Question 1

There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is most correct?

Accepted Answer

A)  Marketable government securities are those securities that cannot be transferred to other persons or institutions and can be redeemed only by being turned in to the U.S.government; the United States must rely on the willingness of foreign and international investors to hold a substantial portion of the outstanding interest-bearing public debt securities issued to finance the national debt. Don't need essay answers in a multiple choice item
B)  Nonmarketable government securities are those securities that can be transferred to other persons or institutions and can be redeemed only by being turned in to the U.S.government; the United States must rely on the willingness of foreign and international investors to hold a substantial portion of the outstanding interest-bearing public debt securities issued to finance the national debt.
C)  Nonmarketable government securities are those securities that cannot be transferred to other persons or institutions and can be redeemed only by being turned in to the U.S.government; the United States must rely on the willingness of foreign and international investors to hold a substantial portion of the outstanding interest-bearing public debt securities issued to finance the national debt.
D)  Nonmarketable government securities are those securities that cannot be transferred to other persons or institutions and can be redeemed only by being sold in the secondary market; the United States must rely on the willingness of foreign and international investors to hold a substantial portion of the outstanding interest-bearing public debt securities issued to finance the national debt.
E)  none of the aboveF) B) and C)
G) D) and E)

Question 3

The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________:

Accepted Answer

A)  interest rate
B)  yield curve
C)  term structure
D)  cash price
E)  none of the aboveF) C) and D)
G) A) and E)

Question 4

As the economy begins moving out of a recessionary period, the yield curve is generally:

Accepted Answer

A)  upward sloping
B)  flattened out
C)  downward sloping
D)  discontinuousE) All of the above
F) B) and D)

Question 5

In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _______ sharply and were ______ than ______ percent by October, 2008.

Accepted Answer

A)  declined, less, 0.5
B)  rose, more, 10
C)  declined, more, 6.
D)  declined, less, 20
E)  none of the aboveF) A) and D)
G) B) and C)

Question 6

f the nominal rate of interest is 11%, the risk-free rate of interest is 2%, the default premium is 4%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

Accepted Answer

A)  	2.0%
B)  	2.5%
C)  	3.0%
D)  	none of the aboveE) B) and C)
F) A) and D)

Question 7

Of the following, the most sensitive interest rate in the money market is the:

Accepted Answer

A)  bankers' acceptance rate Not in chapter
B)  prime rate
C)  Federal Reserve's discount rate
D)  federal funds rateE) A) and D)
F) None of the above

Question 8

Which of the following costs serves to compensate the lender for loss of liquidity?

Accepted Answer

A)  administrative costs of making the loan
B)  cost of paying for the risk involved
C)  cost to offset the likelihood of inflation
D)  cost for use of money during the period of the loanE) None of the above
F) B) and D)

Question 9

The maturity risk premium is the compensation expected by investors due to interest rate risk on debt instruments with longer maturity.

Accepted Answer

A) True 
 B)False

Question 10

As interest rates rise, the prices of existing bonds will:

Accepted Answer

A)  rise
B)  stay the same
C)  fall
D)  either a or b, depending on the state of the economyE) B) and D)
F) B) and C)

Question 11

Sources of loanable funds do not include:

Accepted Answer

A)  current savings
B)  the expansion of deposits by depository institutions
C)  federal deficits
D)  all the above are sources of loanable fundsE) C) and D)
F) All of the above

Question 12

Which of the following factors directly impact the level of interest rates?

Accepted Answer

A)  risk
B)  marketability
C)  maturity
D)  all of the aboveE) A) and B)
F) None of the above

Question 13

In response to the financial crisis of 2007-2009, the yield spread between Aaa corporate bonds and treasury bonds:

Accepted Answer

A)  widened
B)  narrowed
C)  remained the same
D)  none of the aboveE) A) and D)
F) C) and D)

Question 14

A basic source of loanable funds is:

Accepted Answer

A)  current savings that flow through financial institutions
B)  future savings and investment by the Federal Reserve
C)  current and future savings
D)  investment by the Federal Reserve and expansion of deposits by insurance companiesE) A) and B)
F) A) and C)

Question 15

Economists who believe that long-run inflationary bias will continue base their belief on the following factors: None of the above clone of prior item.

Accepted Answer

A)  Prices and wages tend to fall during periods of boom in a competitive economy; this tendency is reinforced by wage contracts that provide escalator clauses to keep wages in line with prices and by wage increases that are sometimes greater than increases in productivity.
B)  During expansions, prices tend to remain stable rather than decrease because major unions have long-run contracts calling for annual wage increases no matter what economic conditions are at the time.
C)  The tendency of small corporations to rely on non-price competition (advertising, and style and color changes)  and to increase output rather than cut prices also keeps prices stable.
D)  If prices rise drastically in a field, the government is likely to step in with programs to make up the shortage of supplies in the market.
E)  none of the above are correctF) B) and D)
G) B) and C)

Question 16

Which of the following statements is most correct?

Accepted Answer

A)  More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
B)  More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
C)  Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
D)  More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
E)  none of the aboveF) A) and D)
G) A) and E)

Question 17

The loanable funds theory used to explain the level of interest rates holds that interest rates are a function of the supply of:

Accepted Answer

A)  loanable funds and the demand for money
B)  loanable funds and the demand for loanable funds
C)  money and the demand for loanable funds
D)  money and the demand for moneyE) C) and D)
F) A) and B)

Question 18

When referring to an "upward sloping" yield curve, interest rates:

Accepted Answer

A)  are flat across all maturities
B)  decrease as maturity increases
C)  increase as maturity decreases
D)  increase as maturity increasesE) B) and D)
F) A) and B)

Question 19

The basic motives for holding money rather than investments are the:

Accepted Answer

A)  transactions motive and the precautionary motive
B)  transactions motive and the liquidity preference motive
C)  treasury motive, the pecuniary motive, and the speculative motive
D)  transactions motive, the precautionary motive, and the liquidity preference motive
E)  none of the aboveF) C) and E)
G) A) and B)

Question 20

The yield curve or the term structure of interest rates is typically downward sloping when:

Accepted Answer

A)  short-term Treasury interest rates are lower than long-term Treasury interest rates
B)  short-term and long-term Treasury interest rates are the same
C)  long-term Treasury interest rates are lower than short-term Treasury interest rates
D)  long-term Treasure interest rates are higher than short-term Treasury interest ratesE) B) and C)
F) C) and D)

Exam 8: Interest Rates

As the economy begins moving out of a recessionary period, the yield curve is generally:

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As interest rates rise, the prices of existing bonds will:

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Economists who believe that long-run inflationary bias will continue base their belief on the following factors: None of the above clone of prior item.

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When referring to an "upward sloping" yield curve, interest rates:

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Which of the following costs serves to compensate the lender for loss of liquidity?

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The maturity risk premium is the compensation expected by investors due to interest rate risk on debt instruments with longer maturity.

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The basic price that equates the demand for and supply of loanable funds in the financial markets is the __________:

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The yield curve or the term structure of interest rates is typically downward sloping when:

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A basic source of loanable funds is:

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The basic motives for holding money rather than investments are the:

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There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace.

Correct AnswerverifiedShow Answer

In response to the financial crisis of 2007-2009, the yield spread between Aaa corporate bonds and treasury bonds:

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f the nominal rate of interest is 11%, the risk-free rate of interest is 2%, the default premium is 4%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Which of the following factors directly impact the level of interest rates?

Correct AnswerverifiedShow Answer

Of the following, the most sensitive interest rate in the money market is the:

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Sources of loanable funds do not include:

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The loanable funds theory used to explain the level of interest rates holds that interest rates are a function of the supply of:

Correct AnswerverifiedShow Answer

In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _______ sharply and were ______ than ______ percent by October, 2008.

Correct AnswerverifiedShow Answer

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In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _ sharply and were than __ percent by October, 2008.

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