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Monday, February 22, 2010

MGT411 Final Paper

FINALTERM  EXAMINATION
Fall 2009
MGT411- Money & Banking (Session - 3)
Time: 120 min
Marks: 87
    
Question No: 1    ( Marks: 1 )    - Please choose one
 If more students didn't pay back their student loans then which of the following statement would imply?
       Student loans may become more difficult to obtain
       The interest rate on student loans would increase
       Fewer people may attend college
       All of the given options
   
Question No: 2    ( Marks: 1 )    - Please choose one
 Price of 100 goods under the barter system would be _________.
       5050
       19800
       4950
       20200
   
Question No: 3    ( Marks: 1 )    - Please choose one
 Recently M2 and M3 have become:
       A less useful measure of the relationship between the money supply and inflation
       The money supply, the Federal Reserve pays the most attention to, in conducting monetary policy
       Less useful than M1 due to new substitutes for standard checking account
       The slowest growing of all of the money aggregates
   
Question No: 4    ( Marks: 1 )    - Please choose one
 Economic research shows:
       There is a strong inverse correlation between financial market development and economic growth
       There is weak relation between financial market development and economic growth around 0.25
       There is a relatively strong positive correlation between financial market development and economic growth
       There isn't any correlation between financial market development and economic growth
   
Question No: 5    ( Marks: 1 )    - Please choose one
 Considering the value of a financial instrument, the longer the time until the promised payment is made:
       The less valuable is the promise to make it since time is valuable
       The greater the risk, therefore the promise has greater value
       The more valuable is the promise to make it
       It has no effect on the value of instrument
   
Question No: 6    ( Marks: 1 )    - Please choose one
 Which of the following market allowed networks of dealers that are connected electronically?
       New York Stock Exchange
       NASDAQ
       Large exchanges in London
       Large exchanges in Tokyo
   
Question No: 7    ( Marks: 1 )    - Please choose one
 Bonds that are issued by Government are called _________.
       Government bonds
       Treasury bonds
       Corporate bonds
       Callable bonds
   
Question No: 8    ( Marks: 1 )    - Please choose one
 Asma deposits funds into a CD account at her bank. The CD account has an annual interest of 4.0%. If Asma leaves the funds in the CD account for entire two years she will have $1081.60. What amount is Asma depositing?
       $960.60
       $900.00
       $1005.00
       $1000.00
    
Question No: 9    ( Marks: 1 )    - Please choose one
 Which of the following investment will be profitable?
       IRR is less than cost of borrowing
       IRR is equal to cost of borrowing
       IRR is greater than cost of borrowing
       IRR has no connection with cost of borrowing
   
Question No: 10    ( Marks: 1 )    - Please choose one
 Suppose there are two investments, A and B, investment A has low standard deviation where as investment B has high standard deviation. What would you think that most people will choose?
       Investment A
       Investment B
       Indifference between them
       Insufficient information to decide
   
Question No: 11    ( Marks: 1 )    - Please choose one
 The liquidity premium theory suggests that yield curves should usually be:
       Up-sloping
       Inverted
       Flat
       Up-sloping through year 1, then flat thereafter
   
Question No: 12    ( Marks: 1 )    - Please choose one
 What will the yield curve look like if future short-term interest rates are expected to rise sharply?
       It will steeply slope upward
       It will be horizontal
       It will slightly slope upward
       It will slope downward
   
Question No: 13    ( Marks: 1 )    - Please choose one
 The fact that a financial intermediary can use the same contract for many customers is an example of:
       Economies of Scope
       The Law of Diminishing Marginal Returns
       The Law of Increasing Opportunity Cost
       Economies of Scale
   
Question No: 14    ( Marks: 1 )    - Please choose one
 Which of the following does not include in the bank's reserves?

       Treasury bills
       Currency in the bank
       Bank's deposits at the Federal Reserves
       Currency in ATM machines
   
Question No: 15    ( Marks: 1 )    - Please choose one
 __________ measures how efficiently a bank uses its assets.

       Return on Assets
       Return on Equity
       Bank Capital
       Bank Profitability
   
Question No: 16    ( Marks: 1 )    - Please choose one
 One way for a bank to deal with liquidity risk is ____________.

       To hold sufficient excess reserves
       To charge all borrowers from the same industry an average rate for that industry
       To avoid making loans to borrowers from a broad spectrum
       To limit the number of loans made in any year
   
Question No: 17    ( Marks: 1 )    - Please choose one
 Which of the following is the primary source of funds for Depository institutions?

       Short term loans
       Shares sold to customers
       Savings and time deposits
       Commercial papers
   
Question No: 18    ( Marks: 1 )    - Please choose one
 Which one of the following refers to the risk assessment and loss reimbursement guarantee by the individual risk experts of the relevant field?
       Underwriting process
       Insurance process
       Research process
       None of the given options
   
Question No: 19    ( Marks: 1 )    - Please choose one
 "Financial regulations restrict the assets that banks can own". Which one of the following provides the reason for that ?

       Because it limits the growth rate of banks
       Because it combats the moral hazard that government safety nets provide
       Because it prevents banks from being too profitable
       Because it keeps banks from spending lavishly on perks for executives
   
Question No: 20    ( Marks: 1 )    - Please choose one
 An open market purchase of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show _________.

       A decrease in the asset of securities and a decrease in the liability of reserves
       A decrease in the liability of reserves
       No change in the size of balance sheet except composition of assets
       An increase in the asset category of securities and the liability category of reserves
   
Question No: 21    ( Marks: 1 )    - Please choose one
 Identify the most appropriate statement.
       The FOMC sets the federal funds rate
       The discount rate is the primary policy tool of the FOMC
       The difference between the target and actual federal funds rate is the dealer's spread
       The FOMC sets the target federal funds rate
   
Question No: 22    ( Marks: 1 )    - Please choose one
 Which one of the following refers to actual tools of policy instruments that the central bank controls directly?

       Operating instruments
       Intermediate instruments
       Financial instruments
       None of the given options
   
Question No: 23    ( Marks: 1 )    - Please choose one
 Which one of the following is used primarily by small agricultural banks to help in managing the cyclical nature of farmer’s loans and deposits?

       Primary credit
       Secondary credit
       Seasonal credit
       All of the given options
   
Question No: 24    ( Marks: 1 )    - Please choose one
 Over the long run if central banks want to avoid high rates of inflation they need to be concerned with which of the following?

       Unemployment
       Money growth
       Real economic growth
       Productivity of labor
   
Question No: 25    ( Marks: 1 )    - Please choose one
 If M = the money supply; Y = real output, P = the price level, and V = velocity, which of the following equals the income velocity of money?

       (P·Y) + M
       (P·M)/Y
       (Y·M)/P
       (P·Y)/M
   
Question No: 26    ( Marks: 1 )    - Please choose one
 Key assumptions behind the quantity theory of money include which of the following?

       The change in nominal GDP is zero
       Percentage change in the price level equals the percentage change in real GDP
       The velocity of money is constant
       The money supply is fixed
   
Question No: 27    ( Marks: 1 )    - Please choose one
 Identify the correct statement.

       When the real interest rate increases the reward for saving decreases
       When the real interest rate decreases the cost of current consumption increases
       When the real interest rate increases current consumption becomes more expensive and reward for saving increases
       When the real interest rate increases only the reward for saving increases
   
Question No: 28    ( Marks: 1 )    - Please choose one
 Which one of the following is NOT true for gap analysis?
       It is the difference between the yield on interest sensitive assets and liabilities
       It is the difference in the maturity of assets and liabilities
       Banks manage credit risk by using gap analysis
       It is a formal study of what a business is doing currently and where it wants to go in the future
   
Question No: 29    ( Marks: 1 )    - Please choose one
 Currency-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?

       Central bank
       Bank regulators
       Commercial banks
       Non bank public
   
Question No: 30    ( Marks: 1 )    - Please choose one
 What kind of relationship is there between rate of inflation and aggregate demand?
       Positive relationship
       Negative relationship
       Direct relationship
       Strong relationship
   
Question No: 31    ( Marks: 1 )    - Please choose one
 If real interest rate increases, investment will:
       Increase
       Decrease
       Remain constant
       None of the given options
   
Question No: 32    ( Marks: 1 )    - Please choose one
 Complete crowding-out will occur if:
       The money supply rises when Government purchases increases
       An increase in Government purchases does not change Consumption
       Taxes rise when Government purchases increases
       An increase in Government purchases causes an equal fall in Consumption, Investment, and Net Exports
   
Question No: 33    ( Marks: 1 )    - Please choose one
 The long-run supply curve is:
       Horizontal
       Vertical
       Downward-sloping
       Upward-sloping
   
Question No: 34    ( Marks: 1 )    - Please choose one
 Which of the following is NOT an example of financial institutions?
       Bank
       Securities firm
       Stock exchange
       Insurance company
   
Question No: 35    ( Marks: 1 )    - Please choose one
 Which of the following is the modern way of transferring fund or making payment?
       Paychecks system
       Electronic fund transfer
       Mailed transction
       Local bank
   
Question No: 36    ( Marks: 1 )    - Please choose one
 _________ evolved from coffee houses to trading places to electronic networks.
       Financial companies
       Financial markets
       Financial institutions
       Financial intermediaries
   
Question No: 37    ( Marks: 1 )    - Please choose one
 Which of the following is the formula for calculating ROE (Return on equity)?
       ROE = Net profit before taxes / bank capital
       ROE = Net profit after taxes / total assets 
       ROE = Net profit after taxes / bank capital
       ROE = Net profit before taxes / total assets 
   
Question No: 38    ( Marks: 1 )    - Please choose one
 Which of the following is related to leverage?

       Return on assets and return on equity
       Return on assets
       Return on equity
       None of the given options
   
Question No: 39    ( Marks: 1 )    - Please choose one
 Which of the following technique is necessary for making profit in a bank?

       Interest rate on liabilities must be lower
       Interest rate on deposits must be higher
       Interest rate on deposits must be higher than the interest rate on the liabilities
       Interest rate on deposits must be lower than the interest rate on the liabilities
   
Question No: 40    ( Marks: 1 )    - Please choose one
 Which of the following are the primary uses of funds of Insurance Company?
       Cash, loans, securities
       Corporate bonds, government bonds
       Commercial paper, bonds, mortgages
       Mortgages, consumer loans, business loans
   
Question No: 41    ( Marks: 1 )    - Please choose one
 The higher the inflation is, the less predictable it is, and the more ___________risk it creates.

       Trading
       Inflation
       Systematic
       Non-systematic
   
Question No: 42    ( Marks: 1 )    - Please choose one
 Which of the following are costs of high and/or unexpected inflation?

       Increased uncertainty
       Higher nominal interest rates
       Hurts net creditors
       All of the above
   
Question No: 43    ( Marks: 1 )    - Please choose one
 
Which of the following side of a balance sheet represent that central bank is a government’s bank?

       Asset side of the balance sheet
       Liabilities side of the balance sheet
       Equity side of the balance sheet
       The whole balance sheet
   
Question No: 44    ( Marks: 1 )    - Please choose one
 
__________of a bank is a liability for the bank but that deposit creates reserves of that bank in the central bank that is asset for the bank.

       Deposits
       Currency
       Loan
       Security
   
Question No: 45    ( Marks: 1 )    - Please choose one
 If we label the quantity of money M and the monetary base MB, the money multiplier m is defined by which of the following relationship?

       M= m x MB
       M= m / MB
       M= m – MB
       M= m + MB
   
Question No: 46    ( Marks: 1 )    - Please choose one
 If a bank holds excess reserve it depends upon which of the following?

       Cost of holding the excess reserve
       Benefit of holding excess reserve
       Duration of holding excess reserve
       Cost and benefit of holding excess reserve
   
Question No: 47    ( Marks: 1 )    - Please choose one
 If a 45 degree line on a graph shows that average annual inflation is exactly equal to the average annual money growth, what will be the position of money growth and inflation below the 45 degree line?

       Money growth = inflation
       Money growth < inflation
       Money growth > inflation
       Incomplete information
   
Question No: 48    ( Marks: 1 )    - Please choose one
 ______________ grow at a rate equal to the rate of real growth plus the desired level of inflation.

       Monetary base
       Monetary aggregates
       Money multiplier
       Deposit multiplier
   
Question No: 49    ( Marks: 1 )    - Please choose one
 With an inflation objective of 2% and real growth forecast of 3.5%, equation of exchange tells us that policy makers should set velocity growth at 3%, according to this equation what would be the money growth?


       8%
       4%
       2.5%
       1%
   
Question No: 50    ( Marks: 1 )    - Please choose one
 When interest rates are expected to_________, money demand goes up as people switch from holding bonds into holding money.

       Rise
       Decrease
       Remain stable
       Incomplete information
   
Question No: 51    ( Marks: 1 )    - Please choose one
 
Portfolio demand for money goes up as the liquidity of alternatives __________

       Falls
       Rises
       Remain stable
       Cannot be determined
   
Question No: 52    ( Marks: 1 )    - Please choose one
 Rising inflation makes foreign goods cheaper in relation to domestic goods, driving imports ___________ and net exports __________.

       Up, down
       Down, up
       Down, down
       Up, up
   
Question No: 53    ( Marks: 1 )    - Please choose one
 Inflation falls and output rises until the economy returns to the point where current output _______ potential output and inflation equals the central bank’s target.


       Equals
       Greater than
       Lower than
       Incomplete information
   
Question No: 54    ( Marks: 1 )    - Please choose one
 _______in the aggregate demand curve, regardless of its source, will change inflation but not output.


       Upward shift
       Downward shift
       Any shift
       None of the given options
   
Question No: 55    ( Marks: 3 )
 What is term life insurance?


Question No: 56    ( Marks: 5 )
 What is the difference between Corporate banking and Enterprise banking?
   
Question No: 57    ( Marks: 5 )
 In what ways monetary and fiscal policy differs? Discuss.
   
Question No: 58    ( Marks: 10 )
 How does a shift in aggregate demand and aggregate supply impact on output and inflation?
   
Question No: 59    ( Marks: 10 )
 a) If people suddenly lost faith in the banking system, what would happen to the demand for money?  What impact would their loss of confidence have on inflation?

b) Why is inflation higher than money growth in high inflation countries and lower than money growth in low inflation countries?  

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