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MCQ Problems / Explanations



You hold a portfolio of government bonds and you expect interest rates to fall in the near future. In order to take...

Last updated: Fri, 25 Apr

You are thinking of making an investment in government bonds and you propose to hold the bonds to maturity. Which m...

Last updated: Fri, 25 Apr

Why were the charters of the First Bank of the United States and the Second Bank of the United States not renewed?

Last updated: Fri, 25 Apr

Which of the following ways of forming expectations are forward-looking?

Last updated: Fri, 25 Apr

Which of the following might explain why an upward sloping yield curve is 'normal'?

Last updated: Fri, 25 Apr

Which of the following makes US monetary policy?

Last updated: Fri, 25 Apr

Which of the following is not a member of the European Monetary Union?

Last updated: Fri, 25 Apr

Which of the following is likely to have the lowest degree of income risk for an investor investing for five years?

Last updated: Fri, 25 Apr

Which of the following is an 'AFB' bank:

Last updated: Fri, 25 Apr

Which of the following are generally characteristics of bonds:

Last updated: Fri, 25 Apr

Which of the following are depository institutions?

Last updated: Fri, 25 Apr

Which of the following are characteristics of the US financial system?

Last updated: Fri, 25 Apr

Which of the following are bank assets?

Last updated: Fri, 25 Apr

Using the symbols of Chapter 11, a reduction in the riskiness of a company's earnings, other things being equal, wi...

Last updated: Fri, 25 Apr

Two assets have variances of 24 (asset A) and 45 (asset B). The covariance between them is 15. The correlation coef...

Last updated: Fri, 25 Apr

Two assets have variances of 24 (asset A) and 45 (asset B). The covariance between them is 15. If a portfolio is co...

Last updated: Fri, 25 Apr

The yields on government bonds are usually less than yields on corporate bonds of similar maturity because:

Last updated: Fri, 25 Apr

The target inflation rate in the UK is set by:

Last updated: Fri, 25 Apr

The Swedish banking system is dominated by:

Last updated: Fri, 25 Apr

The simple Phillips curve was attacked as suffering from:

Last updated: Fri, 25 Apr

The risk free rate of interest is 6% while the market risk premium is 10%. A share which is twice as risky as the w...

Last updated: Fri, 25 Apr

The returns on the following 3-month instruments are quoted in the usual way (i.e. some as discount rates, some as ...

Last updated: Fri, 25 Apr

The rescue of insolvent banks inevitably raises problems of:

Last updated: Fri, 25 Apr

The reason that finding the present value of a future sum of money requires us to discount it, is that:

Last updated: Fri, 25 Apr

The real rate of interest required by investors is 3% p.a., inflation for the next year is expected to be 4% and th...

Last updated: Fri, 25 Apr

The Phillips curve implied that there was a trade-off available to governments between:

Last updated: Fri, 25 Apr

The ownership of ordinary company shares gives shareholders:

Last updated: Fri, 25 Apr

The major institutional holders of equity in Sweden are:

Last updated: Fri, 25 Apr

The largest item in the asset portfolio of German households in 2006 was:

Last updated: Fri, 25 Apr

The interest yield on the treasury bill in question 2 is:

Last updated: Fri, 25 Apr

The idea behind a capital adequacy ratio is that banking risk should be borne by:

Last updated: Fri, 25 Apr

The German banking system can be divided into 'specialised credit institutions' and:

Last updated: Fri, 25 Apr

The federal insurance of deposits is:

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The essential characteristic that any monetary asset must possess is:

Last updated: Fri, 25 Apr

The demand for insurance derives from the fact that people want:

Last updated: Fri, 25 Apr

The conversion of building societies to PLC status allowed them:

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The Caisses d'Epargne are:

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The banking systems of Nordic countries are remarkable for their:

Last updated: Fri, 25 Apr

The ability of central banks to influence short-term interest rates rests upon:

Last updated: Fri, 25 Apr

The 'clean price' of a bond is:

Last updated: Fri, 25 Apr

Suppose that three year interest rates rise from 5 per cent to 6 per cent while one year rates remain at 3 per cent...

Last updated: Fri, 25 Apr

Suppose that the Bank of England cuts interest rates by 0.5 per cent. Other things being equal, the change in the p...

Last updated: Fri, 25 Apr

Standard and Poor's bond rating agency reduces your firm's bond rating from AA+ to AA. The likely effect on your fi...

Last updated: Fri, 25 Apr

Pension and life insurance funds hold few short-term assets because:

Last updated: Fri, 25 Apr

Other things being equal, lenders prefer to lend for short periods because:

Last updated: Fri, 25 Apr

Other things being equal, according to the base multiplier analysis of money supply determination, an increase in t...

Last updated: Fri, 25 Apr

Other things being equal, according to the base multiplier analysis of money supply determination, a decrease in ba...

Last updated: Fri, 25 Apr

Other things being equal, a rise in the price of a company's shares:

Last updated: Fri, 25 Apr

Other things being equal, a high p/e ratio shows?

Last updated: Fri, 25 Apr

Mutual and co-operative banks in France charge lower interest rates (than commercial banks) because:

Last updated: Fri, 25 Apr

Monetary authorities might be able to reduce inflation without causing a recession if their policies are:

Last updated: Fri, 25 Apr

Long dated government bonds tend to have higher yields than short-dated bonds because:

Last updated: Fri, 25 Apr

It is suggested in the text that the demand for money is not of great importance from the point of view of monetary...

Last updated: Fri, 25 Apr

Investment trusts often expose investors to higher capital risk than unit trusts because:

Last updated: Fri, 25 Apr

Interest is usually paid on money market instruments:

Last updated: Fri, 25 Apr

In the loanable funds theory of interest determination, an increase in the productivity of capital equipment should...

Last updated: Fri, 25 Apr

In the flow of funds approach to money supply determination a rise in the central bank's official dealing rate will...

Last updated: Fri, 25 Apr

In the course of 1923, German prices rose by approximately:

Last updated: Fri, 25 Apr

In Italy in recent years there has been:

Last updated: Fri, 25 Apr

If the risk free rate is 5 per cent while the market risk premium is 10 per cent, the required return on shares whe...

Last updated: Fri, 25 Apr

If the required rate of return on a company's shares is 15 per cent, its last dividend payment was 8p and earnings ...

Last updated: Fri, 25 Apr

If the discount rate on 3-month commercial paper is 4.9% while the yield on 3-month CDs is 5%, the real difference ...

Last updated: Fri, 25 Apr

If the demand for money is interest-elastic, an increase in interest rates:

Last updated: Fri, 25 Apr

If the current one-year rate is 5.5% while the current two-year rate is 6%, this suggests that the one year rate ne...

Last updated: Fri, 25 Apr

If savers decide to save more, ceteris paribus, the loanable funds theory predicts:

Last updated: Fri, 25 Apr

If redemption yields on one year bonds are 4.5 per cent while yields on two year bonds are 5.3 per cent, this sugge...

Last updated: Fri, 25 Apr

If people are willing to lend at 7% when inflation is 2% and continue to lend the same amounts when inflation is 4%...

Last updated: Fri, 25 Apr

If market interest rates fall to 5%, the market price of the CD in question 5, when it has 40 days to maturity will...

Last updated: Fri, 25 Apr

If market interest rates are 6%, the market price of a 7% 3-month CD for $100,000 with 60 days to maturity is:

Last updated: Fri, 25 Apr

If long-term interest rates rise from 5 per cent to 6 per cent, the price of a perpetual UK government bond with a ...

Last updated: Fri, 25 Apr

If investors become income risk averse, they will:

Last updated: Fri, 25 Apr

If interest rates rise, the present value of any future earnings is bound to:

Last updated: Fri, 25 Apr

If asset A has a variance of 49 while asset B has a variance of 36 while the correlation coefficient of their retur...

Last updated: Fri, 25 Apr

Government appointed members of the Monetary Policy Committee of the Bank of England are appointed:

Last updated: Fri, 25 Apr

Given a fall in interest rates, the largest price change will occur in:

Last updated: Fri, 25 Apr

Given a current rate of inflation of 3 per cent, and an expected rate of inflation next year of 5 per cent, what in...

Last updated: Fri, 25 Apr

Five assets have expected mean returns and variances as follows: (A) 8% 15 (B) 12% 18 (C) 11% 18 (D) 15% 20 (E) 11%...

Last updated: Fri, 25 Apr

Diversification is one way in which insurance companies can protect themselves against:

Last updated: Fri, 25 Apr

Corporate bonds have higher yields than government bonds because:

Last updated: Fri, 25 Apr

By taking out insurance cover an individual:

Last updated: Fri, 25 Apr

Because their flows of funds are largely contractual, life assurance companies can hold:

Last updated: Fri, 25 Apr

Bank deposit insurance was set up:

Last updated: Fri, 25 Apr

Assume that the central bank's main responsibility is to minimise the rate of inflation. A release of economic data...

Last updated: Fri, 25 Apr

Assume that a central bank is willing to buy 14 day repos for $1m, with a repurchase price of $1,002,000. What rate...

Last updated: Fri, 25 Apr

Asset A has a variance of 25 while asset B has a variance of 9. The covariance of returns is -15. The proportion of...

Last updated: Fri, 25 Apr

As the level of interest rates in the economy falls, the demand for money, ceteris paribus:

Last updated: Fri, 25 Apr

An increase in (i) the price level and (ii) the rate of inflation:

Last updated: Fri, 25 Apr

An airline expands its fleet of planes just before a serious accident reduces the demand for its flights. This is a...

Last updated: Fri, 25 Apr

An 'overdraft' economy is one in which:

Last updated: Fri, 25 Apr

An 'open-end' investment fund is one which:

Last updated: Fri, 25 Apr

All demand for money functions that are tested are macroeconomic relationships between the aggregate demand for mon...

Last updated: Fri, 25 Apr

According to the rational expectations hypothesis:

Last updated: Fri, 25 Apr

According to the policy irrelevance theorem, why is policy irrelevant?

Last updated: Fri, 25 Apr

According to the liquidity preference theory of interest, an increase in uncertainty, other things being equal, wil...

Last updated: Fri, 25 Apr

According to the Fisher hypothesis, the nominal rate of interest consists of:

Last updated: Fri, 25 Apr

A sudden demand by depositors for notes and coin is an example of:

Last updated: Fri, 25 Apr

A retirement annuity is particularly attractive to someone who has:

Last updated: Fri, 25 Apr

A mutual fund manager shifts part of his portfolio from long-dated bonds to money market instruments even though yi...

Last updated: Fri, 25 Apr

A government sale of treasury bills to the central bank is the nearest thing in a modern economy to:

Last updated: Fri, 25 Apr

A downward sloping yield curve most likely indicates:

Last updated: Fri, 25 Apr