FINALTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 4)
Ref No: 1451639
Time: 90 min
Marks: 69
| Student Info | |
| StudentID: | MC090407235 |
| Center: | OPKST |
| ExamDate: | 17 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
Which of the following are used to transfer resources from savers to investors and to transfer risk to those who best equipped it? ► Financial markets
► Financial instruments
► Financial institutions
► Banks
Question No: 2 ( Marks: 1 ) - Please choose one
Wealth can be held in number of other forms but we use to hold money because of which one of the following reason? ► It is the only mode of payment
► It is an asset
► It is most liquid
► It is the only store of value
Question No: 3 ( Marks: 1 ) - Please choose one
Banks use to handle transactions among themselves, through which one of the following? ► Debit card
► Electronic transfers
► Credit card
► Store value card
Question No: 4 ( Marks: 1 ) - Please choose one
Economists study the link between money and inflation because: ► Research shows that there is some inverse correlation between the supply of money and inflation
► Economists believe that inflation in the 3-5% range is healthy for an economy
► As prices increase money becomes more valuable
► Research shows that there is some direct correlation between the supply of money and inflation
Question No: 5 ( 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: 6 ( Marks: 1 ) - Please choose one
Which one of the following financial instrument is NOT primarily used as store of value? ► Banks loans
► Asset-backed securities
► Insurance contracts
► Stocks
Question No: 7 ( Marks: 1 ) - Please choose one
Which one of the following is NOT an example of Centralized exchange? ► New York
► NASDAQ
► Large exchanges in London
► Large exchanges in Tokyo
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following market allowed networks of dealers that are connected electronically? ► New York
► NASDAQ
► Large exchanges in London
► Large exchanges in Tokyo
Question No: 9 ( 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
Question No: 10 ( Marks: 1 ) - Please choose one
Mary is planning on taking out a mortgage loan for her new house. She is given the choice of two different banks: Bank A www.vunew.blogspot.com has quoted annual rate of 8% compounded semi-annually and Bank B has a quoted annual rate of 7.5% compounded for a certain number of times a year. Which bank should Mary choose? ► Bank A
► Bank B
► Indifferent between Bank A and Bank B
► Insufficient information
Question No: 11 ( Marks: 1 ) - Please choose one
The default premium: ► Is positive for a U.S. Treasury bond
► Must always be less than 0 (zero)
► Is also known as the risk spread
► Is assigned by a bond rating agency
Question No: 12 ( Marks: 1 ) - Please choose one
Common stocks (or corporate stocks): ► Are short term debt instruments
► Entitle the holder to contractual payments
► Were poor investments over the period 1982‑1996
► Allows the holder to share in the earnings of the firm
Question No: 13 ( Marks: 1 ) - Please choose one
If we ignore risk, the dividend discount model says the fundamental price of a stock is simply: ► The current dividend divided by the interest rate less the dividend growth rate
► The annual growth rate of the dividend minus the interest rate divided by the current dividend
► The current dividend divided by the interest rate plus the dividend growth rate
► The current dividend divided by the dividend growth rate less the interest rate
Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following is correct answer for the difference between Bank assets and liabilities? ► Bank Capital
► Net worth
► Bank profit
► Bank capital and net worth
Question No: 15 ( 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: 16 ( Marks: 1 ) - Please choose one
Which of the following is a Depository institution? ► Commercial bank
► Savings institution
► Credit union
► All of the given options
Question No: 17 ( 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: 18 ( Marks: 1 ) - Please choose one
Which of the following is the primary www.vunew.blogspot.com source of funds for Depository institutions? ► Short term loans
► Shares sold to customers
► Savings and time deposits
► Commercial papers
Question No: 19 ( Marks: 1 ) - Please choose one
House Building Finance Corporation (HBFC) is: ► A Finance company
► A Securities firm
► A Government sponsored enterprise
► An insurance company
Question No: 20 ( Marks: 1 ) - Please choose one
A central bank's balance sheet would categorize each of the following as liabilities EXCEPT: ► Currency
► Gold
► Reserves
► Accounts of the commercial banks
Question No: 21 ( Marks: 1 ) - Please choose one
A bank can make new loans as long as it has: ► Excess reserves
► Required reserves
► Correspondent reserves
► Capital
Question No: 22 ( Marks: 1 ) - Please choose one
Which of the following statement is true regarding monetary policy tools? ► The Fed currently uses a quantity tool for monetary policy
► The required reserve rate is the most easily observable tool
► The federal funds rate is not the best tool because it fails the controllable test of a good monetary policy tool.
► The central banks cannot set a quantity and a price tool simultaneously
Question No: 23 ( Marks: 1 ) - Please choose one
Fraction of deposits that banks must keep either on deposit at the central bank or as cash in their vaults is known as: ► Target federal funds rate
► Discount rate
► Reserve requirement
► None of the given options
Question No: 24 ( 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: 25 ( Marks: 1 ) - Please choose one
The idea that central banks should be independent of political pressure is an idea that: ► Is included in Federal Reserve Act in 1913
► Is relatively new
► Every central bank was founded upon
► Became quite popular in the early 1900's
Question No: 26 ( Marks: 1 ) - Please choose one
Discount lending includes in the Federal's function of _____________. ► Open market operations
► Lender of last resort
► The government bank
► Open market operation and the government bank
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following statements is most appropriate? ► Over the last 10 years the devia www.vunew.blogspot.com tions between the target and market federal funds rate have decreased
► The market federal funds rate equals the target federal funds rate
► Over the last 10 years the deviations between the target and market federal funds rate have increased
► There doesn't appear to be any relationship at all between the target and market federal fund rates
Question No: 28 ( Marks: 1 ) - Please choose one
The self-correcting mechanism of the economy explains why________? ► Fiscal policy cannot increase aggregate demand in the short run
► The natural rate of output changes to eliminate unemployment
► Wages and prices adjust to return the economy to full employment
► The economy will not sustain inflation
Question No: 29 ( Marks: 1 ) - Please choose one
Home loan and car loan are the examples of which one of the following? ► Mortgage loan
► Pledge
► Fixed Payment Loan
► Ordinary loan
Question No: 30 ( Marks: 1 ) - Please choose one
Gap analysis highlights the gap or difference between which of the following? ► Difference between the total assets and the total liabilities
► Yield on the long term loans and the yield on short loans
► Interest payment on the fixed deposits and interest payment on saving deposits
► Yield on interest sensitive assets and yield on interest sensitive liabilities
Question No: 31 ( Marks: 1 ) - Please choose one
________ risk arises from the fact that some foreign borrowers may not repay their loans, not because they are willing www.vunew.blogspot.com to, but because their govt. prohibit them from doing so. ► Foreign exchange risk
► Sovereign risk
► Interest-rate risk
► Trading risk
Question No: 32 ( 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: 33 ( Marks: 1 ) - Please choose one
Which of the following is included in the government-sponsored enterprise? ► Small and Medium Enterprise
► House Building Finance Corporation (HBFC)
► Khushhali Bank
► All of the given options
Question No: 34 ( Marks: 1 ) - Please choose one
Which of the following is the most important part of a bank examination? ► To examine past-due loans
► To examine the long term loans
► To examine the liquidity of the banks
► To examine the management of the bank
Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following policy is used by the central banks to stabilize economic growth and inflation in a country? ► Trade policy
► Fiscal policy
► Monetary policy
► Demand management policy
Question No: 36 ( Marks: 1 ) - Please choose one
The job of the central bank is to improve general economic welfare by managing and reducing___________. ► Trading risk
► Inflation risk
► Systematic risk
► Non-systematic risk
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following are functions of a central bank? ► Regulating banks
► Clearing checks
► Acting as lender of last resort
► All of the above
Question No: 38 ( Marks: 1 ) - Please choose one
Fluctuations in velocity are tied to changes www.vunew.blogspot.com in people’s desire to hold money and so in order to understand and predict changes in velocity; what policymakers must understand? ► Demand for money
► Supply of money
► Demand and supply of money
► None of the given options
Question No: 39 ( Marks: 1 ) - Please choose one
_________ the nominal interest rate, the less money individuals will hold for a given level of transactions, and higher the velocity of money.
► Lower
► Higher
► Stable
► Incomplete information
Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following is/are the determinant(s) of money demand that cause individuals to hold more money? ► National income
► Interest rate
► Availability of alternative means of payment
► All of the given options
Question No: 41 ( 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: 42 ( Marks: 1 ) - Please choose one
Monetary policy makers react to changes in current inflation by changing the __________
► Effective interest rate
► None of the given options
► Nominal interest rate
► Real interest rate
Question No: 43 ( Marks: 1 ) - Please choose one
In response to changes in either the long run real interest rate or the central bank’s inflation target. An increase in the www.vunew.blogspot.com long run real interest rate shifts the curve to the left. An increase in the inflation target shifts the curve to the ____________. ► 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
If policymakers react aggressively to a movement of current inflation away from its target level with a large change in the real interest rate, the monetary policy reaction curve will be ___________ and the aggregate demand curve is __________. ► Steep, flat
► Flat, steep
► Flat, flat
► Steep, steep
Question No: 46 ( 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: 47 ( Marks: 1 ) - Please choose one
In which of the following situation part of the economy’s capacity is idle, and firms tend to raise their prices and wages less than www.vunew.blogspot.com they did when current output equaled potential output? ► When current output is below potential output
► When current output is exceeds potential output
► When current output equals potential output
► None of the given options
Question No: 48 ( Marks: 1 ) - Please choose one
A decline in aggregate demand causes a temporary decline in which of the following? ► Out put
► Inflation
► Both output and inflation
► Incomplete information
Question No: 49 ( Marks: 3 )
What are the factors on which the size of money multiplier depends?Question No: 50 ( Marks: 3 )
What is the effect of an increase in potential output on inflation and output?Question No: 51 ( Marks: 5 )
Differentiate between solvency and illiquidity.Ans
a. Solvency. It is the ability of a corporation to meet its long term fixed expanses and to accomplish long-term expansion and growth. The better a company’s solvency the better it is financially. When company is insolvent, it means that it can no longer operate and is undergoing bankruptcy.
b. Illiquidity. It means the total capital, not readily convertible to cash.
Question No: 52 ( Marks: 5 )
“Monetary policy makers react to changes in current inflation by changing the real interest rate”. Discuss. The monetary policy makers react to changes in current inflation by manipulating real interest rates. This is done to keep check on the ongoing inflation. This results in better investments, spending and consumption. Aggregate demand and supply keep moving in the desired direction though not ideal.
Question No: 53 ( Marks: 5 )
How in the long run current output equals potential output?This is related with the aggregate demand and supply. Long run current out put virtually ends up with the total requirement of potential out put as the demand and supply keeps changing over the period
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