Exam 3: The Canadian Financial System

Assume the current interest rate on a one-year bond is 7%,and the interest rate investors expect on the one-year bond one year from now is 3%.According to the expectations hypothesis,the current interest rate (per year)on a two-year bond should be

One difference between stocks and bonds is that

An increase in real GDP will shift the money demand curve to the ________,causing the nominal interest rate to ________.

Using the expectations hypothesis on the term structure of interest rates,explain the relationship between the interest rate on a one-year Canada Savings Bond and the interest rate on a two-year Canada Savings Bond.

Lenders encounter the ________ problem before a loan is made when they try to distinguish borrowers who are likely to pay back loans from borrowers who are unlikely to do so.

When nominal interest rates increase,the opportunity cost of holding money will ________,and the quantity of money demanded by households and firms will ________.

Some borrowers with low credit scores have difficulty finding any lenders willing to make loans to them.These people typically have seriously flawed credit histories that may include failure to make payments on credit cards or on car loans or they may have declared personal bankruptcy in the recent past.These borrowers are often referred to as

Which of the following has the highest present value?

Your loss from an increase in interest rates is ________,and your gain from a decrease in interest rates is ________,if you hold a two-year bond compared to holding a one-year bond.

If you want to know the present value of $4000 in two years and the annual interest rate is 5%,what formula can you use?

If you pay $4888 for a $5000 face value one-year Treasury bill,what is the rate of interest you will receive?

Which of the following is an example of securitization?

When the value of a bank's or another firm's assets declines to less than the value of its liabilities,the firm

One difference between stocks and bonds is that

Canada,like nearly all countries,has a fractional reserve banking system,meaning

The main source of loans to small businesses are

Suppose you purchase a two-year bond that has a $450 coupon and a face value of $5000,and immediately after you purchase the bond,new bonds are issued that are otherwise identical,except they have coupons of $375.If you sell your bond,the price of your bond will be

Ramona has decided that she will only purchase a one-year Treasury bill with a face value of $15 000 if she receives an interest rate of 4.125%.How much will Ramona end up paying for this Treasury bill?

A measure of how much debt an investor takes on in making an investment is referred to as

________ is a company that obtains funds primarily from wealthy investors and uses the funds to make complicated,often risky investments.