EC3332 - EC3332 NATIONAL UNIVERSITY OF SINGAPORE EC3332...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: EC3332 NATIONAL UNIVERSITY OF SINGAPORE EC3332 MONEY AND BANKING I (SEMESTERI : AY2008—2009) Time Allowed : 2 Hours INSTRUCTIONS TO CANDIDATES 1. The examination consists of two parts on seven printed pages. '2. Part 1 comprises thirty multiple-choice questions. Part 2 includes two short—answer questions. 3. Candidates must attempt all questions in both parts. 4. This is a CLOSED BOOK examination. 5. Total marks: 100 2 EC3332 Part 1. Choose one correct answer to each of the following questions [2 marks each] 1. With an interest rate of 6 percent, the present value of $100 next year is approximately A) $106. B) $100. C) $94. D) $92. An increase in the time to the promised future payment payment. A) decreases B) increases C) has no effect on D) is irrelevant to the present value of the Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds relative to US. Treasury bonds and the demand for corporate bonds A) rises; rises B) rises; falls C) falls; rises D) falls; falls An increase in the expected rate of inflation will the expected return on bonds relative to the that on assets, everything else held constant. A) reduce; financial B) reduce; real C) raise; financial D) raise; real If the probability of a bond default increases because corporations begin to suffer large losses, then the default risk on corporate b0nds will and the expected return on these bonds will everything else held constant. A) decrease; increase B) decrease; decrease C) increase; increase D) increase; decrease 6. 3 EC3332 Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the and the demand curve for Treasury bonds to the A) right; right B) right; left C) left; right D) left; left In the one-period valuation model, the value of a share of stock depends upon A) the present value of both dividends and the expected sales price. B) only the present value of the future dividends. C) the actual value of the dividends and the expected sales price received in one year. D) the future value of dividends and the actual sales price. Using the one—period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be A) $110.1 1. B) $121.12. C) $100.10. D) $100.11. Which of the following statements concerning external sources of financing for nonfmancial businesses in the United States is true? A) Stocks are a far more important source of finance than are bonds. B) Stocks and bonds, combined, supply less than one-half of the external funds. C) Financial intermediaries such as banks are the least important source of external funds for businesses. D) Since 1970, more than half of the new issues of stock have been sold to American households. 10. One purpose of regulation of financial markets is to 11. A) limit the profits of financial institutions. B) increase competition among financial institutions. C) promote the provision of information to shareholders, depositors and the public. D) guarantee that the maximum rates of interest are paid on deposits. A monetary contraction is characterized by A) rising output and interest rates. B) rising output and falling interest rates. C) falling output and rising interest rates. D) falling output and interest rates. 12. 13. 14. 15. 16. 17. 4 EC3332 Which of the following statements is false? A) A bank's assets are its uses of funds. B) A bank issues liabilities to acquire fimds. _ C) The bank's assets provide the bank with inc0me. D) Bank capital is recorded as an asset on the bank balance sheet. Large-denomination CDs are market before they mature. A) nonnegotiable; secondary B) nonnegotiable; primary C) negotiable; secondary D) negotiable; primary , so that like a bond they can be resold in a Bank loans from the Federal Reserve are called funds. A) discount loans; use B) discount loans; source C) fed funds; use D) fed funds; source and represent a of The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks from A) issuing equity to finance bank expansion. B) engaging in underwriting and dealing of corporate securities. C) selling new issues of government securities. D) purchasing any debt securities. Although the FDIC was created to prevent bank failures, its existence encourages banks to A) take too much risk. B) hold too much capital. C) open too many branches. D) buy too much stock. An analysis of the political economy of the savings and loan crisis helps one to underst A) why politicians aided the efforts of thrift regulators, raising regulatory appropriations and encouraging closing of insolvent thrifis. B) why thrift regulators were so quick to inform Congress of the problems that existed in the thrift industry. C) why thrift regulators willingly acceded to pressures placed upon them by members of Congress. D) why politicians listened so closely to the taxpayers they represented. 18. 19. 20. 21. 22. 23. EC3332 Both and are Federal Reserve assets. A) currenCy in circulation; reserves B) currency in circulation; government securities C) government securities; discount loans D) government securities; reserves In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio. Decisions by depositors to increase their holdings of or by banks to hold , will result in a smaller expansion of deposits than the simple model predicts. A) deposits; required reserves B) deposits; excess reserves C) currency; required reserves D) currency; excess reserves If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is A) $8000 billion. B) $1200 billion. C) $12009 billion. D) $8400 billion. In the market for reserves, an open market purchase causes the federal funds interest rate to A) decreases; fall B) increases; fall C) increases; rise D) decreases; rise the supply of reserves and , everything else held constant. In the market for reserves, 3 for reserves, A) rise; lowering B) decline; raising C) decline; lowering D) rise; raising in the reserve requirement decreases the demand the federal funds interest rate, everything else held constant. 24. 25. 26. EC3332 Price stability is desirable because A) inflation creates uncertainty, making it difficult to plan for the future. B) everyone is better off when prices are stable. C) price stability increases the profitability of the Fed. D) it guarantees full employment. Which set of goals can, at times, conflict in the short run? A) High employment and economic growth. B) Interest rate stability and financial market stability. C) High employment and price level stability. D) Exchange rate stability and financial market stability. Everything else held constant, when a country's currency appreciates, the country's goods abroad become expensive and foreign goods in that country become expensive. A) more; less B) more; more C) less; less D) less; more 27. If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 28. 29. percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will A) rise by 6 percent. B) rise by 2 percent. C) fall by 6 percent. D) fall by 2 percent. A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base, everything else held constant. A) sale; purchase B) sale; sale C) purchase; sale D) purchase; purchase Under a fixed exchange rate system, countries that ran large, persistent balance of payments surpluses would international reserves, thereby pressuring them into their exchange rate. A) gain; devaluing B) gain; revaluing C) lose; devaluing D) lose; revaluing 7 EC3332 30. Cutting the money supply by one—third is predicted by the quantity theory of money to cause A) a sharp decline in real output of one-third in the short run, and a fall in the price level by one—third in the long run. B) a decline in real output by one-third. C) a decline in output by one-sixth, and a decline in the price level by one-sixth. D) a decline in the price level by one-third. Part 2. Short-answer questions [20 marks each] Question 1. Consider the term structure of interest rates of bonds: A) What are the important empirical facts of the relationships between interest rates of bonds With different maturities? [10 marks] B) Discuss What and how theories explain these facts. [10 marks] Question 2. Consider the monetary policy by the Federal Reserve of the United States in 1929-1933, at the time of the Great Depression. A) What were the major monetary policy actions by the Fed? [10 marks] B) What lessons can we learn from these policy actions in order to cope with today's financial crisis? [10 marks] ~— END OF PAPER — ...
View Full Document

This note was uploaded on 01/30/2012 for the course ECON 121 taught by Professor Abi during the Spring '11 term at Abu Dhabi University.

Page1 / 7

EC3332 - EC3332 NATIONAL UNIVERSITY OF SINGAPORE EC3332...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online