QuestionQuestion 1 Idiosyncratic risk is:

Question 1 Idiosyncratic risk is:

Common to everyone.

Represented by Beta.

Specific to a particular business.

Due to changes in the interest rate.

Question 2 Bond prices (and yields) are determined by supply and demand in the bond market. The demand for bonds increases when:

Wealth falls

Expected future interests rises

Expected inflation falls

Government needs to borrow more

Question 3 The current yield is:

Coupon rate divided by price

Coupon rate divided by face value

Coupon rate divided by principle value

Present value of bond future payments at a price of zero

Question 4 The term structure of interest rates is the relationship between time to maturity and:

Coupon to yield maturity (CPN)

Current yield to maturity (CYM)

Average yield to maturity (AYM)

Yield to maturity (YTM)

Question 5 Financial markets are essential to the operation of our economic system because they do all but one of the following:

Derive their value from an underlying security

Offer savers and borrowers liquidity

Pool and communicate information through prices

Allow for the sharing of risk

Question 6 Stock prices are a central element in a market economy because they:

Provide equity

Crashes distort the economy

Ensure resources flow to profitable areas

Act as the other side of bonds

Question 7 The intrinsic and time value of an option depend on all but:

Strike price

Original price of option

Price and volatility of underlying asset

Time to expiration

Question 8 The real exchange rate is strongly related to the:

Purchasing power parity

Technical specifications

Inflation differential

Government yield rate

Question 9 Adverse selection means:

Borrower may not use the borrowed funds productively

Borrower safeguards the funds in an improper location

Least creditworthy borrowers are the ones who borrow

The problem of distinguishing a good credit risk from a bad credit risk.

Question 10 The risks faced by banks in day-to-day operations include:

Default

Liquidity

Credit

All of the above

Question 11 Banks assets are all but:

Loans

Deposits

Reserves

Securities

Question 12 Banks make a profit for their owners. Banks typically measure their own profitability by all except:

Interest coverage

Net interest income

Net interest margin

Return on assets

Question 13 All of the following are non-depository institutions except:

Banks

Insurance companies
pension funds

Finance companies

Question 14 A bank run can place a bank into which of the following positions?

Illiquidity

Stability

Receivership

None of the above

Question 15 Government is involved in every part of the financial system. Government officials may intervene in the financial system in order to do all but:

Protect small depositors

Protect large depositors

Safeguard the stability of the financial system

Government can intervene to do all of the above

Question 16 Functions of the modern central bank is to do all but:

Adjust interest rates and other tools to control quantity of money and credit in the economy

Assure a free market economy without regulation

Oversee the financial system

Lend to sound banks during times of stress

Question 17 Which of the following does not describe thefederal open market Committee (FOMC):

Sets interest rates

Has 12 voting members

Is controlled largely by the chair

Meets every month

Question 18 Money multiplier depends on:

Reserve requirement

Banks’ desire to hold excess reserves

Public’s desire to hold currency

All of the above

Question 19 The six core principles include all but:

Time has value

Risks requires compensation

Instability improves welfare

Markets develop prices and allocate resources

Question 20 Changes in the amount of money in the economy are related to changes in all but:

Interest Rates

Diversity Rates

Inflation Rates

Monetary Policy

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