UNIVERSITY OF ECONOMICS AND MID-TERM TEST

FINANCE HO CHI MINH CITY Course: INTRODUCTION TO FINANCE AND

BANKING
EXAM CODE: 132 Time limit: 50 minutes

CLOSED-BOOK EXAM AND ANSWER ON THE ANSWER SHEET

NAME:..................................................................... STUDENT ID: .............................

QUESTION 1: An increase in the riskiness of corporate bonds will ________ the yield on
corporate bonds and……… the risk premium, everything else held constant.
A. increase; increase B. reduce; reduce C. increase; reduce D. reduce; increase

QUESTION 2: Which set of goals can, at times, conflict in the short run?
A. High employment and economic growth. B. Interest rate stability and financial market
stability.
C. High employment and price level stability. D. Exchange rate stability and financial market
stability.

QUESTION 3: The most common definition that monetary policymakers use for price stability
is
A. low and stable deflation. B. an inflation rate of zero percent.
C. high and stable inflation. D. low and stable inflation.

QUESTION 4: If the liquidity effect is smaller than the other effects, and the adjustment to
expected inflation is slow, then the
A. interest rate will fall.
B. interest rate will rise.
C. interest rate will initially fall but eventually climb above the initial level in response to an
increase in money growth.
D. interest rate will initially rise but eventually fall below the initial level in response to an
increase in money growth.

QUESTION 5: A decrease in the liquidity of corporate bonds, other things being equal, shifts the
demand curve for corporate bonds to the ________ and the demand curve for government bonds
shifts to the ________.
A. left; left B. right; left C. right; right D. left; right

QUESTION 6: Of the four effects on interest rates from an increase in the money supply, the
initial effect is, generally, the
A. income effect. B. liquidity effect.
C. price level effect.
D. expected inflation effect.

QUESTION 7: A bond with default risk will always have a ________ risk premium and an
increase in its default risk will ________ the risk premium.
A. positive; raise B. negative; lower C. positive; lower D. negative; raise
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QUESTION 8: Of the four factors that influence asset demand, which factor will cause the
demand for all assets to increase when it increases, everything else held constant?
A. wealth B. expected returns C. liquidity D. risk

QUESTION 9: When an investment bank ________ securities, it guarantees a price for a

corporation's securities and then sells them to the public.
A. underwrites B. undertakes C. overwrites D. overtakes

QUESTION 10: Everything else held constant, a decline in interest rates will cause spending on
housing to
A. rise B. either rise, fall, or remain the same.
C. fall. D. remain unchanged.

QUESTION 11: The sum of the central bankʹs monetary liabilities and the Treasuryʹs monetary
liabilities is called
A. currency in circulation. B. the money supply.
C. bank reserves. D. the monetary base.

QUESTION 12: Which of the following is NOT likely to be a goal of a central bank?
A. maintaining a low inflation rate
B. encouraging the use of paper currency instead of checking deposits
C. encouraging economic growth
D. maintaining a stable financial system

QUESTION 13: Holding everything else constant,

A. if asset Aʹs risk rises relative to that of alternative assets, the demand will increase for asset
A.
B. the more liquid is asset A, relative to alternative assets, the greater will be the demand for
asset A.
C. the lower the expected return to asset A relative to alternative assets, the greater will be the
demand for asset A.
D. if wealth increases, demand for asset A increases and demand for alternative assets decreases

QUESTION 14: The goal for high employment should be a level of unemployment at which the
demand for labor equals the supply of labor. Economists call this level of unemployment the
A. frictional level of unemployment. B. structural level of unemployment.
C. natural rate level of unemployment. D. Keynesian rate level of unemployment.

QUESTION 15: Financial markets promote economic efficiency by

A. channeling funds from savers to investors. B. reducing investment.
C. creating inflation. D. channeling funds from investors to savers.

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QUESTION 16: The central bank which is generally regarded as the most independent in the
world because its
charter cannot be changed by legislation is the
A. FED B. The People’s bank of China
C. European Central Bank. D. Bank of Japan

QUESTION 17: Everything else held constant, an increase in marginal tax rates would likely
have the effect of ________ the demand for municipal bonds, and ________ the demand for
corporate bonds.
A. increasing; decreasing B. increasing; increasing
C. decreasing; increasing D. decreasing; decreasing

QUESTION 18: When the interest rate changes,

A. the demand curve for bonds shifts to the right.
B. the supply curve for bonds shifts to the right.
C. the demand curve for bonds shifts to the left.
D. it is because either the demand or the supply curve has shifted,

QUESTION 19: The Fed does not tightly control the monetary base because it does not
completely control
A. open market purchases. B. open market sales.
C. borrowed reserves. D. the discount rate.

QUESTION 20: When the central bank extends a discount loan to a bank, the monetary base
________ and reserves ________.
A. remains unchanged; decrease B. remains unchanged; increase
C. increases; remain unchanged D. increases; increase

QUESTION 21: According to the liquidity premium theory of the term structure, a slightly
upward sloping yield curve indicates that short-term interest rates are expected to
A. rise in the future. B. remain unchanged in the future.
C. decline moderately in the future. D. decline sharply in the future.

QUESTION 22: You would be less willing to purchase Treasury bonds, other things equal, if
A. gold becomes more liquid. B. you inherit $1 million from your Uncle.
C. stock prices are expected to fall. D. you expect interest rates to fall.

QUESTION 23: A movement along the bond demand or supply curve occurs when ________
changes.
A. expected return B. income C. wealth D. bond price

QUESTION 24: In the loanable funds/liquidity preference framework, the ________ is

measured on the vertical axis.
A. quantity of bonds B. price of bonds
C. interest rate D. quantity of loanable funds
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QUESTION 25: Which of the following bonds are considered to be default-risk free?
A. Corporate bonds B. Junk bonds C. BBB bonds D. U.S. Treasury bonds

QUESTION 26: Suppose that from a new checkable deposit, a commerical bank holds eight
million dollars on deposit with the central bank, one million dollars in required reserves, and
faces a required reserve ratio of ten percent. Given this information, we can say a central bank
has ________ million dollars in vault cash.
A. eight B. two C. nine D. ten

QUESTION 27:
The figure above illustrates the effect of an increased rate of money supply growth at time
period T0. From the figure, one can conclude that the
A. liquidity effect is smaller than the expected inflation effect and interest rates adjust quicklyto
changes in expected inflation.
B. liquidity effect is larger than the expected inflation effect and interest rates adjust quicklyto
changes in expected inflation.
C. liquidity effect is larger than the expected inflation effect and interest rates adjust slowly
tochanges in expected inflation.
D. liquidity effect is smaller than the expected inflation effect and interest rates adjust slowlyto
changes in expected inflation.

QUESTION 28: The interest rate central bank charges banks borrowing from the central bank is
the
A. Treasury bill rate. B. discount rate.
C. central bank funds rate. D. prime rate

QUESTION 29: When the interest rate on a bond is above the equilibrium interest rate, in the
bond market there is excess ________ and the interest rate will ________.
A. demand; rise B. demand; fall C. supply; fall D. supply; rise

QUESTION 30: The price paid for the rental of borrowed funds is commonly referred to as
the
A. interest rate. B. inflation rate. C. exchange rate. D. aggregate price
level.
--- End --
No explanation should be carried out

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