Question 1

The average maturity of the marketable debt in the United States:

Accepted Answer

A)  is of little importance, unlike that of private corporations 
B)  has been constant for the last two decades 
C)  remains unchanged unless new obligations are issued 
D)  decreases day by day unless new obligations are issued to offset such decreases 
A)  is of little importance, unlike that of private corporations 
B)  has been constant for the last two decades 
C)  remains unchanged unless new obligations are issued 
D)  decreases day by day unless new obligations are issued to offset such decreases

Question 2

Which of the following statements is most correct?

Accepted Answer

A)  Income from the obligations of the federal government is exempt from all state and local taxes but is subject to federal and state inheritance, estate, or gift taxes. 
B)  Income from the obligations of the federal government is exempt from all federal taxes but is subject to state and local income taxes, state inheritance, estate, or gift taxes. 
C)  Income from the obligations of the federal government is exempt from all federal, state and local taxes but is subject to inheritance, estate, or gift taxes. 
D)  Treasury notes and bonds pay interest monthly by check 
A)  Income from the obligations of the federal government is exempt from all state and local taxes but is subject to federal and state inheritance, estate, or gift taxes. 
B)  Income from the obligations of the federal government is exempt from all federal taxes but is subject to state and local income taxes, state inheritance, estate, or gift taxes. 
C)  Income from the obligations of the federal government is exempt from all federal, state and local taxes but is subject to inheritance, estate, or gift taxes. 
D)  Treasury notes and bonds pay interest monthly by check

Question 3

The basic sources of loanable funds are:

Accepted Answer

A)  short-term funds and currency 
B)  current savings and the creation of new funds through the expansion of credit by depository institutions 
C)  contractual savings and commercial bank credit 
D)  bank loans and the creation of new funds through the contraction of credit by depository institutions 
A)  short-term funds and currency 
B)  current savings and the creation of new funds through the expansion of credit by depository institutions 
C)  contractual savings and commercial bank credit 
D)  bank loans and the creation of new funds through the contraction of credit by depository institutions

Question 4

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace on short term treasury securities?

Accepted Answer

A)  8% 
B)  7% 
C)  6% 
D)  5% 
A)  8% 
B)  7% 
C)  6% 
D)  5%

Question 5

Interest rates in the United States are only influenced by domestic factors.

Accepted Answer

A) True 
 B)False

Question 6

The market segmentation theory holds that securities of different maturities are not perfect substitutes for each other.

Accepted Answer

A) True 
 B)False

Question 7

The rapid economic expansion after the Civil War caused the first period of falling interest rates, from 1864 to 1873.

Accepted Answer

A) True 
 B)False

Question 8

Equilibrium interest rate is the tax rate that equates the demand for and supply of loanable funds.

Accepted Answer

A) True 
 B)False

Question 9

The major factor that determines the volume of savings, corporate as well as individual, is the level of national taxation. Lower levels of taxation lead to higher levels of savings.

Accepted Answer

A) True 
 B)False

Question 10

While the Federal Reserve strongly influences the supply of funds, the Treasury's major influence is on the demand for funds, as it borrows heavily to finance federal deficits.

Accepted Answer

A) True 
 B)False

Question 11

The yield curve or the term structure of interest rates is typically downward sloping when:

Accepted Answer

A)  short-term Treasury interest rates are lower than long-term Treasury interest rates 
B)  short-term and long-term Treasury interest rates are the same 
C)  long-term Treasury interest rates are lower than short-term Treasury interest rates 
D)  long-term Treasure interest rates are higher than short-term Treasury interest rates 
A)  short-term Treasury interest rates are lower than long-term Treasury interest rates 
B)  short-term and long-term Treasury interest rates are the same 
C)  long-term Treasury interest rates are lower than short-term Treasury interest rates 
D)  long-term Treasure interest rates are higher than short-term Treasury interest rates

Question 12

Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent. What type of yield curve is depicted?

Accepted Answer

A)  downward sloping 
B)  flat or level 
C)  upward sloping 
D)  U shaped 
A)  downward sloping 
B)  flat or level 
C)  upward sloping 
D)  U shaped

Question 13

Holding supply constant, a decrease in the demand of loanable funds will result in a (n) ___________ in interest rates.

Accepted Answer

A)  increase 
B)  decrease 
C)  increase or decrease 
D)  undetermined change 
A)  increase 
B)  decrease 
C)  increase or decrease 
D)  undetermined change

Question 14

Federal obligations are not subject to state inheritance, estate, or gift taxes.

Accepted Answer

A) True 
 B)False

Question 15

The maturity risk premium is the compensation expected by investors due to interest rate risk on debt instruments with longer maturity.

Accepted Answer

A) True 
 B)False

Question 16

A basic source of loanable funds is:

Accepted Answer

A)  current savings that flow through financial institutions 
B)  future savings and investment by the Federal Reserve 
C)  current and future savings 
D)  investment by the Federal Reserve and expansion of deposits by insurance companies 
A)  current savings that flow through financial institutions 
B)  future savings and investment by the Federal Reserve 
C)  current and future savings 
D)  investment by the Federal Reserve and expansion of deposits by insurance companies

Question 17

Cost-push inflation during economic expansions when demand for goods and services is greater than supply.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is most correct?

Accepted Answer

A)  The liquidity preference theory holds that interest rates are determined by the supply of and demand for loanable funds. 
B)  The loanable funds theory and the liquidity preference theory are incompatible with each other because one is right and the other is wrong. 
C) . Marketable U.S. securities are mainly sold through dealers and have interest payments that are federally taxable. 
D)  The market segmentation theory holds that securities of different maturities are perfect substitutes for each other. 
A)  The liquidity preference theory holds that interest rates are determined by the supply of and demand for loanable funds. 
B)  The loanable funds theory and the liquidity preference theory are incompatible with each other because one is right and the other is wrong. 
C) . Marketable U.S. securities are mainly sold through dealers and have interest payments that are federally taxable. 
D)  The market segmentation theory holds that securities of different maturities are perfect substitutes for each other.

Question 19

Special Treasury bills are government securities that cannot be transferred between persons or institutions and must be redeemed with the U.S. government,

Accepted Answer

A) True 
 B)False

Question 20

When referring to a "downward sloping" yield curve:

Accepted Answer

A)  as maturities shorten, interest rates decline 
B)  as maturities shorten, interest rates rise 
C)  as maturities lengthen, interest rates remain the same 
D)  as maturities lengthen, interest rates rise 
A)  as maturities shorten, interest rates decline 
B)  as maturities shorten, interest rates rise 
C)  as maturities lengthen, interest rates remain the same 
D)  as maturities lengthen, interest rates rise

The average maturity of the marketable debt in the United States:

Which of the following statements is most correct?

The basic sources of loanable funds are:

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace on short term treasury securities?

Interest rates in the United States are only influenced by domestic factors.

The market segmentation theory holds that securities of different maturities are not perfect substitutes for each other.

The rapid economic expansion after the Civil War caused the first period of falling interest rates, from 1864 to 1873.

Equilibrium interest rate is the tax rate that equates the demand for and supply of loanable funds.

The major factor that determines the volume of savings, corporate as well as individual, is the level of national taxation. Lower levels of taxation lead to higher levels of savings.

While the Federal Reserve strongly influences the supply of funds, the Treasury's major influence is on the demand for funds, as it borrows heavily to finance federal deficits.

The yield curve or the term structure of interest rates is typically downward sloping when:

Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent. What type of yield curve is depicted?

Holding supply constant, a decrease in the demand of loanable funds will result in a (n) ___________ in interest rates.

Federal obligations are not subject to state inheritance, estate, or gift taxes.

The maturity risk premium is the compensation expected by investors due to interest rate risk on debt instruments with longer maturity.

A basic source of loanable funds is:

Cost-push inflation during economic expansions when demand for goods and services is greater than supply.

Which of the following statements is most correct?

Special Treasury bills are government securities that cannot be transferred between persons or institutions and must be redeemed with the U.S. government,

When referring to a "downward sloping" yield curve:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

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Exam 8: Interest Rates

The average maturity of the marketable debt in the United States:

Which of the following statements is most correct?

The basic sources of loanable funds are:

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace on short term treasury securities?

Interest rates in the United States are only influenced by domestic factors.

The market segmentation theory holds that securities of different maturities are not perfect substitutes for each other.

The rapid economic expansion after the Civil War caused the first period of falling interest rates, from 1864 to 1873.

Equilibrium interest rate is the tax rate that equates the demand for and supply of loanable funds.

The major factor that determines the volume of savings, corporate as well as individual, is the level of national taxation. Lower levels of taxation lead to higher levels of savings.

While the Federal Reserve strongly influences the supply of funds, the Treasury's major influence is on the demand for funds, as it borrows heavily to finance federal deficits.

The yield curve or the term structure of interest rates is typically downward sloping when:

Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent. What type of yield curve is depicted?

Holding supply constant, a decrease in the demand of loanable funds will result in a (n) ___________ in interest rates.

Federal obligations are not subject to state inheritance, estate, or gift taxes.

The maturity risk premium is the compensation expected by investors due to interest rate risk on debt instruments with longer maturity.

A basic source of loanable funds is:

Cost-push inflation during economic expansions when demand for goods and services is greater than supply.

Which of the following statements is most correct?

Special Treasury bills are government securities that cannot be transferred between persons or institutions and must be redeemed with the U.S. government,

When referring to a "downward sloping" yield curve:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters