Fin 321 Final Exam

FIN 321 FINAL EXAM



Theoumajoroumonetaryoupolicy-
makingoubodyouofoutheouFederalouReserveouisoutheou________________ou-ouans--
FederalouOpenouMarketouCommittee

TheouFedoucanoutargetoubothoumoneyousupplyouandouinterestouratesousimultaneously.ou(T/
F)ou-ouans--False

Theou_____________ouisoutheourateouFederalouReserveouBanksouchargeouonouloansoutoou
financialouinstitutionsouinoutheiroudistrict.ou-ouans--Discountourate

IfoutheouFedouisoutargetingouinterestouratesouandoutheoudemandouforoumoneyoudrops,outheo
uFedouwouldoulikelyouincreaseoutheoumoneyousupply.ou(T/F)ou-ouans--False


Theouprimaryoucreditourateouisouhigherouthanoutheousecondaryoucreditourate.ou(T/F)ou-
ouans--False


Inouperiodsouofouhyperinflation,outargetingoumoneyousupplyou(toousetoumonetaryoupolicies)
ouwouldoubeoumoreouappropriateouthanoutargetingouinterestouratesou(toousetoumonetaryoup
olicies).ou(T/F)ou-ouans--True

Inouperiodsouofouhyperinflation,outargetingouinterestouratesou(toousetoumonetaryoupolicies)o
uwouldouhelpoulowerouinflation.ou(T/F)ou-ouans--False


OpenoumarketousalesouofouTreasuryousecuritiesoubyoutheouFedouleadsoutoouaoudecreaseoui
noutheoumoneyousupply.ou(T/F)ou-ouans--True

Allouexpansionaryoumonetaryoupoliciesouincreaseoutheoumoneyousupply.ou(T/F)ou-ouans--
True

IfoutheouFedouwishesoutooustimulateougrowthouinoutheoueconomy,ouitoucould

I.oubuyouU.S.ougovernmentousecurities.
II.ouloweroutheoudiscountourate.
III.ouincreaseoureserveourequirements.ou-ouans--IouandouIIouonly

,Duringouperiodsouofoudeflation,ouinvestingouinoufixed-
principalouTreasuryousecuritiesouisoubetterouthanouinvestingouinouinflation-
indexedouTreasuryousecurities.ou(T/F)ou-ouans--True

ForouTIPSou(TreasuryouInflationouProtectedouSecurities),oubothoutheoucouponoupaymentso
uandoutheoufinalouprincipalou(i.e.oufaceouvalue)oupaymentouareouadjustedouwithouinflation.ou
(T/F)ou-ouans--True

Accruedouinterestouisoutheouportionouofoutheoucouponoupaymentouaccruedoubetweenoutheo
usettlementoudateouandoutheounextoucouponoupaymentoudate.ou(T/F)ou-ouans--False


TheouU.S.ouannualoufederalougovernmentoudeficitouhasoustayedoupositiveouforoumostouyea
rsouoveroutheoupastou20ouyears.ou(T/F)ou-ouans--True

TheoucleanoupriceouofouaouT-bondouorouT-
noteouisoutheoupriceouthatoualreadyouaccountsouforouaccruedouinterest.ou(T/F)ou-ouans--
False

Allouelseouconstant,oudueoutooutheiroulongeroumaturity,ouT-notesouandouT-
bondsouhaveoulowerouinterestourateourisksouthanoumoneyoumarketousecurities.ou(T/F)ou-
ouans--False


Accruedouinterestoumustoubeoupaidoubyoutheou__________ouofouaoubondoutooutheou______
____ouofouaoubondouifoutheoubondouisoupurchasedouonou_______________.ou-ouans--
buyer;ouseller;ouaoudateouinoubetweenoucouponoupaymentoudates

T-notesouandouT-
bondsouareousoldoubyoutheouU.S.ouTreasuryouthroughouTreasuryouauctionsouinoutheouseco
ndaryoumarket.ou(T/F)ou-ouans--False

HowoumanyouTreasuryouzero-couponoubondsoucanoubeoucreatedoufromouaouT-
bondouwithou20ouyearsoutooumaturity,oucouponourateouofou9.50%,ouyieldoutooumaturityouofou
9.55%,oufaceouvalueouofou$10,000,oupayingoucouponsousemiannually?ou-ouans--41

Yououbuyouanou8%oucoupon,ou$1,000ouparouT-
bondouwhichoupaysoucouponsousemiannually.ouYououbecomeoutheouownerou32oudaysouaft
eroutheoulastoucouponoupaymentoudate,ouandoufromoutheoudateouyououbecomeoutheouowne
r,outhereouareou150oudaysouremainingouuntiloutheounextoucouponoupaymentoudate.ouTheoub
ond'soucleanoupriceouquoteouisou99.6858.ouWhatouisoutheoufullouoroudirtyoupriceouofoutheoub
ond?ou-ouans--$1,003.89

WhenouaouforeignoucurrencyoudepreciatesouagainstoutheouUSoudollar,ouaouUSoufinancialoui
nstitutionouwithouaou_______________ouinouthatouforeignoucurrencyouwilloubenefit,ouandou
whenoutheouforeignoucurrencyouappreciatesouagainstoutheouUSoudollar,ouaouUSoufinancialo
uinstitutionouwithouaou___________ouinouthatouforeignoucurrencyouwilloubenefit.ou-ouans--
negativeounetouexposure;oupositiveounetouexposure

, Allouelseouconstant,ouaouU.S.oufinancialouinstitutionouwithouaou___________ounetouexposur
eouinouanyougivenouforeignoucurrencyouisounotouexposedoutooufluctuationsouinoutheouexcha
ngeourateouofouthatoucurrencyouagainstoutheouUSoudollar.ou-ouans--Zero

Matchingouforeignouassetsouandouforeignouliabilitiesoucanouhelpouaoufirmouhedgeouagainsto
uforeignouexchangeouriskoubecauseouifoutheouforeignoucurrencyoudepreciatesourelativeoutoo
utheoudomesticoucurrency,outheoufirmouwilloureceiveou________ouonoutheouassetousideoubu
toutheyouwilloupayou________ouonoutheouliabilityousideouandouifoutheouforeignoucurrencyouap
preciatesourelativeoutooutheoudomesticoucurrency,outheoufirmouwilloupayou_________ouonout
heouliabilityousideoubutoutheyouwilloureceiveou___________ouonoutheouassetouside.ou-
ouans--Less;ouless;oumore;oumore


Allouelseouequal,ouifouJapan'souinflationouisouhigherouthanoutheouU.S.'souinflation,oudemand
ouforougoodsouwilloushiftoutoou____________,oupushingoutheoudemandouforoutheou_______
__ouup.ouAsouaouresult,outheouyenouwilloutendoutoou_________ourelativeoutooutheouUSoudoll
ar.ou-ouans--TheouU.S;ouU.Soudollars;oudepreciate

Aoubankouissuedou$200oumillionouworthouofouone-
yearouBrazilianouCDsou(asouliabilities)ouinouBrazilianourealsouatouaourateouofou6.5%.
Assumingounoouhedge,ouwithoutheouBrazilianouCDsouabove,outhisoubankouisouexposedoutoo
utheouriskouofoutheouBrazilianourealouappreciatingouagainstoutheouUSoudollar.ou(T/F)ou-
ouans--True


Whichouofoutheoufollowingoustatementsouisoufalse?

-
Aoufinancialouinstitution'souforeignouexchangeouriskoucanoucomeoufromouholdingouforeignou
assetsouand/orouforeignouliabilities.ou

-
Theoubalanceouofoutradeoucanouimpactoucurrencyouexchangeouratesoubutoucurrencyouexch
angeouratesoucannotouimpactoutheoubalanceouofoutrade.

ou-
TheouinternationalouFisheroueffectouimpliesouthatoubetweenouanyoutwooucountries,outheouc
ountryouwithoutheouhigherounominalouinterestourateouwilloutendoutoouseeouitsoucurrencyoude
preciateouagainstoutheouotheroucountry'soucurrency.

-AouweakeningoudollaroucanougenerateouinflationouinoutheouU.S.ou-ouans--
Theoubalanceouofoutradeoucanouimpactoucurrencyouexchangeouratesoubutoucurrencyouexch
angeouratesoucannotouimpactoutheoubalanceouofoutrade.

Aoubankouissuedou$200oumillionouworthouofouone-
yearouBrazilianouCDsou(asouliabilities)ouinouBrazilianourealsouatouaourateouofou6.5%.ou(Note:
ou6.5%ouisoutheourateoubasedouonouBrazilianoureals)