Question 1

During a period of economic expansion,when expected profitability is high,the:

Accepted Answer

A)  equilibrium price of bonds increases. 
B)  equilibrium interest rate falls. 
C)  supply curve for bonds shifts to the left. 
D)  demand curve for loanable funds shifts to the right. 
A)  equilibrium price of bonds increases. 
B)  equilibrium interest rate falls. 
C)  supply curve for bonds shifts to the left. 
D)  demand curve for loanable funds shifts to the right.

Question 2

The expectations theory of term structure suggests that the:

Accepted Answer

A)  yield curve should be upward-sloping. 
B)  yield curve should be downward-sloping. 
C)  shape of the yield curve reflects the risk premium incorporated into the yields on long-term bonds. 
D)  shape of the yield curve depends on the expected future path of short-term interest rates. 
A)  yield curve should be upward-sloping. 
B)  yield curve should be downward-sloping. 
C)  shape of the yield curve reflects the risk premium incorporated into the yields on long-term bonds. 
D)  shape of the yield curve depends on the expected future path of short-term interest rates.

Question 3

The Reserve Bank increases interest rates to reduce the level of spending in the economy.As the rate of growth in economic activity slows,the demand for funds also slows.This impact of a change in interest rates is described as the:

Accepted Answer

A)  inflation effect. 
B)  liquidity effect. 
C)  income effect. 
D)  monetary effect. 
A)  inflation effect. 
B)  liquidity effect. 
C)  income effect. 
D)  monetary effect.

Question 4

The implication of the expectations theory that expected returns for a holding period must be the same for bonds of different maturities depends on the assumption that:

Accepted Answer

A)  yield curves normally slope downward. 
B)  yield curves normally slope upward. 
C)  instruments with different terms to maturity are perfect substitutes. 
D)  lenders are generally risk-averse. 
A)  yield curves normally slope downward. 
B)  yield curves normally slope upward. 
C)  instruments with different terms to maturity are perfect substitutes. 
D)  lenders are generally risk-averse.

Question 5

An economic indicator that tends to follow changes in the business cycle is a:

Accepted Answer

A)  coincident indicator. 
B)  lagging indicator. 
C)  leading indicator. 
D)  secondary indicator. 
A)  coincident indicator. 
B)  lagging indicator. 
C)  leading indicator. 
D)  secondary indicator.

Question 6

The following monthly data of yields on five-year Treasury bonds comes from the Reserve Bank Bulletin:
$$\begin{array} { | l | l | l | l | l | } 
\hline 20 \mathrm { xx } / \mathrm { xx } & \text { Jul. } & 7.65 \% & \text { Jan. } & 7.30 \% \
\hline & \text { Aug. } & 7.75 \% & \text { Feb. } & 7.15 \% \
\hline & \text { Sep. } & 7.80 \% & \text { Mar. } & 6.91 \% \
\hline & \text { Oct. } & 7.90 \% & \text { Apr. } & 6.80 \% \
\hline & \text { Nov. } & 7.75 \% & \text { May } & 6.65 \% \
\hline & \text { Dec. } & 7.50 \% & \text { Jun. } & 6.55 \% \
\hline
\end{array}$$
What type of yield curve is indicated by the above data set?

Accepted Answer

A)  Normal yield curve 
B)  Inverse yield curve 
C)  Humped yield curve 
D)  Variable yield curve 
A)  Normal yield curve 
B)  Inverse yield curve 
C)  Humped yield curve 
D)  Variable yield curve

Question 7

The yield curve most frequently observed over the years is:

Accepted Answer

A)  positively sloped. 
B)  negatively sloped. 
C)  flat. 
D)  hump-backed. 
A)  positively sloped. 
B)  negatively sloped. 
C)  flat. 
D)  hump-backed.

Question 8

All else being equal,the demand curve for loanable funds may shift to the left (decrease)as a result of:

Accepted Answer

A)  an increase in the supply of loanable funds. 
B)  expectations of forthcoming economic growth. 
C)  an increase in the risk of bonds relative to other assets. 
D)  an improvement in business prospects. 
A)  an increase in the supply of loanable funds. 
B)  expectations of forthcoming economic growth. 
C)  an increase in the risk of bonds relative to other assets. 
D)  an improvement in business prospects.

Question 9

The segmented markets theory rejects two of the assumptions of the expectations theory,namely:

Accepted Answer

A)  there are a large number of financial investors who hold homogeneous expectations about future interest rates and no impediments to market rates moving to equilibrium. 
B)  there are no transactions costs and investors hold homogeneous expectations. 
C)  that investors are indifferent between short-term or long-term bonds and that all bonds are perfect substitutes. 
D)  there is no impediment to market rates moving to equilibrium and the goal of investors is to maximise their expected rate of return. 
A)  there are a large number of financial investors who hold homogeneous expectations about future interest rates and no impediments to market rates moving to equilibrium. 
B)  there are no transactions costs and investors hold homogeneous expectations. 
C)  that investors are indifferent between short-term or long-term bonds and that all bonds are perfect substitutes. 
D)  there is no impediment to market rates moving to equilibrium and the goal of investors is to maximise their expected rate of return.

Question 10

Represented below are yield curves for the following securities:
i.Bank-accepted bills
ii.Treasury notes
iii.Promissory notes
iv.Negotiable certificates of deposit   Based on your understanding of the risk structure of interest rates,rank the securities in order from curve A to curve D.

Accepted Answer

A)  i, ii, iv, iii 
B)  ii, i, iv, iii 
C)  ii, iv, i, iii 
D)  iv, ii, iii, i 
A)  i, ii, iv, iii 
B)  ii, i, iv, iii 
C)  ii, iv, i, iii 
D)  iv, ii, iii, i

Question 11

According to the expectations theory of term structure,if next year's short-term interest rate is expected to be higher than the current short-term rate,the:

Accepted Answer

A)  current short-term rate will be equal to the current long-term rate. 
B)  current short-term rate will be higher than the current long-term rate. 
C)  current short-term rate will be lower than the current long-term rate. 
D)  yield curve will be downward-sloping. 
A)  current short-term rate will be equal to the current long-term rate. 
B)  current short-term rate will be higher than the current long-term rate. 
C)  current short-term rate will be lower than the current long-term rate. 
D)  yield curve will be downward-sloping.

Question 12

In an economic period of high inflation,the yield curve would most likely be:

Accepted Answer

A)  upward-sloping. 
B)  downward-sloping. 
C)  flat. 
D)  more curved. 
A)  upward-sloping. 
B)  downward-sloping. 
C)  flat. 
D)  more curved.

Question 13

If inflation is expected to increase,this may cause:

Accepted Answer

A)  interest rates to rise. 
B)  the demand for loanable funds to fall. 
C)  the supply of loanable funds to increase. 
D)  interest rates to fall. 
A)  interest rates to rise. 
B)  the demand for loanable funds to fall. 
C)  the supply of loanable funds to increase. 
D)  interest rates to fall.

Question 14

Consider the following graphs:   Which of the following types of economic indicators do the above graphs depict?

Accepted Answer

A)  Coincident indicator 
B)  Leading indicator 
C)  Price-index indicator 
D)  Lagging indicator 
A)  Coincident indicator 
B)  Leading indicator 
C)  Price-index indicator 
D)  Lagging indicator

Question 15

If the yields on short-term securities are the same as those for comparable long-term securities,the yield curve will have a/an:

Accepted Answer

A)  constant slope. 
B)  negative slope. 
C)  positive slope. 
D)  undefined slope. 
A)  constant slope. 
B)  negative slope. 
C)  positive slope. 
D)  undefined slope.

Question 16

If a central bank sells government securities as part of implementing monetary policy:

Accepted Answer

A)  the liquidity in the financial system will increase. 
B)  interest rates are likely to increase. 
C)  spending in the economy is likely to increase. 
D)  the price of the currency is likely to depreciate. 
A)  the liquidity in the financial system will increase. 
B)  interest rates are likely to increase. 
C)  spending in the economy is likely to increase. 
D)  the price of the currency is likely to depreciate.

Question 17

If a country's balance of payments is constantly in a large deficit,a central bank will generally:

Accepted Answer

A)  lower interest rates. 
B)  buy government securities regularly. 
C)  increase interest rates. 
D)  encourage looser monetary policy. 
A)  lower interest rates. 
B)  buy government securities regularly. 
C)  increase interest rates. 
D)  encourage looser monetary policy.

Question 18

Discuss the difficulties a central bank faces in trying to forecast how liquidity,income and inflation effects in relation to interest rates will be affected by interest rate changes.

Accepted Answer

One of the problems is that often releas

Question 19

If the yield curve is observed to be flat,according to the liquidity premium theory,this indicates that the market is predicting:

Accepted Answer

A)  a small rise in short-term rates in the near future and a small decline further out in the future. 
B)  constant short-term interest rates in the near future, and further out in the future. 
C)  a small decline in short-term interest rates in the near future, continuing to decline slowly further out in the future. 
D)  constant short-term interest rates in the near future and a small decline further out in the future. 
A)  a small rise in short-term rates in the near future and a small decline further out in the future. 
B)  constant short-term interest rates in the near future, and further out in the future. 
C)  a small decline in short-term interest rates in the near future, continuing to decline slowly further out in the future. 
D)  constant short-term interest rates in the near future and a small decline further out in the future.

Question 20

If a central bank decreases interest rates,then gradually:

Accepted Answer

A)  the country's gross domestic product is likely to decrease. 
B)  foreign exchange rate is likely to appreciate. 
C)  demand for exported goods and services is likely to increase. 
D)  flows of investment funds into the country are likely to decrease. 
A)  the country's gross domestic product is likely to decrease. 
B)  foreign exchange rate is likely to appreciate. 
C)  demand for exported goods and services is likely to increase. 
D)  flows of investment funds into the country are likely to decrease.

During a period of economic expansion,when expected profitability is high,the:

The expectations theory of term structure suggests that the:

The Reserve Bank increases interest rates to reduce the level of spending in the economy.As the rate of growth in economic activity slows,the demand for funds also slows.This impact of a change in interest rates is described as the:

The implication of the expectations theory that expected returns for a holding period must be the same for bonds of different maturities depends on the assumption that:

An economic indicator that tends to follow changes in the business cycle is a:

The yield curve most frequently observed over the years is:

All else being equal,the demand curve for loanable funds may shift to the left (decrease)as a result of:

The segmented markets theory rejects two of the assumptions of the expectations theory,namely:

Represented below are yield curves for the following securities: i.Bank-accepted bills ii.Treasury notes iii.Promissory notes iv.Negotiable certificates of deposit Based on your understanding of the risk structure of interest rates,rank the securities in order from curve A to curve D.

According to the expectations theory of term structure,if next year's short-term interest rate is expected to be higher than the current short-term rate,the:

In an economic period of high inflation,the yield curve would most likely be:

If inflation is expected to increase,this may cause:

Consider the following graphs: Which of the following types of economic indicators do the above graphs depict?

If the yields on short-term securities are the same as those for comparable long-term securities,the yield curve will have a/an:

If a central bank sells government securities as part of implementing monetary policy:

If a country's balance of payments is constantly in a large deficit,a central bank will generally:

Discuss the difficulties a central bank faces in trying to forecast how liquidity,income and inflation effects in relation to interest rates will be affected by interest rate changes.

If the yield curve is observed to be flat,according to the liquidity premium theory,this indicates that the market is predicting:

If a central bank decreases interest rates,then gradually:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

Exam 13: An Introduction to Interest Rate Determination and Forecasting

During a period of economic expansion,when expected profitability is high,the:

The expectations theory of term structure suggests that the:

The Reserve Bank increases interest rates to reduce the level of spending in the economy.As the rate of growth in economic activity slows,the demand for funds also slows.This impact of a change in interest rates is described as the:

The implication of the expectations theory that expected returns for a holding period must be the same for bonds of different maturities depends on the assumption that:

An economic indicator that tends to follow changes in the business cycle is a:

The yield curve most frequently observed over the years is:

All else being equal,the demand curve for loanable funds may shift to the left (decrease)as a result of:

The segmented markets theory rejects two of the assumptions of the expectations theory,namely:

Represented below are yield curves for the following securities: i.Bank-accepted bills ii.Treasury notes iii.Promissory notes iv.Negotiable certificates of deposit Based on your understanding of the risk structure of interest rates,rank the securities in order from curve A to curve D.

According to the expectations theory of term structure,if next year's short-term interest rate is expected to be higher than the current short-term rate,the:

In an economic period of high inflation,the yield curve would most likely be:

If inflation is expected to increase,this may cause:

Consider the following graphs: Which of the following types of economic indicators do the above graphs depict?

If the yields on short-term securities are the same as those for comparable long-term securities,the yield curve will have a/an:

If a central bank sells government securities as part of implementing monetary policy:

If a country's balance of payments is constantly in a large deficit,a central bank will generally:

Discuss the difficulties a central bank faces in trying to forecast how liquidity,income and inflation effects in relation to interest rates will be affected by interest rate changes.

If the yield curve is observed to be flat,according to the liquidity premium theory,this indicates that the market is predicting:

If a central bank decreases interest rates,then gradually:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters