Reference no: EM132338303

Question

Could you please explain some details for me about this questions?

1. Quantitative easing involves the central bank buying large amounts of government bonds (and sometimes other securities) from private sector banks and fund managers. Quantitative easing might increase spending in the economy by

A. forcing down bond prices, driving down the interest rates on long term bonds, putting upward pressure on share prices, and reducing financing costs for business investment

B. driving up bond prices, driving down the interest rates on long term bonds, putting upward pressure on share prices, and reducing financing costs for business investment

C. forcing down bond prices, driving down the interest rates on long term bonds, putting downward pressure on share prices, and reducing financing costs for business investment

D. driving up bond prices, driving up the interest rates on long term bonds, putting upward pressure on share prices, and reducing financing costs for business investment

2. A country has a current account balance of -$30bn and a capital and financial account balance (excluding official transactions by the central bank) of +$40bn. Assuming there are no errors and omissions in the balance of payments accounts, the central bank of this country must have

A. used $10bn of foreign exchange reserves to make purchases of its own currency on the foreign exchange market

B. used $10bn of foreign exchange reserves to make sales of its own currency on the foreign exchange market

C. sold $10bn worth of its own currency on the foreign exchange market, and made additions to foreign currency reserves

D. purchased $10bn worth of its own currency on the foreign exchange market, and made additions to foreign currency reserves

3. You have purchased a plain vanilla interest rate swap from a bank relating to $100mn notional on the six month US dollar London Inter-Bank Offered Rate at a price of 3%. After six months, the relevant LIBOR rate is 2%. What is your net cash flow? In other words, how much do you receive (if it is a positive cash flow) or pay (if it is a negative cash flow)?

A. -$1,000,000

B. +$500,000

C. +$1,000,000

D. -$500,000

4. The main problem with the euro as a currency area is that

A. the euro zone has a large balance of payments deficit

B. the euro zone has no central bank

C. it has no central fiscal authority

D. the rules for government debt are not strict enough

5. Assuming that, following a financial crisis, the private sector of a country wishes to net save 5% of GDP, while the foreign sector wishes to make net investments of 2% of GDP into a country's financial system, then the government financial balance will be

A. 3% in deficit

B. 3% in surplus

C. 7% in surplus

D. 7% in deficit

6. Which if the following combinations of economic policy objectives is most likely to lead to a financial crisis?

A. A floating exchange rate; setting your own interest rate; restricting and limiting the movement of funds into and out of your financial system

B. A freely floating exchange rate; setting your own interest rate; allowing for the free movement of funds into and out of your financial system

C. A published fixed exchange rate target; setting your own interest rate; allowing for the free movement of funds into and out of your financial system.

D. A published fixed exchange rate target; increasing or decreasing your interest rate as necessary to defend the fixed exchange rate; allowing for the free movement of funds into and out of your financial system

7. Which of the following did not play a role in the lead up to the Global Financial Crisis of 2008 and the Great Global Recession of 2009?

A. Rising household debt

B. Mortgage backed securities

C. Growing government budget deficits

D. Credit default swaps