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ECON 330 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Which of the following is an example of financial intermediation?

A

Saver makes a deposit in credit union; credit union makes loan to a member for a new car.

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2
Q

People, in general, do not lend money to one another to buy a house or a car because:

A

All of the above. (Information problems, Do not know about the effort other people will provide to repay their debts, Do not know the capacity of other people to repay their debts).

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3
Q

Which of the following can be described as involving indirect finance?

A

You buy shares in a mutual fund.

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4
Q

When I purchase _______, I own a portion of a firm and have the right to vote on issues important to the firm and to elect it’s directors.

A

Stock

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5
Q

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as:

A

Eurobonds

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6
Q

Financial intermediaries provide customers with liquidity services. Liquidity services…

A

Make it easier for customers to conduct transactions.

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7
Q

An example of the problem of _____ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of it’s employees and their families.

A

Moral hazard

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8
Q

Which of the following is not a contractual savings institution?

A

A savings and loan association

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9
Q

Increasing the amount of information available to investors helps reduce the problems of _____ and _____ in the financial markets.

A

Adverse selection; moral hazard

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10
Q

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from…

A

Owning common stock

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11
Q

Currency includes…

A

Paper money and coins

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12
Q

_______ is the relative ease and speed with which an asset can be converted into a medium of exchange.

A

Liquidity

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13
Q

A _____ is bought at a price below it’s face value and the _____ value is repaid at the maturity date.

A

Discount bond; face

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14
Q

There is _____ for any bond whose time to maturity matches the holding period.

A

No interest-rate risk

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15
Q

If you expect the inflation rate to be 15 percent next year and a one-year bond has a YTM of 7%, then the real interest rate on this bond is…

A

-8%

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16
Q

In the bond market, the bond demanders are the _____ and the bond suppliers are the _____.

A

Lenders; borrowers

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17
Q

The interest rate falls when either the demand for bonds _____ or the supply of bonds _____.

A

Increases; decreases

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18
Q

Which of the following bonds would have the highest default risk?

A

Junk bonds

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19
Q

Buying a US Treasury bond from your friend is an example of…

A

Secondary Market

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20
Q

Buying shares of UBER when they went public is an example of the…

A

Primary Market

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21
Q

Financial intermediary’s lower transaction costs by providing what two things?

A

Economies of scale + Liquidity services

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22
Q

Why is financial regulation probably necessary?

A

Asymmetrical information + Systemic risk

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23
Q

What is the key advantage of commodity money?

A

Universally accepted

24
Q

What is the key disadvantage of commodity money?

A

Can’t control supply

25
Q

What is the key advantage of fiat money?

A

Can control supply

26
Q

What is the key disadvantage of fiat money?

A

Easy to abuse and cause inflation

27
Q

What is the solution to the key disadvantage of fiat money?

A

Independent central banks

28
Q

List 3 functions money must fulfill.

A

Unit of account, medium of exchange, store of value

29
Q

Controls the money supply

A

Central banks

30
Q

Claim on issuers future income or assets

A

Financial security

31
Q

Price of impatience

A

Interest rate

32
Q

Connects savers with borrowers

A

Financial intermediary

33
Q

Accepts deposits

A

Commercial banks

34
Q

Buyer of capital

A

Investor

35
Q

Growth in money from waiting

A

Nominal interest rate

36
Q

Cost in goods from borrowing

A

Real interest rate

37
Q

Government spending and taxes to affect economy

A

Fiscal policy

38
Q

Development of new financial products and services

A

Financial innovation

39
Q

Where funds are exchanged

A

Financial markets

40
Q

Deal in short-term debt instruments

A

Money market

41
Q

Currency + Bank Reserves + Checking Accounts

A

M1

42
Q

Consumes less than their income

A

Saver

43
Q

Has intrinsic value

A

Commodity money

44
Q

An increase in wealth affects supply or demand? And shifts it left or right?

A

Demand + Right

45
Q

An increase in risk affects supply or demand? And shifts it left or right?

A

Demand + Left

46
Q

An increase in liquidity affects supply or demand? And shifts it left or right?

A

Demand + Right

47
Q

An increase in expected profitability of investment opportunities affects supply or demand? And shifts it left or right?

A

Supply + Right

48
Q

An increase in government deficits affects supply or demand? And shifts it left or right?

A

Supply + Right

49
Q

An increase in technology that makes it possible to buy and sell bonds with more ease will….

A

Shift demand right, increase borrowing and lending, and decrease interest rates.

50
Q

When bond issuers become more risky…

A

Demand will shift left, borrowing and lending will decrease, and interest rates will increase.

51
Q

When consumers have a decrease in the desire to consume…

A

Demand will shift right, borrowing and lending will increase, and interest rates will decrease.

52
Q

When there is an increase in the expectations of the inflation rate…

A

Demand will shift left, supply will shift right, bond prices decrease, and nominal interest rates increase.

53
Q

As a result of strict banking regulations, the United States has:

A

Many more smaller banks when compared to other industrialized countries

54
Q

Expectation theory of interest rates:

A

All interest rates added together/number of rates

55
Q

If you are confident interest rates will fall…

A

Prices will increase and you should buy the 30 year bond

56
Q

If you are confident that interest rates will rise…

A

Prices will decrease and you should buy the 1 year bond

ECON 330 (1 decks)

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