Quiz 1 Questions with Answer - Financial Institutions and Markets | FINA 365, Quizzes of Financial Market

Download Quiz 1 Questions with Answer - Financial Institutions and Markets | FINA 365 and more Quizzes Financial Market in PDF only on Docsity! Question 1 Which of the following are likely to cause a decrease in the equilibrium U.S. interest rate, other things being equal? Pessimistic economic projections that cause businesses to reduce expansion plans Question 2 If the federal government needs to borrow additional funds, this borrowing reflects ______ in the supply of loanable funds, and ______ in the demand for loanable funds. No Change; an increase Question 3 Assume that today, the annualized two-year interest rate is 12%, and the one-year interest rate is 9%. A three-year security has an annualized interest rate of 14%. Approximately, what is the one- year forward rate two years from now, according to the pure expectation theory? 18.11% Question 4 Which of the following is a money market security? Commercial Paper Question 5 Securities that offer ____ liquidity must offer a _____ yield to be preferred, all else equal. Lower; Higher Question 6 If shorter term securities have lower annualized yields than longer term securities, the yield curve: is upward sloping. Question 7 Other things being equal, foreign governments and corporations would demand _____ U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is _____ related to U.S. interest rates. Less; inversely Question 8 Under the Liquidity Premium Theory, a flat yield curve would be interpreted as the market expecting ______ in future interest rates. A slight decrease Question 9 The equilibrium interest rate should: Fall when the aggregate supply of funds exceeds aggregate demand for funds. Question 10 When the Fed purchases securities, the total funds of commercial banks _______ by the market value of securities purchased by the Fed. This activity initiated by the FOMC’s policy directive is referred to as a _______ of money supply growth. Increase; loosening Question 11 Which of the following is most likely to be described as a depository institution? Credit unions Question 12 A five-year security was purchased two years ago by an investor who plans to resell it. The security will be sold by the investor in the so-called _____ market. Secondary Question 13 Total funds of commercial banks will initially _______ by the dollar amount of securities _______ by the Fed. increase; purchased Question 14 An investor's tax rate is 30%. What must the before tax yield on a security be in order to have an after tax yield of 11%? 15.71% Question 15 Which of the following is a capital market instrument? A ten-year bond Question 16 Those participants who receive more money than they spend are referred to as _____ units. Surplus Question 17 If the economy weakens, there is ______ pressure on interest rates. If the Federal Reserves increases the money supply, there is _____ pressure on interest rates (assume that inflationary expectations are not affected).