Question No: 1 ( Marks: 1 ) - Please choose one
The loans made between borrowers and lenders:
► Are liabilities to the lenders and assets to the borrowers since the borrower obtains the funds
► Are assets to the lenders and liabilities of the borrowers since the promises are made to the lenders
► Are assets to the borrowers as he obtains funds and also the liability to the borrowers as he has to pay it
► Are not part of either's assets or liabilities until the loans are repaid
Question No: 2 ( Marks: 1 ) - Please choose one
The future value of $200 at a 5% per year interest rate at the end of one year is:
► $195.00
► $210.00
► $197.50
► $100
Ans : 210
Question No: 3 ( Marks: 1 ) - Please choose one
If at 5% interest rate, $100 payment has a PV of $90.70. Then what will be the PV value of $200 payment? (Without applying formula).
► $45.35
► $272.1
► $181.4
► $362.8
Question No: 4 ( Marks: 1 ) - Please choose one
The interest rate that is involved in _____________ calculation is referred to as discount rate
► Present value
► Future value
► Intrinsic value
► Discount value
Ans ► Present value
Question No: 5 ( Marks: 1 ) - Please choose one
If a bond sells at a premium, where price exceeds face value, then we would expect to see:
► Market interest rate the same as the coupon rate
► Market interest rates above the coupon rate
► Market interest rates below the coupon rate
► None of the given options
Ans ► Market interest rates above the coupon rate
Question No: 6 ( Marks: 1 ) - Please choose one
The risk premium for an investment:
► Increases with risk
► Is a fixed amount added to the risk free return
► Is negative for U.S. Treasury Securities
► Is negative for risk averse investors
Ans ► Increases with risk
Question No: 7 ( Marks: 1 ) - Please choose one
Which of the following patterns of term structure occur most frequently?
► Ascending yield curve
► Descending yield curve
► Flat yield curve
► Humped yield curve
► Flat yield curve
Question No: 8 ( Marks: 1 ) - Please choose one
Which one of the following is true for the relationship between the yield of taxable and tax exempt bond?
► Higher the tax rate wider the gap between the yield of taxable and tax exempt bond
► Taxable bond yield is always greater than tax exempt bond
► Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
► Lower the tax rate wider the gap between yield of taxable and tax exempt bond
Question No: 9 ( Marks: 1 ) - Please choose one
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
► Shorter
► Wider
► No gap
► Any thing can be possible
Question No: 10 ( Marks: 1 ) - Please choose one
A graph in which time to maturity is along x-axis and yield to maturity is along y-axis is called __________.
► Government curve
► SWAP curve
► Yield curve
► LIBOR curve
Question No: 11 ( Marks: 1 ) - Please choose one
A share of common stock represents ___________.
► A claim from a lender to a borrower
► A share in the company's assets
► A share of ownership of the company
► An unlimited liability to the owner of the stock
Question No: 12 ( Marks: 1 ) - Please choose one
Deflation compounds information problems because:
► It increases a company's net worth
► It reduces the dollar value of assets while the dollar value of liabilities stays constant
► It tends to understate a company's assets and overstate their liabilities
► It always harms lenders
Question No: 13 ( Marks: 1 ) - Please choose one
Which of the following is a Bank Liability?
► Reserves
► Treasury bonds
► Loans
► Federal fund borrowings
Question No: 14 ( Marks: 1 ) - Please choose one
A stand by letter of credit is a form of:
► Loan
► Insurance
► Security
► Deposits
Question No: 15 ( Marks: 1 ) - Please choose one
Which of the following is the primary source of funds for Depository institutions?
► Short term loans
► Shares sold to customers
► Savings and time deposits
► Commercial papers
Question No: 16 ( Marks: 1 ) - Please choose one
Under the purchase and assumption method of dealing with a failed bank, the FDIC ______________.
► Sells the failed bank to the Federal Reserve
► Finds another bank to take over the insolvent bank
► Takes over the day to day management of the bank
► Sells off the profitable loans of the failed bank in an open auction
Question No: 17 ( Marks: 1 ) - Please choose one
"The Government is too big to fail" policy applies to the______________.
► Bank run in specific highly populated states which impacts a large percent of the total population
► Banks that have branches in more than two states
► Large corporate payroll accounts held by some banks where many people would lose their income
► Large banks whose failure would certainly start a widespread panic in the financial system
Question No: 18 ( Marks: 1 ) - Please choose one
An open market purchase of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show _________.
► A decrease in the asset of securities and a decrease in the liability of reserves
► A decrease in the liability of reserves
► No change in the size of balance sheet except composition of assets
► An increase in the asset category of securities and the liability category of reserves
Question No: 19 ( Marks: 1 ) - Please choose one
If M = the quantity of money, m the money multiplier, MB the Monetary Base; C = Currency, D = Deposits; R = Reserves, RR equals required reserves; and ER = excess reserves; then m would equal:
► M/MB
► R/ER
► C + D
► C + D – ER
Question No: 20 ( Marks: 1 ) - Please choose one
Key assumptions behind the quantity theory of money include which of the following?
► The change in nominal GDP is zero
► Percentage change in the price level equals the percentage change in real GDP
► The velocity of money is constant
► The money supply is fixed
Question No: 21 ( Marks: 1 ) - Please choose one
A rate of inflation that is less than the growth rate of money for a country could be explained by which one of the following?
► A decreasing velocity of money
► A contracting real economy
► A constant velocity of money
► A increasing velocity of money
Question No: 22 ( Marks: 1 ) - Please choose one
Interest rate risk arises as a result of which one of the following consequences?
► It arises when banks make additional profit by using derivatives
► It arises when loan is not repaid
► It arises because of sudden demands of funds
► It arises when two sides of the balance sheet do not match up
Question No: 23 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for gap analysis?
► It is the difference between the yield on interest sensitive assets and liabilities
► It is the difference in the maturity of assets and liabilities
► Banks manage credit risk by using gap analysis
► It is a formal study of what a business is doing currently and where it wants to go in the future
Question No: 24 ( Marks: 1 ) - Please choose one
American Bank actively manages a large portfolio of bonds. It trades to enhance the portfolio's profitability. Which of the following risk American Bank would face most probably?
► Market risk
► Operational risk
► Technology risk
► Insolvency risk
Question No: 25 ( Marks: 1 ) - Please choose one
Excess reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?
► Central bank
► Bank regulators
► Commercial banks
► Non bank public
Question No: 26 ( Marks: 1 ) - Please choose one
Aggregate demand curve slopes down because of many reasons which of the following is NOT the reason of its downward slope?
► Higher inflation increases real money balances
► Higher inflation induces policymakers to raise the real interest rate
► Rising inflation also reduces wealth
► Rising inflation lowers consumption
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following is NOT an example of financial institutions?
► Bank
► Securities firm
► Stock exchange
► Insurance company
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following has created an opportunity for small investors to participate in economic activity?
► Mutual funds
► Small corporations
► Stock brokers
► Small investors cannot take part in economic activity
Question No: 29 ( Marks: 1 ) - Please choose one
Managing _______ is a major concern for today’s banks.
► Trading risk
► Interest rate risk
► Systematic risk
► Other risk
Question No: 30 ( Marks: 1 ) - Please choose one
Which of the following is a combination of auto insurance?
► Life insurance and property insurance
► Life insurance and causality insurance
► Property insurance and casualty insurance
► Life insurance and saving account
Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following are the primary uses of funds of depositor institution?
► Cash, loans, securities
► Corporate bonds, government bonds, stocks
► Commercial paper, bonds, mortgages
► Mortgages, consumer loans, business loans
Question No: 32 ( Marks: 1 ) - Please choose one
Why central bank occupies a privileged position in a country?
► It controls the availability of money
► It controls credit in a country’s economy
► All of the given options
► It has monopoly on the issuance of currency
Question No: 33 ( Marks: 1 ) - Please choose one
Which of the following are goals of the Central Bank?
► Price stability
► Stable output growth
► Stable financial system
► All of the above
Question No: 34 ( Marks: 1 ) - Please choose one
Which of the following is NOT a function of the Central Bank?
► Conduct economic research
► Regulate brokers and insurance companies
► Evaluate bank mergers
► These are all functions of the fed.
Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following can expand the size of the balance sheet of a central bank and the monetary base?
► Open market operations
► Discounted loans
► Foreign exchange intervention
► All of the given options
Question No: 36 ( Marks: 1 ) - Please choose one
Difference between _______ and required reserve is the excess reserves.
► Deposits
► Securities
► Currency
► Reserve
Question No: 37 ( Marks: 1 ) - Please choose one
The withdrawal reduces the banking system’s____________, which is a decrease in its assets, and if the funds come from a checking account, there is a matching decrease in liabilities.
► Vault cash
► Securities
► Reserves
► Currency
Question No: 38 ( Marks: 1 ) - Please choose one
Required reserve ratio and quantity of money have __________.
► Direct relation
► Inverse relation
► No relation
► Incomplete information
Question No: 39 ( Marks: 1 ) - Please choose one
The quantity of money people hold for transaction purposes does NOT depends upon:
► Nominal income
► Cost of holding money
► Availability of substitutes
► Real income
Question No: 40 ( Marks: 1 ) - Please choose one
Higher the level of uncertainty about the future, the higher the demand for money and the _________ the velocity of money.
► Incomplete information
► Lower
► Higher
► Stable
Question No: 41 ( Marks: 1 ) - Please choose one
Which of the following has a great influence on the aggregate demand?
► Real interest rate
► Nominal interest rate
► Effective interest rate
► None of the given options
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following is (are) the factor(s) of aggregate demand?
► Investment
► Govt. purchases
► All of the given options
► Consumption
Question No: 43 ( Marks: 1 ) - Please choose one
When current inflation raises Monetary policymakers raise the real interest rate, moving _________along the monetary policy reaction curve
► Right
► Left
► Upward
► Downward
Question No: 44 ( Marks: 1 ) - Please choose one
Which of the following is shown by the aggregate demand curve?
► How sensitive current output is to given change in current inflation
► Current output is not sensitive to given change in current inflation
► Current output and current inflation both move in the same direction
► None of the given options
Question No: 45 ( Marks: 1 ) - Please choose one
Which of the following reason(s) can shift the short run aggregate supply curve?
► Deviation of current output from potential output
► Changes in external factors driving production costs
► When current output is equal to potential out put
► Deviation of current output from potential output and Changes in external factors driving production costs
Question No: 46 ( Marks: 1 ) - Please choose one
Which of the following is determined by the intersection of the aggregate demand curve with the short-run aggregate supply curve?
► Short-run equilibrium
► Long-run equilibrium
► Both short-run and long-run equilibrium
► None of the given options
Question No: 47 ( Marks: 1 ) - Please choose one
When current output exceeds potential, the resulting expansionary gap exerts upward pressure on inflation, shifting the short-run aggregate supply curve _____________.
► Right
► Left
► Upward
► Downward
Question No: 48 ( Marks: 1 ) - Please choose one
Policymakers can shift the aggregate demand curve by shifting their monetary policy reaction curve, but which of the following cannot be shifted by them?
► Short-run aggregate supply curve
► Long-run aggregate demand curve
► Short-run aggregate demand curve
► None of the given options
Question No: 49 ( Marks: 3 )
What is the effect of an increase in potential output on inflation and output?
Question No: 50 ( Marks: 3 )
Give an account of different components of aggregate demand?
Question No: 51 ( Marks: 5 )
Give brief explanation of the following.
a)What is Target funds rate?
b) How it is controlled?
c)What will be the impact of target federal rate on economy?
Question No: 52 ( Marks: 5 )
A well-designed policy framework helps policymakers establish credibility. Discuss the principles of central bank design.
Question No: 53 ( Marks: 5 )
“Monetary policy makers react to changes in current inflation by changing the real interest rate”. Discuss.
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