Question 1

-Refer to Figures A, B, and C. According to expectations theory, which of the figures best reflects a situation where is > ise?

Accepted Answer

A) Figure A 
B) Figure B 
C) Figure C 
D)  None of the above 
A) Figure A 
B) Figure B 
C) Figure C 
D)  None of the above

Question 2

Preferred habitats refers to

Accepted Answer

A) preferring stocks over bonds. 
B) minimal allowance for write-offs. 
C) preferred maturities for borrowers and lenders that may lead to market segmentation. 
D) investment in newly constructed housing. 
A) preferring stocks over bonds. 
B) minimal allowance for write-offs. 
C) preferred maturities for borrowers and lenders that may lead to market segmentation. 
D) investment in newly constructed housing.

Question 3

A downward-sloping yield curve usually means that

Accepted Answer

A) interest rates are abnormally high. 
B) market participants expect future short-term interest rates to fall. 
C) long-term rates are lower than short-term rates. 
D) All of the above are correct. 
A) interest rates are abnormally high. 
B) market participants expect future short-term interest rates to fall. 
C) long-term rates are lower than short-term rates. 
D) All of the above are correct.

Question 4

Changes in interest rates may be caused by which of the following?

Accepted Answer

A) Changes in liquidity premiums 
B) Changes in preferred habitats 
C) Changes in the supply of funds driven by changes in expectations 
D) All of the above may cause interest rates to change. 
A) Changes in liquidity premiums 
B) Changes in preferred habitats 
C) Changes in the supply of funds driven by changes in expectations 
D) All of the above may cause interest rates to change.

Question 5

The expected future short-term interest rate is determined by all of the following except?

Accepted Answer

A) expectations about the future money supply 
B) expectations about future income 
C) expectations about the future price level 
D) the current short-term interest rate 
A) expectations about the future money supply 
B) expectations about future income 
C) expectations about the future price level 
D) the current short-term interest rate

Question 6

The main advantage of municipal securities is that

Accepted Answer

A) their credit risk is usually very low. 
B) the interest income earned is exempt from federal income tax and taxes in the issuing state. 
C) they are the most liquid type of securities. 
D) Both a and b are correct. 
A) their credit risk is usually very low. 
B) the interest income earned is exempt from federal income tax and taxes in the issuing state. 
C) they are the most liquid type of securities. 
D) Both a and b are correct.

Question 7

According to Standard & Poor's, the highest credit rating that can be awarded is

Accepted Answer

A)  A. 
B) 
B
A)  
C) 
A
A)  
D) 
AA
A)  
A)  A. 
B) 
B
A)  
C) 
A
A)  
D) 
AA
A)

Question 8

If the yield curve was negatively sloped, this would most likely reflect expectations of a combination of future

Accepted Answer

A) declines in the money supply and income. 
B) declines in income and inflation. 
C) increases in income and inflation. 
D) increases in income and money supply. 
A) declines in the money supply and income. 
B) declines in income and inflation. 
C) increases in income and inflation. 
D) increases in income and money supply.

Question 9

Typically, during a recession the spread between the highest- and medium-grade-rated municipal bonds

Accepted Answer

A) narrows. 
B) remains the same. 
C) overlaps. 
D) widens. 
A) narrows. 
B) remains the same. 
C) overlaps. 
D) widens.

Question 10

If the present 1-year rate is 4% and the expected 1-year rate is 6%, then according to the expectations theory, the 2-year rate is approximately which of these?

Accepted Answer

A) 6% 
B) Unknown 
C) 5% 
D) 4% 
A) 6% 
B) Unknown 
C) 5% 
D) 4%

Question 11

According to the expectations theory, if next year's expected short-term rate is above the current short-term rate, the yield curve will be

Accepted Answer

A) horizontal. 
B) vertical. 
C) upward sloping. 
D) downward sloping. 
A) horizontal. 
B) vertical. 
C) upward sloping. 
D) downward sloping.

Question 12

According to the expectations theory, a positively sloped yield curve usually reflects

Accepted Answer

A) an increase in expected future income. 
B) a decrease in expected future income. 
C) a decrease in expected future prices. 
D) an increase in the money supply. 
A) an increase in expected future income. 
B) a decrease in expected future income. 
C) a decrease in expected future prices. 
D) an increase in the money supply.

Question 13

According to the expectations theory, when the yield curve is rising, market participants expect

Accepted Answer

A) future long-term interest rates to rise above current short-term rates. 
B) future long-term interest rates to fall below current long-term rates. 
C) future short-term interest rates to rise above current short-term rates. 
D) future short-term interest rates to fall below current short-term rates. 
A) future long-term interest rates to rise above current short-term rates. 
B) future long-term interest rates to fall below current long-term rates. 
C) future short-term interest rates to rise above current short-term rates. 
D) future short-term interest rates to fall below current short-term rates.

Question 14

Ceteris paribus, when borrowers decrease their current supply of long-term securities, then

Accepted Answer

A) short-term interest rates will rise. 
B) long-term interest rates will rise. 
C) long-term interest rates will fall. 
D) All of the above 
A) short-term interest rates will rise. 
B) long-term interest rates will rise. 
C) long-term interest rates will fall. 
D) All of the above

Question 15

Which of the following may be true?

Accepted Answer

A) All interest rates generally move up and down together. 
B) All interest rates may not move the exact same amount. 
C) Sometimes interest rates may not move in the same direction as others. 
D) All of the above are true. 
A) All interest rates generally move up and down together. 
B) All interest rates may not move the exact same amount. 
C) Sometimes interest rates may not move in the same direction as others. 
D) All of the above are true.

Question 16

Ceteris paribus, when borrowers increase their current supply of long-term securities, then

Accepted Answer

A) short-term interest rates will rise. 
B) long-term interest rates will rise. 
C) long-term interest rates will fall. 
D) All of the above 
A) short-term interest rates will rise. 
B) long-term interest rates will rise. 
C) long-term interest rates will fall. 
D) All of the above

Exam 6: The Structure of Interest Rates

-Refer to Figures A, B, and C. According to expectations theory, which of the figures best reflects a situation where is > ise?

Preferred habitats refers to

A downward-sloping yield curve usually means that

Changes in interest rates may be caused by which of the following?

The expected future short-term interest rate is determined by all of the following except?

The main advantage of municipal securities is that

According to Standard & Poor's, the highest credit rating that can be awarded is

If the yield curve was negatively sloped, this would most likely reflect expectations of a combination of future

Typically, during a recession the spread between the highest- and medium-grade-rated municipal bonds

If the present 1-year rate is 4% and the expected 1-year rate is 6%, then according to the expectations theory, the 2-year rate is approximately which of these?

According to the expectations theory, if next year's expected short-term rate is above the current short-term rate, the yield curve will be

According to the expectations theory, a positively sloped yield curve usually reflects

According to the expectations theory, when the yield curve is rising, market participants expect

Ceteris paribus, when borrowers decrease their current supply of long-term securities, then

Which of the following may be true?

Ceteris paribus, when borrowers increase their current supply of long-term securities, then

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

Aggregate Demand and Aggregate Supply

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

Filters

-Refer to Figures A, B, and C. According to expectations theory, which of the figures best reflects a situation where i_s > i_s^e?