Multiple choice questions about t bills supply

Reference no: EM1373700

1) Assume that the Treasury experiences a large increase in the budget deficit and issues a large number of T-bills. This action will _________________ the price of T-bills in the market and places __________________ pressure on the yield of T-bills.

[1] decrease; downward

[2] decrease; upward

[3] increase; upward

[4] increase; downward

2) True or False? A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread.________________ _______

3) ________ facilitate transactions on the New York Stock Exchange by executing stock transactions for their clients.

[1] Floor brokers

[2] Capstone members

[3] Specialists

[4] none of the above

4) A(n) ______ in the discount rate may signal a simulative economic policy and anticipation that the Fed will attempt to ______ market interest rates.

[1] increase; increase

[2] increase; decrease

[3] decrease; increase

[4] decrease; decrease

5) In response to the September 11 attack, the Fed ________ the supply of loanable funds in the banking system, which placed _______ pressure on interest rates.

[1] decreased; upward

[2] decreased; downward

[3] increased; upward

[4] increased; downward

E) The Fed did not change the supply of loan able funds in response to the

September 11 attack.

6) Money market securities generally have ______. Capital market securities are typically expected to have a ______.

[1] less liquidity; higher annualized return

[2] more liquidity; lower annualized return

[3] less liquidity; lower annualized return

[4] more liquidity; higher annualized return

7) The ______ is directly responsible for controlling money supply growth.

[1] Federal Advisory Council

[2] FOMC

[3] Board of Governors

[4] president of the United States

8) Which of the following is not true with respect to the discount rate?

[1] An adjustment in the discount rate affects the money supply only if depository institutions respond to the adjustment.

[2] The discount window offers depository institutions three types of credit.

[3] To decrease the money supply, the Fed would increase the discount rate.

[4] All of the above are true with respect to the discount rate.

9) Kudrow stock just paid a dividend of $4.76 per share and plans to pay a dividend of $5 per share next year, which is expected to increase by 3 percent per year subsequently. The required rate of return is 15 percent. The value of Kudrow stock, according to the dividend discount model, is $__________.

[1] 39.67

[2] 41.67

[3] 33.33

[4] 31.73

E) none of the above

10) Determine which of the following is not a major component of the Federal Reserve System?

[1] member banks

[2] Federal Open Market Committee

[3] Securities and Exchange Commission

[4] Board of Governors

11) The federal government demand for loanable funds is __________. If the budget deficit was

expected to increase, the federal government demand for loanable funds would ________.

[1] interest elastic; decrease

[2] interest elastic; increase

[3] interest inelastic; increase

[4] interest inelastic; decrease

12) If analysts expect that the demand for loanable funds will increase, and the supply of loanable funds will decrease, they would most likely expect interest rates to ______ and prices of existing bonds to ______.

[1] increase; increase

[2] increase; decrease

[3] decrease; decrease

[4] decrease; increase

13) Historical evidence has shown that, when the Fed significantly increases money supply, U.S. inflation tends to ______ shortly thereafter which in turn places ______ pressure on U.S. interest rates.

[1] increase; downward

[2] increase; downward

[3] decrease; downward

[4] decrease; upward

14) Securities with maturities of one year or less are class¬ified as ____________________.

[1] capital market instruments.

[2] money market instruments.

[3] preferred stock.

[4] none of the above

15) The appropriate discount rate for valuing any bond is the____________.

[1] bond's coupon rate.

[2] bond's coupon rate adjusted for the expected infla¬tion rate over the life of the bond.

[3] Treasury bill rate with an adjustment to include a risk premium if one exists.

[4] yield that could be earned on alternative invest¬ments with similar risk and maturity.

16) A call provision normally _______________

[1] allows the firm to call bonds at par value.

[2] gives the firm the option to call bonds at market value.

[3] allows the firm to call bonds at a price below par value.

[4] requires the firm to call bonds at a price above par value.

17) If security prices fully reflect all market related informa¬tion (such as historical price patterns) but do not fully reflect all other public informa¬tion, security markets are

[1] weak form efficient.

[2] semi strong form efficient.

[3] strong form efficient.

[4] B and C.

E) None of the above.

18) Assume that you purchased bonds of a corporation one year ago. Today, it is announced that the firm plans a leveraged buyout. The market value of your bonds will ______ as a result.

____________

[1] rise

[2] decline

[3] be zero

[4] be unaffected

19) If the economy weakens, there is _________ pressure on interest rates. If the Federal Reserve increases the money supply there is ______ pressure on interest rates (assume that inflationary expectations are not affecte[4].

[1] upward; upward

[2] upward; downward

[3] downward; upward

[4] downward; downward

20) If interest rates suddenly ____________, those existing bonds that have a call feature are __________ likely to be called.______________

[1] decline; more

[2] decline; less

[3] increase; more

[4] none of the above

21) The ______ is commonly used to determine what a stock's price should have been.

[1] capital asset pricing model

[2] Treynor Index

[3] Sharpe Index

[4] B and C

22) When financial institutions expect interest rates to ______, they may ______.

[1] increase; sell bonds and buy short term securities

[2] increase; sell short term securities and buy bonds

[3] decrease; sell bonds and buy short term securities

[4] B and C

23) Which of the following transactions would not be considered a secondary market transaction?

____________

[1] an individual investor purchases some existing shares of stock in IBM through his broker

[2] an institutional investor sells some Disney stock through its broker

[3] Microsoft issues new shares of common stock using its investment bank

[4] all of the above would occur on the New York Stock Exchange

24) An institution that originates and holds a fixed rate mortgage is adversely affected by _______ interest rates; the borrower who was provided the mortgage is adversely affected by _______ interest rates.

[1] stable; decreasing

[2] increasing; stable

[3] increasing; decreasing

[4] decreasing; increasing

25) Mortgage companies specialize in ___________________.

[1] purchasing mortgages originated by other financial institutions.

[2] investing and maintaining mortgages that they create.

[3] originating mortgages and selling those mortgages.

[4] borrowing money through the creation of mortgages that is used to invest in real estate.

26) A short-interest ratio of 20 or more indicates that many investors ___________

[1] believe that the stock price is currently overvalued.

[2] believe that the stock price is currently undervalued.

[3] are selling the stock short.

[4] both A and C.

27) The first-time issuance of shares by a specific firm to the public is referred to as a(n)

[1] stock repurchase.

[2] secondary stock offering.

[3] initial rights issue.

[4] initial public offering (IPO).

28) If the Treasury uses a relatively large proportion of ______ debt to finance the deficit, this may place upward pressure on ______ interest rates, and corporations may reduce their investment in fixed assets.

[1] long-term; long-term

[2] long-term; short-term

[3] short-term; long-term

[4] b and c

29) American Depository Receipts (ADRs) are attractive to U.S. investors because __________

[1] U.S. analysts do not follow them closely.

[2] companies represented by ADRs are required to file financial statements consistent with those in the United States.

[3] both A and B.

[4] reliable quotes on ADR prices are sporadically available.

30) Shareholders can most easily measure a firm's performance by monitoring changes in its __________ over time.

[1] share price

[2] employee job descriptions

[3] Board of Directors

[4] asset size

31) Treasury bills are sold through _____ when initially issued. ______________

[1] insurance companies

[2] commercial paper dealers

[3] auction

[4] finance companies

32) Global crowding out is described in the text to mean the impact of ________________.

[1] excessive U.S. population growth on interest rates.

[2] excessive global population growth on interest rates.

[3] an excessive budget deficit in one country on interest rates of another country.

[4] an excessive budget deficit in one country on exchange rates.

33) ____________ facilitate transactions on the New York Stock Exchange by taking positions in specific stocks; they also stand ready to buy or sell these stocks.

[1] Floor brokers

[2] Capstone members

[3] Specialists

[4] none of the above

Reference no: EM1373700

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