Marks 25
Instructions:
This quiz covers up to Lesson 17-28.
Last date for submission of quiz is 19/4/16
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Answer Sheet
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Q no.
Selected option
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QUIZ
1. According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects:
Short-term interest rates to rise sharply.
Short-term interest rates to stay near their current levels.
Short-term interest rates to drop sharply.
None of the above.
2. When the yield curve slopes down,
The expectations theory suggests that short-term interest rates are expected to fall.
The segmented markets theory suggests that short-term interest rates are expected to rise.
The expectations theory suggests that short-term interest rates are expected to rise.
The liquidity premium theory suggests that short-term interest rates are expected to rise.
3. Which of the following patterns of term structure occur most frequently?
Ascending yield curve
Descending yield curve
Flat yield curve
Humped yield curve
4. Common stocks (or corporate stocks):
Represent an IOU on the part of the issuing firm
Entitle the holder to contractual payments
Were a poor investment over the period 1982?1996
Allows the holder to share in the earnings of the firm
5. Financial intermediaries:
Channel funds from savers to borrowers
Greatly enhance economic efficiency
Have been an source of many financial innovations
Have done all of the above
6. Which of the following cannot be described as indirect finance?
You take out a mortgage from your bank.
An insurance company lends money to General Motors Corporation.
You borrow $1000 from your best friend.
You buy shares in a mutual fund.
7. Which of the following is a depository institution?
Life insurance Company
Credit union
Pension fund
Finance company
8. Which of the following is traded in a money market?
U.S. Treasury bonds
Mortgages
Common stocks
Federal funds
9. The primary liabilities of a savings and loan association are:
Bonds.
Mortgages.
Deposits.
Commercial paper.
10. Financial intermediaries promote efficiency and thereby increase people’s wealth:
By reducing the transaction cost of linking together lender and borrowers.
To the extent that they help solve problems created by adverse selection and moral hazard.
By providing additional jobs.
Because of only (a) and (b) of the above.
11. When an investment bank purchases a new issue of securities in the hopes of making a profits, it is said to ________ the issue.
Pawn
Back stock
Syndicate
Underwrite
12. Which of the following is a use for commercial bank funds?
Loans
Securities
Reserves
All of the above
13. On the commercial bank balance sheet, which of the following is an asset?
Capital accounts
Deposits with Federal Reserve
transactions deposits
All of the above
14. If a bank has total assets of $100 million and capital accounts of $8 million, then:
Its total liabilities are $92 million
Its total liabilities are $108 million
It has an equity multiplier of 10
None of the above are true
15. A bank can increase its leverage by increasing its ratio of:
Earnings/total assets
Total assets/equity capital
Earnings/equity capital
Equity capital/total assets
16. When you deposit a $100 check in your bank account at the First National Bank of Chicago and you withdraw $50 in cash, then:
The liabilities of First National Bank rise by $100.
The reserves of First National Bank rise by $100.
The assets of the First National Bank rise by $100.
The liabilities of the First National Bank rise by $50.
17. Commercial banks obtain funds by:
Issuing demand deposits
Borrowing from other banks
Issuing ownership claims (equity)
All of the above
18. A bank failure is more likely to occur when:
A bank holds more U.S. government securities
A bank suffers large deposit outflows.
A bank holds more excess reserves.
A bank has more bank capital.
19. —————measures how efficiently a bank uses its assets:
Return on assets
Return on equity
Bank capital
Bank Profitability
20. ———–refers to the risk assessment and loss reimbursement guarantee by the individual risk experts of the relevant field:
Underwriting process
Research process
Insurance process
None of the given options
21. The euro is the name for:
A currency deposited outside its country of origin.
A bond sold internationally outside of the country in whose currency the bond is denominated.
A common European currency.
A type of sandwich.
22. Banks can operate in other countries by:
Offering same services as in home country
Opening a foreign branch
Creating an international Banking Facility
All of the given options.
23. The theory of efficient markets:
Allows for higher than average returns if the investor takes higher than average risk
Says insider information makes markets less efficient
Rules out high returns due to chance
Assumes people have equal luck
24. If information in a financial market is asymmetric, this means:
Borrowers and lenders have perfect information
Borrowers would have more information than lenders
Borrowers and lenders have the same information
Lenders lack any information
25. NWY Bank is:
A Finance company
A Securities firm
A Government sponsored enterprise
An insurance company
