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FINALTERM EXAMINATION
Spring 2010
MGT411- Money
& Banking (Session - 2)
Ref No: Time: 90 min
Marks: 69
Student Info
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StudentID:
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Center:
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OPKST
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ExamDate:
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12 Aug 2010
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For Teacher's Use Only
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Q No.
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1
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2
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3
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4
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5
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6
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7
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8
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Total
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Marks
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Q No.
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9
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10
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11
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12
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13
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14
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15
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16
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Marks
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Q No.
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17
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18
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19
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20
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21
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22
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23
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24
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Marks
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Q No.
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25
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26
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27
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28
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29
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30
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31
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32
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Marks
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Q No.
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33
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34
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35
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36
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37
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38
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39
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40
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Marks
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Q No.
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41
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42
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43
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44
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45
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46
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47
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48
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Marks
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Q No.
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49
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50
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51
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52
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53
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Marks
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Question No: 1 ( Marks: 1 ) - Please choose one
If
more students didn't pay back their student loans then which of the following
statement would imply?
► Student loans may become more difficult to obtain
► The interest rate on student loans would increase
► Fewer people may attend college
► All of the given options
Question No: 2 ( Marks: 1 ) - Please choose one
If a
person has a large amount of currency or big bank account at a point in time,
which statement suites best for him?
► He has money with him
► He earns income
► He is wealthy
► He is not a taxpayer
Question No: 3 ( Marks: 1 ) - Please choose one
A
derivative instrument:
► Gets its value and payoff from the performance of the
underlying instrument
► Is a high risk financial instrument used by highly
risk averse savers
► Comes into existence after the underlying instrument
is in default
► Should be purchased prior to purchasing the
underlying security
Question No: 4 ( Marks: 1 ) - Please choose one
Repurchase
agreements are:
► The most liquid of all money market instruments
► In use for hundreds of years
► Loans of deposits at the Federal Reserve
► Short term loans with Treasury bills as collateral
Question No: 5 ( Marks: 1 ) - Please choose one
The
future value of $100 left in a savings account earning 4.5% for two and a half
years is best expressed by:
► $100(1.045)3/2
► $100( 0.45)2.5
► $100(1.045)2.5
► 100 x 2.5 x (1.045)
Question No: 6 ( Marks: 1 ) - Please choose one
Asma
deposits funds into a CD account at her bank. The CD account has an annual
interest of 4.0%. If Asma leaves the funds in the CD account for entire two
years she will have $1081.60. What amount is Asma depositing?
► $960.60
► $900.00
► $1005.00
► $1000.00
Question No: 7 ( Marks: 1 ) - Please choose one
If
ABC Inc. and XYZ Inc. have returns that are perfectly negatively correlated:
► Adding XYZ Inc. to a portfolio that consists of only ABC
Inc. will reduce risk
► Adding ABC Inc. to a portfolio that includes only XYZ
Inc. will increase risk
► Adding XYZ Inc. to a portfolio that consists of only
ABC Inc. will neither increase nor decrease the risk of the portfolio
► Adding XYZ Inc. to a portfolio that consists of only
ABC Inc. will lower systematic risk
Question No: 8 ( Marks: 1 ) - Please choose one
Which
of the following best expresses the formula for determining the price of a U.S.
Treasury bill per $100 of face vale?
► $100(1 + i)
► $100/ (1 + i) n
► $100/ (1 + i)
► 1 + $100/ (1 + i)
n
Question No: 9 ( Marks: 1 ) - Please choose one
Current
yield is equal to which of the following?
► Price paid / yearly coupon payment
► Price paid *yearly coupon payment
► Yearly coupon payment / face value of bond
► Yearly coupon payment / price paid
Question No: 10 ( Marks: 1 ) - Please choose one
Which
of the following ratings shows “Highest quality and credit worthiness”?
► AAA
► AA
► BB
► A
Question No: 11 ( Marks: 1 ) - Please choose one
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Bond A
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Bond B
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Maturity
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5 years
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10 years
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Default risk
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5%
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5%
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Tax rate
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30%
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30%
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Yield
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?
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?
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See
the above table and choose the one option which is NOT correct about the yield of Bond A and Bond B?
► Bond tax status and default rate are not the only
factors that affect the yield of the two bonds
► Bond A has different yield from that of Bond B
because of change in maturity period
► Yields of both the bonds are not disturbed by
maturity period
► Yield of Bond B depends on what people expect to
happen in years to come
Question No: 12 ( Marks: 1 ) - Please choose one
Which
one of the following is true for the relationship between the yield of taxable
and tax exempt bond?
► Higher the tax rate wider the gap between the yield of
taxable and tax exempt bond
► Taxable bond yield is always greater than tax exempt
bond
► Higher the tax rate shorter the gap between yield of
taxable and tax exempt bond
► Lower the tax rate wider the gap between yield of
taxable and tax exempt bond
Question No: 13 ( Marks: 1 ) - Please choose one
One
way for a bank to deal with liquidity risk is ____________.
► To hold sufficient excess reserves
► To charge all borrowers from the same industry an
average rate for that industry
► To avoid making loans to borrowers from a broad
spectrum
► To limit the number of loans made in any year
Question No: 14 ( Marks: 1 ) - Please choose one
An
insurance company provides liability insurance to a bakery protecting the owner
against claims from customers. One area of coverage is protection against food
poisoning claims. The insurance company may periodically send an employee into
the bakery to observe food preparation and food storage processes. The
insurance company is trying to avoid which of the following?
► Paying claims
► Adverse selection
► Moral hazard
► Transaction cost
Question
No: 15 ( Marks: 1 ) - Please choose one
Regulators of credit unions are which of the
following?
► Office of thrift Supervision
► State authorities
► National Credit Union Administration
► Federal Reserve System
Question
No: 16 ( Marks: 1 ) - Please choose one
The specific goals of central banks include all of the
following EXCEPT:
► High and stable real growth
► Low and stable inflation
► High levels of imports
► Low and stable unemployment rates
Question
No: 17 ( Marks: 1 ) - Please choose one
If M = the
quantity of money, m the money multiplier, MB the Monetary Base; C = Currency,
D = Deposits; R = Reserves, RR equals required reserves; and ER = excess
reserves; then m would equal:
► M/MB
► R/ER
► C + D
► C + D – ER
Question
No: 18 ( Marks: 1 ) - Please choose one
In "gap analysis," the gap is the difference
between a bank's _________ and __________.
► Deposits and loans
► Long-term securities and short-term securities
► Rate-sensitive assets and rate-sensitive liabilities
► Assets and liabilities
Question
No: 19 ( Marks: 1 ) - Please choose one
Interest rate charged by the central bank on loans to
commercial banks is known as:
► Discount rate
► Inflation rate
► Internal rate of return
► All of the given options
Question
No: 20 ( Marks: 1 ) - Please choose one
The portfolio demand for money reflects which of the
following?
► The money we hold for our everyday transactions
► The money we hold to purchase stocks and bonds and
other financial securities
► The portion of wealth people desire to hold in the
form of money
► None of the given option
Question
No: 21 ( Marks: 1 ) - Please choose one
Which of the following will not shift Aggregate Supply
left?
► A new cost-reducing production technology
► A sudden increase in energy prices
► An increase in the expected price
► An increase in the wage rate
Question
No: 22 ( Marks: 1 ) - Please choose one
If over time prices and output both rise, then
► Aggregate Demand must increase more than long-run supply
increases
► Long-run supply must decrease more than Aggregate
Demand increases
► Aggregate Demand must increase less than long-run
supply increases
► Aggregate Demand must increase as much as long-run
supply increases
Question
No: 23 ( Marks: 1 ) - Please choose one
When you need more units of money to buy the same
amount of good which you bought a month or a year ago. What does it mean?
► Your economy has a high economic growth rate
► Your economy’s GDP value is more than previous year
► Price in your economy is falling causing deflation
► Price in your economy is raising causing inflation
Question
No: 24 ( Marks: 1 ) - Please choose one
Which one of the following statement is true for
investment if all other factors are held constant?
► An investment with less risk should sell for a lower
price and offer a lower return
► An investment with more risk should sell for a lower
price and offer a higher return
► An investment with less risk should sell for a lower
price and offer a higher return
► An investment with more risk should offer a lower
return and sell for a higher price
Question
No: 25 ( Marks: 1 ) - Please choose one
Which of the following is the formula for calculating
the ROA (Return on assets)?
► ROA = Net profit before taxes / bank capital
► ROA = Net profit after taxes / total assets
► ROA = Net profit after taxes / bank capital
► ROA = Net
profit before taxes / total assets
Question
No: 26 ( Marks: 1 ) - Please choose one
Which of the following is the formula for calculating ROE
(Return on equity)?
► ROE = Net profit before taxes / bank capital
► ROE = Net profit after taxes / total assets
► ROE = Net profit after taxes / bank capital
► ROE = Net profit before taxes / total assets
Question
No: 27 ( Marks: 1 ) - Please choose one
If bank’s interest margin is currently improving, what
will be its effect on the profitability of the bank?
► There will be negative effect on the Bank’s
profitability
► There will be positive effect on the Bank’s
profitability
► There will be no effect on the Bank’s profitability
► It cannot be determined
Question
No: 28 ( Marks: 1 ) - Please choose one
How
a bank can use liability management to obtain additional funds?
► By borrowing from central bank
► By borrowing from other bank
► By attracting additional deposits
► All of the given options
Question
No: 29 ( Marks: 1 ) - Please choose one
What kind of risk will involve when loans will not be
repaid?
► Interest-rate risk
► Credit risk
► Trading risk
► Inflation risk
Question
No: 30 ( Marks: 1 ) - Please choose one
Which of the following policy is used by the central
banks to stabilize economic growth and inflation in a country?
► Trade policy
► Fiscal policy
► Monetary policy
► Demand management policy
Question
No: 31 ( Marks: 1 ) - Please choose one
Why
govt. wants to control the printing of money?
► To control the amount of currency
► To control deflation in a country
► Losing control of the amount of currency means losing
control of inflation
► Tight control of the amount of currency means losing
control of inflation
Question
No: 32 ( Marks: 1 ) - Please choose one
During the period of _______the central bank increases
the interest rate in order to control the inflation in the economy.
► Recession
► Boom
► Recovery
► Recession or boom
Question
No: 33 ( Marks: 1 ) - Please choose one
The amount of ________ a bank holds depends on the
costs and benefits of holding them.
► Excess reserves
► Required reserve
► Actual reserve
► None of the given options
Question
No: 34 ( Marks: 1 ) - Please choose one
Which of the following are the components of the bank
reserves?
► Deposits of the Government + Currency in the hands of
the public
► Deposits of the Government + deposits at the central
bank
► Currency in the hands of the public + Vault cash
► Vault cash + deposits at the central bank
Question
No: 35 ( Marks: 1 ) - Please choose one
Among the asset side of the balance sheet of a central
bank which of the following item represent the function of central bank as
Banker’s bank?
► Deposits of the Government
► Loan to commercial bank
► Currency
► Reserves
Question
No: 36 ( Marks: 1 ) - Please choose one
The
withdrawal reduces the banking system’s____________, which is a decrease in its
assets, and if the funds come from a checking account, there is a matching decrease
in liabilities.
► Vault cash
► Securities
► Reserves
► Currency
Question
No: 37 ( Marks: 1 ) - Please choose one
Which of the following situation reduce(s) the impact
of a given change in reserves on the total deposits in the system?
► The desire of a bank to hold excess reserves
► The desire of account holders to withdraw cash
► The desire of a bank to hold excess reserves and the
desire of account holders to withdraw cash both
► None of the given options
Question
No: 38 ( Marks: 1 ) - Please choose one
Reserve equation can be expressed as:
► Reserves = required reserve + excess reserve
► Reserves = required reserve - excess reserve
► Reserves = required reserve / excess reserve
► Reserves = (required reserve) x (excess reserve)
Question
No: 39 ( Marks: 1 ) - Please choose one
With the velocity growth of 2% and money growth of
3.5%, equation of exchange tells us that policy makers should set inflation
objective of 3%, according to this equation what would be the real growth?
► 8%
► 4%
► 2.5%
► 1%
Question
No: 40 ( Marks: 1 ) - Please choose one
The
lower the cost of shifting money between accounts, the lower the money holdings
and the _______the velocity.
► Lower
► Higher
► Stable
► Incomplete information
Question
No: 41 ( Marks: 1 ) - Please choose one
Higher the level of uncertainty about the future, the
higher the demand for money and the _________ the velocity of money.
► Incomplete information
► Lower
► Higher
► Stable
Question
No: 42 ( Marks: 1 ) - Please choose one
Which of the following is (are) the factor(s) of aggregate
demand?
► Investment
► Govt. purchases
► All of the given options
► Consumption
Question
No: 43 ( Marks: 1 ) - Please choose one
When
current inflation is high or current output is running above potential output,
central bankers will __________nominal interest rates.
► Raise
► Fall
► Stabilize
► Incomplete information
Question
No: 44 ( Marks: 1 ) - Please choose one
The monetary policy reaction curve is set so that when
current inflation equals target inflation, the ________________equals the
long-run real interest rate.
► Real interest rate
► Nominal interest rate
► Effective interest rate
► None of the given options
Question
No: 45 ( Marks: 1 ) - Please choose one
Monetary policy
makers react to changes in current inflation by changing the __________
► Effective interest rate
► None of the given options
► Nominal interest rate
► Real interest rate
Question
No: 46 ( Marks: 1 ) - Please choose one
If policymakers react aggressively to a movement of
current inflation away from its target level with a large change in the real
interest rate, the monetary policy reaction curve will be ___________ and the
aggregate demand curve is __________.
► Steep, flat
► Flat, steep
► Flat, flat
► Steep, steep
Question
No: 47 ( Marks: 1 ) - Please choose one
Which of the following reason(s) can shift the short
run aggregate supply curve?
► Deviation of current output from potential output
► Changes in external factors driving production costs
► When current output is equal to potential out put
► Deviation of current output from potential output and
Changes in external factors driving production costs
Question
No: 48 ( Marks: 1 ) - Please choose one
Real business cycle theory’s assumption that prices
and wages are flexible implies that:
► Short-run aggregate demand curve is irrelevant
► Long-run aggregate demand curve is irrelevant
► Short-run aggregate supply curve is irrelevant
► Long-run aggregate supply curve is irrelevant
Question
No: 49 ( Marks: 3 )
What are the factors
that affect the quantity of money?
Question
No: 50 ( Marks: 3 )
Discuss
the impact of rise in real interest rate on the component of aggregates demand.
Components of
Aggregate demand
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Effects of a rise
in the real interest rise
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Impact on the
component of Aggregate demand
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Consumption
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Investment
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Net exports
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Question
No: 51 ( Marks: 5 )
Discuss the impact of
inflation shock on output and inflation.
Question
No: 52 ( Marks: 5 )
Write down the unique
role of depository institutions.
Question
No: 53 ( Marks: 5 )
Which relationship is
shown by the monetary policy reaction curve?
What will be the
change in monetary policy reaction curve if the given factors change?
a.
An increase in the Central Bank’s Inflation Target
b.
An increase in the Long-run real interest rate
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