Reference no: EM132584213

Question 1: When the central bank buys $100,000 of government bonds from a commercial bank, monetary base:

A. increases because of increased currency in the hands of the public if this commercial bank receives the proceeds in cash from the central bank

B. decreases because of decreased reserves in the banking system

C. increases because of increased reserves in the banking system

D. none is correct

Question 2: Which of the following is considered to be a depository institution?

A. Commercial banks

B. Credit unions

C. Savings and loan associations

D. All of the above

Question 3: Trading risk faced by U.S. banks results from:

A. Differences in prices of assets at the time they are purchased from the price at which they are sold

B. Usually changes in prices of derivative instruments

C. The instrument (asset) falling in value.

D. All of the above.

Question 4: Foreign exchange risk a bank faces results from:

A. Having assets denominated in one currency and liabilities in another.

B. Foreign borrowers being less likely to repay a foreign bank.

C. Governments may restrict dollar denominated payments.

D. All of the above.

Question 5: An open market purchase of securities by the Federal Reserve system will:

A. Reduce the supply of Federal funds.

B. Increase the supply of Federal funds.

C. Increase the demand of Federal funds.

D. Reduce the demand of Federal funds.

Question 6: An increase in the discount rate can:

A. Reduce the supply of Federal funds and increase the Federal funds rate.

B. Increase the demand for Federal funds and increase the Federal funds rate.

C. Reduce the demand of Federal funds and reduce the Federal funds rate.

D. Increase the supply for Federal funds and reduce the Federal funds rate.

Question 7: An increase in the reserve requirement ratio will:

A. Reduce the demand for Federal funds and reduce the Federal funds rate.

B. Increase the supply of Federal funds and reduce the Federal funds rate.

C. Increase the demand for Federal funds and increase the Federal funds rate.

D. Reduce the supply of Federal funds and increase the Federal funds rate.

Question 8: When the FED sells government securities on the open market,

A. The volume of reserve lending in the Federal Funds market increases.

B. The Federal Funds rate falls

C. The Federal Funds rate rises.

D. The Federal Funds rate remains unchanged.

Question 9: The difference between equities and debt securities is

A. Equities is short term and debt securities are long term.

B. Equities represent ownership in a corporation and debt represents a contractual liability of the corporation

C. Equities pay interest and debt securities pay dividends.

D. Holders of equity securities get paid before holders of debt securities in the event of a bankruptcy.

Question 10: As a central bank grants a $200,000 discount loans to commercial banking system, monetary base:

A. rises because of larger reserve in the banking system

B. reduces because of decreased reserve in the banking system

C. rises because of increased currency

D. none is correct

Question 11: Characteristics of a good monetary policy are:

A. observable and measurable

B. observable, controllable and related to policymakers' objectives

C. controllable, easy to be implemented and measurable

D. simple and observable

Question 12: The rate at which banks charge each other for loans in interbank market is called :

A. discount rate

B. required ratio

C. federal funds rate

D. primary credit rate

Question 13: Choose the correct statement :

A. The more likely it is that the payment will be made, the less valuable the financial instrument.

B. The bigger the promised payment, the less valuable the financial instrument.

C. The sooner the payment is made, the less valuable is the promise to make it.

D. Payments that are made when we need them most are more valuable than other payments.