Financial Markets and Institutions
1. The
typical role of a securities firm in a public offering of securities is to
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a.
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purchase the entire issue for its own investment.
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b.
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place the entire issue with a single large investor.
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c.
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spread the issue across several investors until the
entire issue is sold.
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d.
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provide all large investors with loans so that they
can invest in the offering.
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2. The
federal government’s demand for funds is ________, and municipal governments’
demand for funds is
somewhat ____________.
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a.
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interest-inelastic; interest-inelastic
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b.
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interest-elastic; interest-elastic
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c.
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interest-inelastic; interest-elastic
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d.
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interest-elastic; interest-inelastic
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3. Which
of the following statements is incorrect with respect to a single European
monetary policy?
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a.
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It allows for more consistent economic conditions
across the countries.
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b.
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It prevents any participating European country from
solving local economic problems with its own unique monetary policy.
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c.
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A policy used in a particular period may not affect
the participating countries equally, since they all have the same currency.
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d.
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Each participating country will still be able to
apply its own fiscal policy (tax and government expenditure decisions).
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e.
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All of the above are true with respect to a single
European monetary policy.
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4. A
newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day
maturity. What is the
discount?
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a.
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10.26 percent
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b.
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0.26 percent
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c.
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$2,500
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d.
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10.00 percent
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e.
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11.00 percent
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5. Eurodollar
deposits
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a.
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are U.S. dollars deposited in the U.S. by European
investors.
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b.
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are subject to interest rate ceilings.
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c.
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have a relatively large spread between deposit and
loan rates (compared to the spread between deposits and loans in the United
States).
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d.
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are not subject to reserve requirements.
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6. The
initial margin of a futures contract is typically between ____ percent of a
futures contract's full value.
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a.
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0 and 2
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b.
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5 and 18
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c.
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25 and 40
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d.
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45 and 60
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7. The
use of financial leverage
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a.
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magnifies the positive returns of futures contracts.
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b.
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magnifies losses of futures contracts.
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c.
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both A and B
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d.
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none of the above
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8. Beginning
with an equilibrium situation, if European inflation suddenly ____ than U.S.
inflation, this forced ____ pressure on the value of the euro.
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a.
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becomes much higher; upward
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b.
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becomes much higher; downward
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c.
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becomes much less; upward
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d.
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becomes much less; downward
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e.
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B and C
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9. Which
of the following is not a method of forecasting exchange rate volatility?
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a.
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using the volatility of historical exchange rate
movements
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b.
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using a time series of volatility patterns in
previous periods
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c.
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using the volatility of future exchange rate
movements
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d.
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using the exchange rate's implied standard deviation
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10. Please
refer to the Bloomberg Businessweek article number 4 and adequately
indicate your sentiment towards the New Hope in
Africa.
Extra Credit
11. Consider a discussion that was likely occurring in
the FOMC meetings during the war in Iraq
in 2003. The U.S. economy was weak at that time. Do
you think the FOMC should have
proposed a loose-money policy or a tight-money policy
once the war began? This war could
have resulted in major damage to oil wells. Explain why this possible
effect would receive much
attention at the FOMC meetings.
If this situation was perceived to be highly likely at the time
of
the meetings, explain how it may have complicated
the decision about monetary policy at that
time. Given the conditions stated in this question,
would you have suggested that the Fed use a
tight money policy, a loose money policy, or a stable
money policy? Support your decision
logically, and acknowledge any adverse effects of your
decision.
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