Question 1

Which of the following statements is most correct?

Accepted Answer

A) Advance refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B) Reverse refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
C) Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
D) Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
E) none of the above 
A) Advance refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B) Reverse refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
C) Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
D) Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
E) none of the above

Question 2

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

Accepted Answer

A) Aaa,Baa 
B) Baa,Daa 
C) Daa,Gaa 
D) Gaa,Kaa 
E) none of the above 
A) Aaa,Baa 
B) Baa,Daa 
C) Daa,Gaa 
D) Gaa,Kaa 
E) none of the above

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

Economists have estimated that risk free rate in the United States and other countries has averaged in the ________________ range in recent years.

Accepted Answer

A) 2 to 4 percent 
B) 3 to 5 percent 
C) 4 to 6 percent 
D) 5 to 7 percent 
E) none of the above 
A) 2 to 4 percent 
B) 3 to 5 percent 
C) 4 to 6 percent 
D) 5 to 7 percent 
E) none of the above

Question 5

An increase in the supply for loanable funds,holding demand constant,will cause interest rates to:

Accepted Answer

A) increase 
B) decrease 
C) stay the same 
D) not enough information to tell 
A) increase 
B) decrease 
C) stay the same 
D) not enough information to tell

Question 6

Which of the following statements is most correct?

Accepted Answer

A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus,investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus,investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus,investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus,investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
E) none of the above 
A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus,investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus,investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus,investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus,investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
E) none of the above

Question 7

Which of the following statements is most correct?

Accepted Answer

A) a downward sloping yield curve implies that government securities with long-term maturities have lower interest rates relative to similar quality securities with short-term maturities. 
B) commercial paper is a primary source of short-term borrowing used by the U.S.government. 
C) a decline in interest rates for long-term Treasury securities indicates an increase in investor long-run inflation expectations. 
D) the establishment of the Federal Reserve System has caused the yield curve to always be upward sloping. 
A) a downward sloping yield curve implies that government securities with long-term maturities have lower interest rates relative to similar quality securities with short-term maturities. 
B) commercial paper is a primary source of short-term borrowing used by the U.S.government. 
C) a decline in interest rates for long-term Treasury securities indicates an increase in investor long-run inflation expectations. 
D) the establishment of the Federal Reserve System has caused the yield curve to always be upward sloping.

Question 8

Which of the following statements is most correct?

Accepted Answer

A) Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B) Investment grade bonds have ratings of Aaa or higher and meet financial institution (banks,pension funds,insurance companies,etc. )investment standards. 
C) In reaction to the then developing 2007-2009 financial crisis,short-term interest rates declined sharply and were less than 100 percent by October,2008. 
D) Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
E) none of the above 
A) Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B) Investment grade bonds have ratings of Aaa or higher and meet financial institution (banks,pension funds,insurance companies,etc. )investment standards. 
C) In reaction to the then developing 2007-2009 financial crisis,short-term interest rates declined sharply and were less than 100 percent by October,2008. 
D) Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
E) none of the above

Question 9

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Accepted Answer

A) True 
 B)False

Question 10

Holding supply constant,a decrease in the demand for loanable funds will result in a decrease in interest rates.

Accepted Answer

A) True 
 B)False

Question 11

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

Accepted Answer

A) True 
 B)False

Question 12

The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________:

Accepted Answer

A) interest rate 
B) yield curve 
C) term structure 
D) cash price 
E) none of the above 
A) interest rate 
B) yield curve 
C) term structure 
D) cash price 
E) none of the above

Question 13

Three theories commonly used to explain the term structure of interest rates are the expectations theory,the liquidity preference theory,and the market segmentation theory.

Accepted Answer

A) True 
 B)False

Question 14

Price inflation has been characteristic of:

Accepted Answer

A) modern industrial society 
B) our post gold-standard period 
C) the history of prices since earliest recorded history 
D) only modern industrialized societies 
A) modern industrial society 
B) our post gold-standard period 
C) the history of prices since earliest recorded history 
D) only modern industrialized societies

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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) none of the above 
A) increase 
B) decrease 
C) increase or decrease 
D) none of the above

Question 17

Economists who believe that long-run inflationary bias will continue base their belief on the following factors:

Accepted Answer

A) Prices and wages tend to fall during periods of boom in a competitive economy;this tendency is reinforced by wage contracts that provide escalator clauses to keep wages in line with prices and by wage increases that are sometimes greater than increases in productivity. 
B) During expansions,prices tend to remain stable rather than decrease because major unions have long-run contracts calling for annual wage increases no matter what economic conditions are at the time. 
C) The tendency of small corporations to rely on non-price competition (advertising,and style and color changes)and to increase output rather than cut prices also keeps prices stable. 
D) If prices rise drastically in a field,the government is likely to step in with programs to make up the shortage of supplies in the market. 
E) none of the above are correct 
A) Prices and wages tend to fall during periods of boom in a competitive economy;this tendency is reinforced by wage contracts that provide escalator clauses to keep wages in line with prices and by wage increases that are sometimes greater than increases in productivity. 
B) During expansions,prices tend to remain stable rather than decrease because major unions have long-run contracts calling for annual wage increases no matter what economic conditions are at the time. 
C) The tendency of small corporations to rely on non-price competition (advertising,and style and color changes)and to increase output rather than cut prices also keeps prices stable. 
D) If prices rise drastically in a field,the government is likely to step in with programs to make up the shortage of supplies in the market. 
E) none of the above are correct

Question 18

Which war led to no inflationary price movements?

Accepted Answer

A) The Revolutionary War 
B) The War of 1812 
C) The Civil War 
D) World War I 
A) The Revolutionary War 
B) The War of 1812 
C) The Civil War 
D) World War I

Question 19

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 20

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

Which of the following statements is most correct?

The default risk premiums on _ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on bonds.

The basic sources of loanable funds are:

Economists have estimated that risk free rate in the United States and other countries has averaged in the ________________ range in recent years.

An increase in the supply for loanable funds,holding demand constant,will cause interest rates to:

Which of the following statements is most correct?

Which of the following statements is most correct?

Which of the following statements is most correct?

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Holding supply constant,a decrease in the demand for loanable funds will result in a decrease in interest rates.

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________:

Three theories commonly used to explain the term structure of interest rates are the expectations theory,the liquidity preference theory,and the market segmentation theory.

Price inflation has been characteristic of:

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

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

Economists who believe that long-run inflationary bias will continue base their belief on the following factors:

Which war led to no inflationary price movements?

A basic source of loanable funds is:

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 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 Valuation

Securities 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

Exam 8: Interest Rates

Which of the following statements is most correct?

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

The basic sources of loanable funds are:

Economists have estimated that risk free rate in the United States and other countries has averaged in the ________________ range in recent years.

An increase in the supply for loanable funds,holding demand constant,will cause interest rates to:

Which of the following statements is most correct?

Which of the following statements is most correct?

Which of the following statements is most correct?

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Holding supply constant,a decrease in the demand for loanable funds will result in a decrease in interest rates.

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________:

Three theories commonly used to explain the term structure of interest rates are the expectations theory,the liquidity preference theory,and the market segmentation theory.

Price inflation has been characteristic of:

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

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

Economists who believe that long-run inflationary bias will continue base their belief on the following factors:

Which war led to no inflationary price movements?

A basic source of loanable funds is:

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 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 Valuation

Securities 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

The default risk premiums on _ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on bonds.