Americanʹs wealth.
B) provide a channel for linking those who want to save with those who want to invest.
C) produce nothing of value and are therefore a drain on societyʹs resources.
D) can hurt the performance of the economy.
12)
13) If an individual moves money from a money market deposit account to currency,
A) M1 stays the same and M2 stays the same.
B) M1 increases and M2 stays the same.
C) M1 increases and M2 decreases.
D) M1 stays the same and M2 increases.
13)
14) A corporation acquires new funds only when its securities are sold in the
A) secondary market by a commercial bank.
B) secondary market by a stock exchange broker.
C) secondary market by an investment bank.
D) primary market by an investment bank.
14)
15) A disadvantage of ________ is that it is very heavy and hard to transport from one place to
another.
A) commodity money
B) electronic money
C) fiat money
D) paper money
15)
16) A financial market in which previously issued securities can be resold is called a _________
market.
A) tertiary
B) primary
C) secondary
D) used securities
16)
17) The evolution of the payments system from barter to precious metals, then to fiat money, then to
checks can best be understood as a consequence of
A) government regulations designed to improve the efficiency of the payments system.
B) competition among firms to make it easier for customers to purchase their products.
C) government regulations designed to promote the safety of the payments system.
D) innovations that reduced the costs of exchanging goods and services.
17)
18) Equity instruments are traded in the ________ market.
A) money
B) capital
C) bond
18)
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D) commodities
19) If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are
B) money.
C) reserves.
D) loanable funds.
A) bank deposits.
19)
20) Evidence from the United States and other foreign countries indicates that
A) there is a strong positive association between inflation and growth rate of money over long
periods of time.
B) there is little support for the assertion that ʺinflation is always and everywhere a monetary
phenomenon.ʺ
C) money growth is clearly unrelated to inflation.
D) countries with low monetary growth rates tend to experience higher rates of inflation, all else
being constant.
20)
21) Fear of a major recession causes stock prices to fall, everything else held constant, which in turn
causes consumer spending to
A) remain unchanged.
B) increase.
C) decrease.
D) cannot be determined.
21)
22) All but the most primitive societies use money as a medium of exchange, implying that
A) inflation is not a concern.
B) the use of money is economically efficient.
C) barter exchange is economically efficient.
D) barter exchange cannot work outside the family.
22)
23) The process where financial intermediaries create and sell low-risk assets and use the proceeds to
purchase riskier assets is known as
A) risk selling.
B) asset transformation.
C) risk neutrality.
D) risk aversion.
23)
24) U.S. Treasury bills are considered the safest of all money market instruments because there is no
risk of ________.
A) demarkation
B) default
C) defeat
D) desertion
24)
25) The bond markets are important because they are
A) the markets where interest rates are determined.
B) the markets where foreign exchange rates are determined.
C) the markets where all borrowers get their funds.
D) easily the most widely followed financial markets in the United States.
25)
26) Typically, borrowers have superior information relative to lenders about the potential returns and
risks associated with an investment project. The difference in information is called ________, and it
creates the ________ problem.
A) asymmetric information; risk sharing
B) adverse selection; risk sharing
C) adverse selection; moral hazard
D) asymmetric information; adverse selection
26)
27) A professional baseball player may be contractually restricted from skiing. The team owner
includes this clause in the playerʹs contract to protect against
A) adverse selection.
B) regulatory circumvention.
C) moral hazard.
D) risk sharing.
27)
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28) The higher a securityʹs price in the secondary market the _________ funds a firm can raise by
selling securities in the _________ market.
A) less; primary
B) more; secondary
C) more; primary
D) less; secondary
28)
29) Federal funds are
A) loans made by banks to the Federal Reserve System.
B) loans made by banks to each other.
C) loans made by the Federal Reserve System to banks.
D) funds raised by the federal government in the bond market.
29)
30) Assuming the same coupon rate and maturity length, when the interest rate on a Treasury
Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent,
the expected rate of inflation is
A) 3 percent.
B) 5 percent.
C) 8 percent.
D) 11 percent.
30)
31) If there are five goods in a barter economy, one needs to know ten prices in order to exchange one
good for another. If, however, there are ten goods in a barter economy, then one needs to know
________ prices in order to exchange one good for another.
A) 20
B) 25
C) 30
D) 45
31)
32) GDP measured with constant prices is referred to as
A) industrial production.
C) nominal GDP.
32)
B) the GDP deflator.
D) real GDP.
33) The currency component includes paper money and coins held in ________.
A) ATMs
B) the hands of the nonbank public
D) the central bank
C) bank vaults
33)
34) Which of the following statements about the characteristics of debt and equities is true?
A) Bonds pay dividends.
B) The income from bonds is typically more variable than that from equities.
C) They can both be long-term financial instruments.
D) Bond holders are residual claimants.
34)
35) Budgets deficits can be a concern because they might
A) ultimately lead to higher inflation.
B) lead to a slower rate of money growth.
C) lead to higher bond prices.
D) lead to lower interest rates.
35)
36) Which of the following statements best explains how the use of money in an economy increases
economic efficiency?
A) Money increases economic efficiency because it decreases transactions costs.
B) Money increases economic efficiency because it discourages specialization.
C) Money increases economic efficiency because it is costless to produce.
D) Money cannot have an effect on economic efficiency.
36)
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37) Which of the following can be described as direct finance?
A) You buy shares in a mutual fund.
B) You buy shares of common stock in the secondary market.
C) You borrow $2500 from a friend.
D) You take out a mortgage from your local bank.
37)
38) When I purchase ___________, I own a portion of a firm and have the right to vote on issues
important to the firm and to elect its directors.
B) stock
C) notes
D) bonds
A) bills
38)
39) Economists find no completely satisfactory way to measure money because
A) the ʺmoneynessʺ or liquidity of an asset is a matter of degree.
B) the Federal Reserve does not employ or report different measures of the money supply.
C) economists find disagreement interesting and refuse to agree for ideological reasons.
D) money supply statistics are a state secret.
39)
40) Which of the following $1,000 face-value securities has the highest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 12 percent coupon bond selling for $1,100
D) A 12 percent coupon bond selling for $1,000
40)
41) A sharp increase in the growth of the money supply is likely followed by
A) a recession.
B) a depression.
C) no change in the economy.
D) an increase in the inflation rate.
41)
42) Which of the following instruments are traded in a capital market?
A) Bankerʹs acceptances.
B) U.S. Treasury bills.
C) Repurchase agreements.
D) Corporate bonds.
42)
43) The present value of an expected future payment ________ as the interest rate increases.
A) is constant
B) falls
C) rises
D) is unaffected
43)
44) Well-functioning financial markets
A) cause financial crises.
C) produce an efficient allocation of capital.
44)
B) cause inflation.
D) eliminate the need for indirect finance.
45) The upward and downward movement of aggregate output produced in the economy is referred
to as the ________.
D) see saw
A) shock wave
B) roller coaster
C) business cycle
45)
46) Which of the following can be described as involving indirect finance?
A) You make a deposit at a bank.
B) You make a loan to your neighbor.
C) You buy a U.S. Treasury bill from the U.S. Treasury.
D) A corporation buys a share of common stock issued by another corporation in the primary
market.
46)
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47) If the maturity of a debt instrument is less than one year, the debt is called ________.
A) long-term
B) short-term
C) intermediate-term
D) prima-term
47)
48) An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
A) 8 percent.
B) 5 percent.
C) 40 percent.
D) 10 percent.
48)
49) The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is
A) 5 percent.
B) -5 percent.
C) -10 percent.
D) 0 percent.
49)
50) Poorly performing financial markets can be the cause of
A) financial expansion.
B) poverty.
C) financial stability.
D) wealth.
50)
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Answer Key
Testname: ECON3303_EXAM1_SPRING2017
1) C
2) A
3) D
4) C
5) B
6) C
7) D
8) A
9) D
10) B
11) D
12) B
13) B
14) D
15) A
16) C
17) D
18) B
19) B
20) A
21) C
22) B
23) B
24) B
25) A
26) D
27) C
28) C
29) B
30) B
31) D
32) D
33) B
34) C
35) A
36) A
37) C
38) B
39) A
40) D
41) D
42) D
43) B
44) C
45) C
46) A
47) B
48) B
49) D
50) B
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