midterm(answers)

midterm(answers) - ECN 135 Money and Banking, Summer...

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ECN 135 Money and Banking, Summer Session 2, 2008 Midterm 8/27 1. Which of the following statements best describes financial instruments ? a. All financial instruments are a means of payment b. Financial instruments can transfer resources between people but not risk C . Financial instruments can transfer resources and risk between people d. Financial instruments can transfer risk but not resources between people 2. The statement "risk requires compensation" implies that people: a. Do not take risk b. Only accept risk when they absolutely have to C . Will only accept risk when they are rewarded for doing so d. Avoid risk at all cost 3. The price you pay to purchase a Treasury bond is the _____ price. a. asked b. yield c. call d. bid 4. Fly-By-Night Inc. issues $100 face value, zero-coupon, one-year bonds. The current return on one-year, zero-coupon U.S. government bonds is 3.5%. If the Fly-By-Night bonds are selling for $92.00, what is the risk premium for these bonds? a. 8.7% b. 1.5% C . 5.2% d. 8.0%
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ECN 135 Money and Banking, Summer Session 2, 2008 Midterm 8/27 5. The primary function of central banks is to: a. Increase risk and volatility to increase compensation b . Control inflation and help reduce business cycle fluctuations c. Increase the uncertainty that firms face in making investment decisions d. Eliminate the need for banks to collect financial information 6. During the Civil War, the North issued currency, known as "greenbacks". Which of the following is true of "greenbacks"? A . Greenbacks are still legal tender in the U.S b. Greenbacks were tied to the value of gold and silver c. The South used "greenbacks" to pay for salaries and supplies d. Greenbacks are a historical example of commodity money 7. The Consumer Price Index (CPI): a. Is an example of an index that uses variable expenditure weights b. Is a fixed-expenditure-weight index used to measure changes in the GDP Deflator C . Is a fixed-expenditure weight-index used to measure changes in purchasing power for households d. Is the least commonly used measure of inflation
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ECN 135 Money and Banking, Summer Session 2, 2008 Midterm 8/27 8. Which of the following statements is incorrect ? a. If you can buy the same goods this year as you bought last year with less money there must have been deflation b. If you can buy the same goods this year as you purchased one year ago with the same amount of money, prices are stable c. If purchasing the same goods today that were purchased one year ago requires more money, there must have been inflation D . If you can buy the same goods this year as you bought last year with the same money there must have been deflation 9. As a result of "Check 21—The Check Clearing for the 21 st Century Act: a . Banks no longer have to ship paper checks to complete the process of check clearing b. People can write checks and plan on having a couple of days to make a deposit to cover the check amount c. Canceled checks can no longer be used as proof of payment
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midterm(answers) - ECN 135 Money and Banking, Summer...

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