REE4204 1 FINAL EXAM QUESTIONS WITH
VERIFIED ANSWERS
Capital markets:
a. deal in long-term securities
b. deal in short-term Treasury bills and long-term Treasury bonds to finance their
deficits
c. rarely are involved in real estate transactions
d. consider mortgages only for short-term, interim financing - ✔✔a.* deal in
long-term securities
The most accurate definition of finance is:
a. the study of the allocation of resources
b. the process of maximizing profits through money transfers
c. the study of the transfer of money and credit between individuals, businesses,
and governments
d. the one you are about to marry - ✔✔c.* the study of the transfer of money
and credit between individuals, businesses, and governments
The following is an accurate statement:
a. the fields of finance and economics are unrelated for the most part
b. finance is a segment of the more general field of economics
c. finance focuses on profits, whereas economics focuses on cash flows
d. b and c - ✔✔b. finance is a segment of the more general field of economics
,The following are insured by the FDIC:
a. commercial banks
b. savings and loan associations
c. insurance companies
d. credit unions
e. a and b - ✔✔e. a and b
Money market instruments are those that mature in less than:
a. one year
b. five years
c. ten years
d. twenty years - ✔✔a.* one year
The price of a bond:
a. is related to nothing. It is arbitrarily set by the corporation's Treasurer and
Board of Director based on their need for profit the day the bonds are issued.
b. is inversely related to the market-required yield
c. in not a reflection of the market as a whole
d. increases (higher yields) and leads to an increase in the quantity demanded -
✔✔b.* is inversely related to the market-required yield
,The Equation of Exchange (Irving Fisher) is:
a. MV = PT
b. MP = VT
c. MT = PV
d. none of the above - ✔✔a.* MV = PT
Velocity of circulation refers to:
a. how fast the average person spends his paycheck
b. how fast the current interest rate doubles
c. the average number of times one dollar turns over in one year
d. the total annual dollar transactions divided by the current interest rate -
✔✔c.* the average number of times one dollar turns over in one year
In the equation of exchange:
a. M = marginal revenue, V = velocity of trade. P = price level, T = trade value
b. M = money, V = volume of trade, P = price level, T = Time value of money
c. M = market yield, V = variability of circumstances, P = population growth,
T time value of money
d. M = money supply, T = velocity of circulation, P = general price level, T = volume
of trade - ✔✔d.* M = money supply, T = velocity of circulation, P = general
price level, T = volume of trade
, Other things being equal, the greater the rate of growth of money:
a. the better off we are
b. the greater the rate of inflation
c. the higher the standard of living for the general population
d. the higher the poverty level - ✔✔b.* the greater the rate of inflation
Economists agree:
a. inflation stops growing after it reaches double digits
b. inflation cannot continue year after year
c. inflation, especially if it is consistent year after year, creates expectations of
future inflation
d. inflation doesn't play an important role in the determination of market interest
rates - ✔✔c.* inflation, especially if it is consistent year after year, creates
expectations of future inflation
The line of causation: of money> inflation> interest rate mechanism is:
a. money, economy, inflation, inflationary expectation, credit markets, interest
rates
b. interest rate, credit markets, inflationary expectations, inflation, economy,
money
c. inflationary expectations, inflation, economy, interest rate
d. credit market, inflationary expectations, interest rate - ✔✔a.* money,
economy, inflation, inflationary expectation, credit markets, interest rates
VERIFIED ANSWERS
Capital markets:
a. deal in long-term securities
b. deal in short-term Treasury bills and long-term Treasury bonds to finance their
deficits
c. rarely are involved in real estate transactions
d. consider mortgages only for short-term, interim financing - ✔✔a.* deal in
long-term securities
The most accurate definition of finance is:
a. the study of the allocation of resources
b. the process of maximizing profits through money transfers
c. the study of the transfer of money and credit between individuals, businesses,
and governments
d. the one you are about to marry - ✔✔c.* the study of the transfer of money
and credit between individuals, businesses, and governments
The following is an accurate statement:
a. the fields of finance and economics are unrelated for the most part
b. finance is a segment of the more general field of economics
c. finance focuses on profits, whereas economics focuses on cash flows
d. b and c - ✔✔b. finance is a segment of the more general field of economics
,The following are insured by the FDIC:
a. commercial banks
b. savings and loan associations
c. insurance companies
d. credit unions
e. a and b - ✔✔e. a and b
Money market instruments are those that mature in less than:
a. one year
b. five years
c. ten years
d. twenty years - ✔✔a.* one year
The price of a bond:
a. is related to nothing. It is arbitrarily set by the corporation's Treasurer and
Board of Director based on their need for profit the day the bonds are issued.
b. is inversely related to the market-required yield
c. in not a reflection of the market as a whole
d. increases (higher yields) and leads to an increase in the quantity demanded -
✔✔b.* is inversely related to the market-required yield
,The Equation of Exchange (Irving Fisher) is:
a. MV = PT
b. MP = VT
c. MT = PV
d. none of the above - ✔✔a.* MV = PT
Velocity of circulation refers to:
a. how fast the average person spends his paycheck
b. how fast the current interest rate doubles
c. the average number of times one dollar turns over in one year
d. the total annual dollar transactions divided by the current interest rate -
✔✔c.* the average number of times one dollar turns over in one year
In the equation of exchange:
a. M = marginal revenue, V = velocity of trade. P = price level, T = trade value
b. M = money, V = volume of trade, P = price level, T = Time value of money
c. M = market yield, V = variability of circumstances, P = population growth,
T time value of money
d. M = money supply, T = velocity of circulation, P = general price level, T = volume
of trade - ✔✔d.* M = money supply, T = velocity of circulation, P = general
price level, T = volume of trade
, Other things being equal, the greater the rate of growth of money:
a. the better off we are
b. the greater the rate of inflation
c. the higher the standard of living for the general population
d. the higher the poverty level - ✔✔b.* the greater the rate of inflation
Economists agree:
a. inflation stops growing after it reaches double digits
b. inflation cannot continue year after year
c. inflation, especially if it is consistent year after year, creates expectations of
future inflation
d. inflation doesn't play an important role in the determination of market interest
rates - ✔✔c.* inflation, especially if it is consistent year after year, creates
expectations of future inflation
The line of causation: of money> inflation> interest rate mechanism is:
a. money, economy, inflation, inflationary expectation, credit markets, interest
rates
b. interest rate, credit markets, inflationary expectations, inflation, economy,
money
c. inflationary expectations, inflation, economy, interest rate
d. credit market, inflationary expectations, interest rate - ✔✔a.* money,
economy, inflation, inflationary expectation, credit markets, interest rates
