money&banking test

money&banking test - "' o 7 a. ‘egs' Queen...

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Unformatted text preview: "' o 7 a. ‘egs' Queen Mary Universityolloudon ECN205 MONEY AND BANKING 24-May-05 10:00 ' Duration 2 h 0 min YOU ARE NOT PERMITTED TO START READING THIS QUESTION PAPER UNTIL INSTRUCTED TO DO SO BY AN INVIGILATOR - - QUEEN MARY UNIVERSITY OF LONDON (B.5c. (Econ) by course unit eXamination) - I _ _ ' _ I MONEY AND BANKING (ECNZOS) . 24/5/ 2005 10:00 Zlirs ' Section A is made uprof 25 multiple choice questions which must all be answered. It counts for 50% of the final mark. Section B is made up of 8 short uestions. 5 out of 8 must be ans ered. - Hul’fifle Choice.°.“15‘lfiafl5 ‘l’o he answere an “rho. “*5 “er SL426) A Look, '4 TL“ loaf“ MULTIPLE CHOICE. Ch005e the one alternative that best completes the statement or answers the question. 1) The Gross Domestic Product is the A) the value of all wealth in an economy. B) the value of all stocks and bonds sold in an economy in a year. C) the market value of all final goods and services produced in an economy in a year. D) the value of all goods and services sold to other nations in a year. ' E) the market value of all intermediate goods and services produced in an economy in a year. 2) Which of the follong assets is traded only in an over-the—counter market? A) stocks B) treasury bonds C) commodities _ D) all of the above E) none of the above 3) US. Treasury bills A) sell at a discount because they have no interest payments. B) are the safest of all money market instruments. C) are the most liquid of the money market securities. D) are all of the above. E) are only B and C of the above. 4) During hyperinflations, A) money no longer functions as a good store of value and people may resort to barter transactions on a much larger scale. B) middle-class saVers benefit as prices rise. C) the value of money rises rapidly. D) all of the‘abOVe occur. 5) For a simple loan, the simple interest rate equals the I A) current yield. B) yield to maturity. C) nominal interest rate. D) real interest rate. Queen Ma ry,_ UniVersity of London h . 6) The interest rate on a coan ' ' A) equals the coupon-payment divided by the price. B) equals the price minus the coupon payment. C) equals the price times the coupon payment. D) equals the price divided by the coupon payment. E) equals the coupon payment plus the price. 7) The benefits financial intermediaries provide their customers include A) reduced transactions costs. B) reduced risk. C) increaSed diversification. D) all of the above. B) only B and C of the above. 8) The most important category of assets on the Fed's balance sheet is A) Gold. B) Discount loans. C) Securities. D) Cash items in the process of collection. 9) The Fed does not completeiy control the monetary base because A) it cannot perfectly predict shifts from deposits to currency. B) it cannot set the required reserve ratio on checkable deposits. C) it cannot perfectly predict the amount of discount borrowing by banks. D) of each of the above. E) of both A and B of the above. 10) In the market for reserves, an open market purchase shifts the supply curve to the A) left and causes the federal funds interest rate to rise. B) left and causes the federal funds interest rate to fall. C) right and causes the federal funds'interest rate to fall. D) right and causes the federal funds interest rate to rise. 11) Under the Bretton Woods system, a country running a balance of payments surplus international reserves, and had to implement monetary policy to weaken its currency. A) gained; expansionary B) lost; contra ctionary C) gained; contractionary . ‘ D) lost; expansionary 12) An expansionary monetary policy lowers the real interest rate, causing the domestic currenCy to , thereby net exports. A) depreciate; lowering B) appreciate; lowsring C) depreciate; raising D) appreciate; raising Queen Mary, University of London 13) It is true that inflation is A) a continuous fall‘in prices. l3) constant prices. C) a decline in interest rates. D) a continuous increase in the money supply. E) a continually rising price leVel. I 14) In explaining the evolution of money A) new forms of money evolve to lower transaction costs. B) government regulation is the most important factor. C) commodity money, because it is valued more highly, tends to drive out paper money. D) all of the above are true. ' 15) For a bond selling for $4000, with a par value of $5000 and a coupon rate of 10 percent, the current yield is A) 25 percent. B) 20 percent. C) 10 percent. D) 5 percent. E) 12.5 percent. 16) The concept of adverse selection helps to explain A) why only large, well—established corporations have access to securities markets. ' B) why collateral is an important feature of debt contracts. C) why direct finance is a more important scurce of business finance than is indirect finance. D) all of the above. B) only A and B of the above. 17) When bad drivers line up to purchase collision insurance, automobile insurers are subject to the B) ill queue problem. D) moral hazard problem. A) adverse selection problem. C) assigned risk problem. ' 18) If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.20 C) 0.05. D) 0.10. 19) For a given level of the monetary base, a decrease in the excess reserves ratio causes the money multiplier to and the money supply to . A) decrease; decrease B) increase; increase C) increase; decrease D) decrease," increase 20) Open market operations as a monetary policy tool have the advantages that A) they are easily reversed if mistakes are made. B) they are flexible and precise. C) they can be implemented quickly without administrative delays. D) all of the above. B) only A and B of the above. 21) Which of the following is a potential operating target for the central bank? A) Nominal GNP B) The M1 money supply C) The monetary base D) The discount rate Queen Mary, University of London 3 \l - ' ' p e) A weakness of the Bretton Woods system was that the had no way to force surplus countries to either . revalue their exchange rates upwards or pursue more expansionary policies. ' ' A) IMF . B) World Bank C) Bank of International Settlements D) Central Settlements Bank E) European Exchange Ra te Mechanism (ERM) 23) Economic variables that can serve as a nominal anchor for monetary policy include A) the exchange rate. ' B) the inflation rate. C) the federal budget deficit. D) all of the above. E) both A and B of the above. 24) Movements of interest rates indicate that, contrary to the early Keynesians' beliefs, monetary policy was V during the Great Depression. A) real; tight B) nominal; easy C) nominal; tight D) real; easy 25) Which of the folloWing would provide the strongest evidence that rapid money growth is the driving force behind inflation? A) An exogenous increase in the money supply that lagged the onset of inflation B) An endogenous increase in the money supply that lagged the onset of inflation C) An endogenous increase in the money supply that preceded the onset of inflation D) An exogenous increase in the money supply that preceded the onset of inflation SHORT QUESTIONS. Answer 5 out of the 8 questions. Write your answer on a separate sheet of paper. 26} Explain the concepts of asymmetric information, adverse selection, and moral hazard. When do adverse selection and moral hazard become relevant to the lending process? How has the financial system developed to deal with these problems? ' 27) Explain the functions of money and the problems of barter that each overcomes. 28) A friend tells you that he can purchase a 10 percent coupon bond at face value. Your friend states that 10 percent is a "high" rate of interest. You know that the current rate of inflation is 8 percent, and you expect inflation to increase. What advice should you give to your friend about this bond? 29) Explain why the profitability of traditional banking has declined and how banks have responded. 30) Banking regulation suffers from the principal-agent problem. Describe how this problem relates to regulators and politicians. 31) Explain three ways by which the Federal Reserve System can increase the monetary base. Why is the effect of Federal Reserve actions on bank reserves less exact than the effect on the monetary base? Queen Mary, University of London 4 32) What factors detennine a banks holdings of excess reserves? How does a change in each factor affect excess reserves, the money multiplier, and the money supply? . ' 33) Explain the Fed's three tools of monetary policy and how each is used to change the money supply. Does each tool affect the monetary base or the money multiplier? r v ' End of Examination/ Prof. George Kapetanios a Queen Mary, University of London ...
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money&banking test - "' o 7 a. ‘egs' Queen...

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