Question 1

The purpose of diversification is to

Accepted Answer

A)  increase the liquidity of a financial portfolio. 
B)  reduce the brokerage fees involved in managing a financial portfolio. 
C)  reduce risk. 
D)  reduce tax liability. 
A)  increase the liquidity of a financial portfolio. 
B)  reduce the brokerage fees involved in managing a financial portfolio. 
C)  reduce risk. 
D)  reduce tax liability.

Question 2

Economists define money as

Accepted Answer

A)  cash in circulation. 
B)  deposits in commercial banks. 
C)  anything that people are willing to accept in payment for goods and services or to pay off debts. 
D)  bonds issued by large corporations. 
A)  cash in circulation. 
B)  deposits in commercial banks. 
C)  anything that people are willing to accept in payment for goods and services or to pay off debts. 
D)  bonds issued by large corporations.

Question 3

All of the following are examples of risky mortgages that became more common in the 2000s EXCEPT

Accepted Answer

A)  alt-A mortgages. 
B)  adjustable-rate mortgages with low rates for a few years and then higher rates in later years. 
C)  mortgages requiring down payments of at least 20%. 
D)  subprime mortgages. 
A)  alt-A mortgages. 
B)  adjustable-rate mortgages with low rates for a few years and then higher rates in later years. 
C)  mortgages requiring down payments of at least 20%. 
D)  subprime mortgages.

Question 4

The Fed and Treasury took action to restore the flow of funds from savers to borrowers in order to encourage all of the following EXCEPT

Accepted Answer

A)  increase the return to savers. 
B)  enable households to purchase durable goods. 
C)  increase the likelihood of purchases of houses. 
D)  allow firms to finance purchases of structures and equipment. 
A)  increase the return to savers. 
B)  enable households to purchase durable goods. 
C)  increase the likelihood of purchases of houses. 
D)  allow firms to finance purchases of structures and equipment.

Question 5

Liquidity

Accepted Answer

A)  is the best available measure of the riskiness of an asset. 
B)  is a characteristic of money, and of no other asset. 
C)  is the ease with which an asset can be exchanged for money. 
D)  was declining for many financial assets during the 1990s. 
A)  is the best available measure of the riskiness of an asset. 
B)  is a characteristic of money, and of no other asset. 
C)  is the ease with which an asset can be exchanged for money. 
D)  was declining for many financial assets during the 1990s.

Question 6

All of the following represent returns to savers EXCEPT

Accepted Answer

A)  dividends on stocks. 
B)  fees on loans. 
C)  interest on deposits. 
D)  coupon payments on bonds. 
A)  dividends on stocks. 
B)  fees on loans. 
C)  interest on deposits. 
D)  coupon payments on bonds.

Question 7

If a bank grants you a mortgage,the mortgage is

Accepted Answer

A)  an asset to you as well as an asset to the bank. 
B)  an asset to you, but a liability to the bank. 
C)  a liability to you, but an asset to the bank. 
D)  a liability to you as well as a liability to the bank. 
A)  an asset to you as well as an asset to the bank. 
B)  an asset to you, but a liability to the bank. 
C)  a liability to you, but an asset to the bank. 
D)  a liability to you as well as a liability to the bank.

Question 8

Increased liquidity in recent decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)?

Accepted Answer

A)  U.S. government bonds 
B)  bonds issued by large corporations 
C)  business loans 
D)  bonds issued by state governments 
A)  U.S. government bonds 
B)  bonds issued by large corporations 
C)  business loans 
D)  bonds issued by state governments

Question 9

Diversification refers to the

Accepted Answer

A)  splitting of wealth into many assets. 
B)  difference between the liquidity of an asset and its risk. 
C)  difficulty of converting investments in common stocks into investments in bonds. 
D)  difficulty of selling common stocks in a weak market. 
A)  splitting of wealth into many assets. 
B)  difference between the liquidity of an asset and its risk. 
C)  difficulty of converting investments in common stocks into investments in bonds. 
D)  difficulty of selling common stocks in a weak market.

Question 10

All of the following were significant changes in the mortgage market in the 2000s EXCEPT

Accepted Answer

A)  investment banks became significant participants in the secondary mortgage market. 
B)  lenders loosened lending standards. 
C)  mortgage-backed securities became more popular with investors. 
D)  borrowers tended to increase the amount of their down payments. 
A)  investment banks became significant participants in the secondary mortgage market. 
B)  lenders loosened lending standards. 
C)  mortgage-backed securities became more popular with investors. 
D)  borrowers tended to increase the amount of their down payments.

Question 11

Which firm did the Treasury allow to fail during the financial crisis?

Accepted Answer

A)  J.P. Morgan 
B)  Bear Stearns 
C)  Lehman Brothers 
D)  American International Group (AIG) 
A)  J.P. Morgan 
B)  Bear Stearns 
C)  Lehman Brothers 
D)  American International Group (AIG)

Question 12

Because securitized loans are loans that have been bundled with other loans and sold to investors,they are

Accepted Answer

A)  financial assets but not financial securities. 
B)  financial securities but not financial assets. 
C)  both financial assets and financial securities. 
D)  neither financial assets nor financial securities. 
A)  financial assets but not financial securities. 
B)  financial securities but not financial assets. 
C)  both financial assets and financial securities. 
D)  neither financial assets nor financial securities.

Question 13

Until very recently,investment banks rarely engaged in which of the following?

Accepted Answer

A)  proprietary trading 
B)  securitization 
C)  lending to households 
D)  underwriting 
A)  proprietary trading 
B)  securitization 
C)  lending to households 
D)  underwriting

Question 14

Securitization is the process of

Accepted Answer

A)  issuing stocks to finance capital spending. 
B)  issuing bonds to finance purchases of equipment and structures. 
C)  reducing risk by decreasing corporate debt loads. 
D)  converting loans into securities. 
A)  issuing stocks to finance capital spending. 
B)  issuing bonds to finance purchases of equipment and structures. 
C)  reducing risk by decreasing corporate debt loads. 
D)  converting loans into securities.

Question 15

Economists define liquidity as

Accepted Answer

A)  the difference between the return on the asset and the return on a long-term U.S. Treasury bond. 
B)  the fraction the asset makes up of an investor's portfolio. 
C)  the ease with which an asset can be exchanged for money. 
D)  the difference between the total demand for an asset and the total supply of the asset. 
A)  the difference between the return on the asset and the return on a long-term U.S. Treasury bond. 
B)  the fraction the asset makes up of an investor's portfolio. 
C)  the ease with which an asset can be exchanged for money. 
D)  the difference between the total demand for an asset and the total supply of the asset.

Question 16

How are interest payments on mortgages distributed to investors who own mortgage-backed securities?

Accepted Answer

The banks that grants,or originates,the

Question 17

At the beginning of the financial crisis,banks were hurt by all of the following EXCEPT

Accepted Answer

A)  declines in the value of mortgage-backed securities. 
B)  defaults on mortgages by those with subprime mortgages. 
C)  holding too many Treasury bonds. 
D)  not being repaid on loans to real estate developers. 
A)  declines in the value of mortgage-backed securities. 
B)  defaults on mortgages by those with subprime mortgages. 
C)  holding too many Treasury bonds. 
D)  not being repaid on loans to real estate developers.

Question 18

From 1978 to 2016,the percentage of wealth held by households decreased for all of the following categories of assets EXCEPT

Accepted Answer

A)  corporate stocks. 
B)  bonds. 
C)  deposits. 
D)  equity in unincorporated businesses. 
A)  corporate stocks. 
B)  bonds. 
C)  deposits. 
D)  equity in unincorporated businesses.

Question 19

By the end of 2009,loan losses were ________ at the end of 2007.

Accepted Answer

A)  equal to those 
B)  two times less than 
C)  four times greater than 
D)  twenty-five times greater than 
A)  equal to those 
B)  two times less than 
C)  four times greater than 
D)  twenty-five times greater than

Question 20

Briefly discuss three reasons why firms may borrow funds from a bank.

Accepted Answer

Many firms rely on bank loans to meet th

The purpose of diversification is to

Economists define money as

All of the following are examples of risky mortgages that became more common in the 2000s EXCEPT

The Fed and Treasury took action to restore the flow of funds from savers to borrowers in order to encourage all of the following EXCEPT

Liquidity

All of the following represent returns to savers EXCEPT

If a bank grants you a mortgage,the mortgage is

Increased liquidity in recent decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)?

Diversification refers to the

All of the following were significant changes in the mortgage market in the 2000s EXCEPT

Which firm did the Treasury allow to fail during the financial crisis?

Because securitized loans are loans that have been bundled with other loans and sold to investors,they are

Until very recently,investment banks rarely engaged in which of the following?

Securitization is the process of

Economists define liquidity as

How are interest payments on mortgages distributed to investors who own mortgage-backed securities?

At the beginning of the financial crisis,banks were hurt by all of the following EXCEPT

From 1978 to 2016,the percentage of wealth held by households decreased for all of the following categories of assets EXCEPT

By the end of 2009,loan losses were ________ at the end of 2007.

Briefly discuss three reasons why firms may borrow funds from a bank.

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 1: Introducing Money and the Financial System

The purpose of diversification is to

Economists define money as

All of the following are examples of risky mortgages that became more common in the 2000s EXCEPT

The Fed and Treasury took action to restore the flow of funds from savers to borrowers in order to encourage all of the following EXCEPT

Liquidity

All of the following represent returns to savers EXCEPT

If a bank grants you a mortgage,the mortgage is

Increased liquidity in recent decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)?

Diversification refers to the

All of the following were significant changes in the mortgage market in the 2000s EXCEPT

Which firm did the Treasury allow to fail during the financial crisis?

Because securitized loans are loans that have been bundled with other loans and sold to investors,they are

Until very recently,investment banks rarely engaged in which of the following?

Securitization is the process of

Economists define liquidity as

How are interest payments on mortgages distributed to investors who own mortgage-backed securities?

At the beginning of the financial crisis,banks were hurt by all of the following EXCEPT

From 1978 to 2016,the percentage of wealth held by households decreased for all of the following categories of assets EXCEPT

By the end of 2009,loan losses were ________ at the end of 2007.

Briefly discuss three reasons why firms may borrow funds from a bank.

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters