lOMoAR cPSD| 70487227
Econ 330 Practice prep Exam 1
1. Which of the following is an example of financial intermediation?
a. IBM issues a bond that is sold to a retired person.
b. Saver makes a deposit in credit union; credit union makes loan to a member for a new car.
c. IBM issues common stock that is sold to a college student.
d. U.S. Treasury sells bonds to fund government spending.
2. People, in general, do not lend money to one another to buy a house or a car because: a. of
information problems.
b. they do not know about the effort other people will provide to repay their debts.
c. they do not know about the capacity of other people to repay their debts. d. All of the
above.
3. Which of the following can be described as involving indirect finance?
a. You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov.
b. You make a loan to your neighbor.
c. You buy shares in a mutual fun
d. You purchase shares in an initial public offering by a corporation in the primary market.
4. When I purchase ________, I own a portion of a firm and have the right to vote on issues important to
the firm and to elect its directors.
a. bonds b. notes c. bills d. stock
5. Bonds that are sold in a foreign country and are denominated in a currency other than that of the
country in which it is sold are known as
a. equity bonds. c. country bonds.
b. foreign bonds. d. Eurobonds.
6. Financial intermediaries provide customers with liquidity services. Liquidity services
a. are another term for asset transformation.
b. make it easier for customers to conduct transactions.
c. allow customers to have a cup of coffee while waiting in the lobby.
d. are a result of the asymmetric information problem.
7. An example of the problem of ________ is when a corporation uses the funds raised from selling bonds
to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.
a. credit risk c. adverse selection
b. risk sharing d. moral hazard
, lOMoAR cPSD| 70487227
8. Which of the following is not a contractual savings institution?
a. A pension fund c. A fire and casualty insurance company
b. A life insurance company d. A savings and loan association
9. Increasing the amount of information available to investors helps to reduce the problems of ________
and ________ in the financial markets. c. adverse selection; moral hazard
a. adverse selection; risk sharing d. adverse selection; economies of
b. moral hazard; transactions costs scale
10. In order to reduce risk and increase the safety of financial institutions, commercial banks and other
depository institutions are prohibited from
a. owning common stock. c. making real estate loans.
b. owning municipal bonds. d. making personal loans.
11. Currency includes
a. paper money, coins, and checks. c. paper money and coins.
b. paper money and checks. d. checks & savings deposits.
12. ________ is the relative ease and speed with which an asset can be converted into a medium of
exchange.
a. Efficiency c. Specialization
b. Deflation d. Liquidity
13. A ______ is bought at a price below its face value, & the _______ value is repaid at the maturity date.
a. discount bond; discount c. coupon bond; face
b. coupon bond; discount d. discount bond; face
14. There is ________ for any bond whose time to maturity matches the holding period
a. no interest−rate risk c. a large interest−rate risk
b. yield−to−maturity risk d. rate−of−return risk
15. If you expect the inflation rate to be 15 percent next year and a one−year bond has a yield to maturity
of 7 percent, then the real interest rate on this bond is
a. 7 percent. c. −15 percent.
b. 22 percent. d. −8 percent.
16. In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.
a. borrowers; lenders c. lenders; advancers
b. lenders; borrowers d. borrowers; advancers
17. The interest rate falls when either the demand for bonds ________ or the supply of bonds ________.
a. increases; decreases c. increases; increases
Econ 330 Practice prep Exam 1
1. Which of the following is an example of financial intermediation?
a. IBM issues a bond that is sold to a retired person.
b. Saver makes a deposit in credit union; credit union makes loan to a member for a new car.
c. IBM issues common stock that is sold to a college student.
d. U.S. Treasury sells bonds to fund government spending.
2. People, in general, do not lend money to one another to buy a house or a car because: a. of
information problems.
b. they do not know about the effort other people will provide to repay their debts.
c. they do not know about the capacity of other people to repay their debts. d. All of the
above.
3. Which of the following can be described as involving indirect finance?
a. You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov.
b. You make a loan to your neighbor.
c. You buy shares in a mutual fun
d. You purchase shares in an initial public offering by a corporation in the primary market.
4. When I purchase ________, I own a portion of a firm and have the right to vote on issues important to
the firm and to elect its directors.
a. bonds b. notes c. bills d. stock
5. Bonds that are sold in a foreign country and are denominated in a currency other than that of the
country in which it is sold are known as
a. equity bonds. c. country bonds.
b. foreign bonds. d. Eurobonds.
6. Financial intermediaries provide customers with liquidity services. Liquidity services
a. are another term for asset transformation.
b. make it easier for customers to conduct transactions.
c. allow customers to have a cup of coffee while waiting in the lobby.
d. are a result of the asymmetric information problem.
7. An example of the problem of ________ is when a corporation uses the funds raised from selling bonds
to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.
a. credit risk c. adverse selection
b. risk sharing d. moral hazard
, lOMoAR cPSD| 70487227
8. Which of the following is not a contractual savings institution?
a. A pension fund c. A fire and casualty insurance company
b. A life insurance company d. A savings and loan association
9. Increasing the amount of information available to investors helps to reduce the problems of ________
and ________ in the financial markets. c. adverse selection; moral hazard
a. adverse selection; risk sharing d. adverse selection; economies of
b. moral hazard; transactions costs scale
10. In order to reduce risk and increase the safety of financial institutions, commercial banks and other
depository institutions are prohibited from
a. owning common stock. c. making real estate loans.
b. owning municipal bonds. d. making personal loans.
11. Currency includes
a. paper money, coins, and checks. c. paper money and coins.
b. paper money and checks. d. checks & savings deposits.
12. ________ is the relative ease and speed with which an asset can be converted into a medium of
exchange.
a. Efficiency c. Specialization
b. Deflation d. Liquidity
13. A ______ is bought at a price below its face value, & the _______ value is repaid at the maturity date.
a. discount bond; discount c. coupon bond; face
b. coupon bond; discount d. discount bond; face
14. There is ________ for any bond whose time to maturity matches the holding period
a. no interest−rate risk c. a large interest−rate risk
b. yield−to−maturity risk d. rate−of−return risk
15. If you expect the inflation rate to be 15 percent next year and a one−year bond has a yield to maturity
of 7 percent, then the real interest rate on this bond is
a. 7 percent. c. −15 percent.
b. 22 percent. d. −8 percent.
16. In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.
a. borrowers; lenders c. lenders; advancers
b. lenders; borrowers d. borrowers; advancers
17. The interest rate falls when either the demand for bonds ________ or the supply of bonds ________.
a. increases; decreases c. increases; increases
