MGT411 Final Paper 2010

FINALTERM  EXAMINATION

Spring 2010

MGT411- Money & Banking (Session - 1)

Ref No: 1451565

Time: 90 min

Marks: 69

Student Info
StudentID:	MC090403198
Center:	OPKST
ExamDate:	08 Aug 2010

For Teacher's Use Only
Q No.	1	2	3	4	5	6	7	8	Total
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Q No.	9	10	11	12	13	14	15	16
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Q No.	17	18	19	20	21	22	23	24
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Q No.	25	26	27	28	29	30	31	32
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Q No.	33	34	35	36	37	38	39	40
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Q No.	41	42	43	44	45	46	47	48
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Q No.	49	50	51	52	53
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Question No: 1    ( Marks: 1 )    - Please choose one

 The loans made between borrowers and lenders:

       ► Are liabilities to the lenders and assets to the borrowers since the borrower obtains the funds

       ► Are assets to the lenders and liabilities of the borrowers since the promises are made to the lenders

       ► Are assets to the borrowers as he obtains funds and also the liability to the borrowers as he has to pay it

       ► Are not part of either's assets or liabilities until the loans are repaid

   

Question No: 2    ( Marks: 1 )    - Please choose one

 The future value of $200 at a 5% per year interest rate at the end of one year is:

       ► $195.00

       ► $210.00

       ► $197.50

       ► $100

Ans : 210   

Question No: 3    ( Marks: 1 )    - Please choose one

 If at 5% interest rate, $100 payment has a PV of $90.70. Then what will be the PV value of $200 payment? (Without applying formula).

       ► $45.35

       ► $272.1

       ► $181.4

       ► $362.8

   

Question No: 4    ( Marks: 1 )    - Please choose one

 The interest rate that is involved in _____________ calculation is referred to as discount rate

       ► Present value

       ► Future value

       ► Intrinsic value

       ► Discount value

  Ans  ► Present value

Question No: 5    ( Marks: 1 )    - Please choose one

 If a bond sells at a premium, where price exceeds face value, then we would expect to see:

       ► Market interest rate the same as the coupon rate

       ► Market interest rates above the coupon rate

       ► Market interest rates below the coupon rate

       ► None of the given options

Ans ► Market interest rates above the coupon rate

   

Question No: 6    ( Marks: 1 )    - Please choose one

 The risk premium for an investment:

       ► Increases with risk

       ► Is a fixed amount added to the risk free return

       ► Is negative for U.S. Treasury Securities

       ► Is negative for risk averse investors

Ans     ► Increases with risk

Question No: 7    ( Marks: 1 )    - Please choose one

 Which of the following patterns of term structure occur most frequently?

       ► Ascending yield curve

       ► Descending yield curve

       ► Flat yield curve

       ► Humped yield curve

► Flat yield curve

   

Question No: 8    ( Marks: 1 )    - Please choose one

 Which one of the following is true for the relationship between the yield of taxable and tax exempt bond?

       ► Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

       ► Taxable bond yield is always greater than tax exempt bond

       ► Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

       ► Lower the tax rate wider the gap between yield of taxable and tax exempt bond

   

Question No: 9    ( Marks: 1 )    - Please choose one

 If the tax rate is higher than gap between yield on taxable and tax exempt bond?

       ► Shorter

       ► Wider

       ► No gap

       ► Any thing can be possible

   

Question No: 10    ( Marks: 1 )    - Please choose one

 A graph in which time to maturity is along x-axis and yield to maturity is along y-axis is called __________.

       ► Government curve

       ► SWAP curve

       ► Yield curve

       ► LIBOR curve

   

Question No: 11    ( Marks: 1 )    - Please choose one

 A share of common stock represents ___________.

       ► A claim from a lender to a borrower

       ► A share in the company's assets

       ► A share of ownership of the company

       ► An unlimited liability to the owner of the stock

   

Question No: 12    ( Marks: 1 )    - Please choose one

 Deflation compounds information problems because:

       ► It increases a company's net worth

       ► It reduces the dollar value of assets while the dollar value of liabilities stays constant

       ► It tends to understate a company's assets and overstate their liabilities

       ► It always harms lenders

   

Question No: 13    ( Marks: 1 )    - Please choose one

 Which of the following is a Bank Liability?

       ► Reserves

       ► Treasury bonds

       ► Loans

       ► Federal fund borrowings

   

Question No: 14    ( Marks: 1 )    - Please choose one

 A stand by letter of credit is a form of:

       ► Loan

       ► Insurance

       ► Security

       ► Deposits

   

Question No: 15    ( 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: 16    ( Marks: 1 )    - Please choose one

 Under the purchase and assumption method of dealing with a failed bank, the FDIC ______________.

       ► Sells the failed bank to the Federal Reserve

       ► Finds another bank to take over the insolvent bank

       ► Takes over the day to day management of the bank

       ► Sells off the profitable loans of the failed bank in an open auction

   

Question No: 17    ( Marks: 1 )    - Please choose one

 "The Government is too big to fail" policy applies to the______________.

       ► Bank run in specific highly populated states which impacts a large percent of the total population

       ► Banks that have branches in more than two states

       ► Large corporate payroll accounts held by some banks where many people would lose their income

       ► Large banks whose failure would certainly start a widespread panic in the financial system

   

Question No: 18    ( 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: 19    ( Marks: 1 )    - Please choose one

  If M = the quantity of money, m the money multiplier, MB the Monetary Base; C = Currency, D = Deposits; R = Reserves, RR equals required reserves; and ER = excess reserves; then m would equal:

       ► M/MB

       ► R/ER

       ► C + D

       ► C + D – ER

   

Question No: 20    ( 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: 21    ( Marks: 1 )    - Please choose one

 A rate of inflation that is less than the growth rate of money for a country could be explained by which one of the following?

       ► A decreasing velocity of money

       ► A contracting real economy

       ► A constant velocity of money

       ► A increasing velocity of money

   

Question No: 22    ( Marks: 1 )    - Please choose one

 Interest rate risk arises as a result of which one of the following consequences?

       ► It arises when banks make additional profit by using derivatives

       ► It arises when loan is not repaid

       ► It arises because of sudden demands of funds

       ► It arises when two sides of the balance sheet do not match up

   

Question No: 23    ( 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: 24    ( Marks: 1 )    - Please choose one

 American Bank actively manages a large portfolio of bonds. It trades to enhance the portfolio's profitability. Which of the following risk American Bank would face most probably?

       ► Market risk

       ► Operational risk

       ► Technology risk

       ► Insolvency risk

   

Question No: 25    ( Marks: 1 )    - Please choose one

 Excess reserve-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: 26    ( Marks: 1 )    - Please choose one

 Aggregate demand curve slopes down because of many reasons which of the following is NOT the reason of its downward slope?

       ► Higher inflation increases real money balances

       ► Higher inflation induces policymakers to raise the real interest rate

       ► Rising inflation also reduces wealth

       ► Rising inflation lowers consumption

   

Question No: 27    ( 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: 28    ( Marks: 1 )    - Please choose one

 Which of the following has created an opportunity for small investors to participate in economic activity?

       ► Mutual funds

       ► Small corporations

       ► Stock brokers

       ► Small investors cannot take part in economic activity

   

Question No: 29    ( Marks: 1 )    - Please choose one

 Managing _______ is a major concern for today’s banks.

       ► Trading risk

       ► Interest rate risk

       ► Systematic risk

       ► Other risk

   

Question No: 30    ( Marks: 1 )    - Please choose one

 Which of the following is a combination of auto insurance?

       ► Life insurance and property insurance

       ► Life insurance and causality insurance

       ► Property insurance and casualty insurance

       ► Life insurance and saving account

   

Question No: 31    ( Marks: 1 )    - Please choose one

 Which of the following are the primary uses of funds of depositor institution?

       ► Cash, loans, securities

       ► Corporate bonds, government bonds, stocks

       ► Commercial paper, bonds, mortgages

       ► Mortgages, consumer loans, business loans

   

Question No: 32    ( Marks: 1 )    - Please choose one

 

Why central bank occupies a privileged position in a country?

       ► It controls the availability of money

       ► It controls credit in a country’s economy

       ► All of the given options

       ► It has monopoly on the issuance of currency

   

Question No: 33    ( Marks: 1 )    - Please choose one

 

Which of the following are goals of the Central Bank?

       ► Price stability

       ► Stable output growth

       ► Stable financial system

       ► All of the above

   

Question No: 34    ( Marks: 1 )    - Please choose one

 Which of the following is NOT a function of the Central Bank?

       ► Conduct economic research

       ► Regulate brokers and insurance companies

       ► Evaluate bank mergers

       ► These are all functions of the fed.

   

Question No: 35    ( Marks: 1 )    - Please choose one

 

Which of the following can expand the size of the balance sheet of a central bank and the monetary base?

       ► Open market operations

       ► Discounted loans

       ► Foreign exchange intervention

       ► All of the given options

   

Question No: 36    ( Marks: 1 )    - Please choose one

 Difference between _______ and required reserve is the excess reserves.

       ► Deposits

       ► Securities

       ► Currency

       ► Reserve

   

Question No: 37    ( Marks: 1 )    - Please choose one

 

The withdrawal reduces the banking system’s____________, which is a decrease in its assets, and if the funds come from a checking account, there is a matching decrease in liabilities.

       ► Vault cash

       ► Securities

       ► Reserves

       ► Currency

   

Question No: 38    ( Marks: 1 )    - Please choose one

 Required reserve ratio and quantity of money have __________.

       ► Direct relation

       ► Inverse relation

       ► No relation

       ► Incomplete information

   

Question No: 39    ( Marks: 1 )    - Please choose one

 The quantity of money people hold for transaction purposes does NOT depends upon:

       ► Nominal income

       ► Cost of holding money

       ► Availability of substitutes

       ► Real income

   

Question No: 40    ( Marks: 1 )    - Please choose one

 Higher the level of uncertainty about the future, the higher the demand for money and the _________ the velocity of money.

       ► Incomplete information

       ► Lower

       ► Higher

       ► Stable

   

Question No: 41    ( Marks: 1 )    - Please choose one

 Which of the following has a great influence on the aggregate demand?

       ► Real interest rate

       ► Nominal interest rate

       ► Effective interest rate

       ► None of the given options

   

Question No: 42    ( Marks: 1 )    - Please choose one

 Which of the following is (are) the factor(s) of aggregate demand?

       ► Investment

       ► Govt. purchases

       ► All of the given options

       ► Consumption

   

Question No: 43    ( Marks: 1 )    - Please choose one

 When current inflation raises Monetary policymakers raise the real interest rate, moving _________along the monetary policy reaction curve

       ► Right

       ► Left

       ► Upward

       ► Downward

   

Question No: 44    ( Marks: 1 )    - Please choose one

 Which of the following is shown by the aggregate demand curve?

       ► How sensitive current output is to given change in current inflation

       ► Current output is not sensitive to given change in current inflation

       ► Current output and current inflation both move in the same direction

       ► None of the given options

   

Question No: 45    ( Marks: 1 )    - Please choose one

 Which of the following reason(s) can shift the short run aggregate supply curve?

       ► Deviation of current output from potential output

       ► Changes in external factors driving production costs

       ► When current output is equal to potential out put

       ► Deviation of current output from potential output and Changes in external factors driving production costs

   

Question No: 46    ( Marks: 1 )    - Please choose one

 Which of the following is determined by the intersection of the aggregate demand curve with the short-run aggregate supply curve?

       ► Short-run equilibrium

       ► Long-run equilibrium

       ► Both short-run and long-run equilibrium

       ► None of the given options

   

Question No: 47    ( Marks: 1 )    - Please choose one

 

When current output exceeds potential, the resulting expansionary gap exerts upward pressure on inflation, shifting the short-run aggregate supply curve _____________.

       ► Right

       ► Left

       ► Upward

       ► Downward

   

Question No: 48    ( Marks: 1 )    - Please choose one

 Policymakers can shift the aggregate demand curve by shifting their monetary policy reaction curve, but which of the following cannot be shifted by them?

       ► Short-run aggregate supply curve

       ► Long-run aggregate demand curve

       ► Short-run aggregate demand curve

       ► None of the given options

   

Question No: 49    ( Marks: 3 )

 What is the effect of an increase in potential output on inflation and output?

   

Question No: 50    ( Marks: 3 )

 Give an account of different components of aggregate demand?

   

Question No: 51    ( Marks: 5 )

 Give brief explanation of the following.

a)What is Target funds rate?

b) How it is controlled?

c)What will be the impact of target federal rate on economy?

   

Question No: 52    ( Marks: 5 )

 A well-designed policy framework helps policymakers establish credibility. Discuss the principles of central bank design.

   

Question No: 53    ( Marks: 5 )

 “Monetary policy makers react to changes in current inflation by changing the real interest rate”. Discuss.