EXAM 3 Practice Questions

Question 1

Of the sources of external nonfinancial businesses in the United States, stocks account for approximately ___ of the total.

Answer 1

11%

Question 2

Commercial and farm mortgages, in which property is pledged as collateral, account for…?

Answer 2

One-quarter of borrowing by non-financial businesses

Question 3

The best measure economists have of how successful a country is providing a high standard of living to its residents is…?

Answer 3

Real GDP per capita

Question 4

Because information is scarce…? (Monitoring managers)

Answer 4

Monitoring managers give rise to costly state verification

Question 5

All of the following are consequences of adverse selection on good firms EXCEPT…

Answer 5

Firms will only be able to attain financing from the government

Question 6

The presence of information and transaction costs result in all of the following EXCEPT…

Answer 6

Higher returns for savors

Question 7

Information costs include the costs…

Answer 7

that savors incur to determine the creditworthiness of borrowers

Question 8

Direct finance involves the sale to ___ of marketable securities such as stocks and bonds.

Answer 8

Households

Question 9

Why is adverse selection more likely in financial markets when interest rates rise?

Answer 9

The remaining borrowers are more likely to be risky.

Question 10

All of the following are factors that determine whether a country’s economy can provide a high standard of living for its residents and whether that standard of living can increase over time EXCEPT…

Answer 10

The ability of the countries government to print money in the response to high levels of inflation.

Question 11

With a 10% reserve requirement ratio, a $100 deposit into New Bank means that the maximum amount New Bank could lend is…

Answer 11

$90

Question 12

Which of the following is not a non-transaction deposit?

Answer 12

Negotiable order of withdrawal accounts

Question 13

Bank capital is…?

Answer 13

The capital contributed by the bank’s shareholders plus accumulated retained profits.

Question 14

What is the current limit on balances that are covered by federal deposit insurance?

Answer 14

$250,000

Question 15

What is considered NOT a bank liability?

Answer 15

Mortgage Loans

Question 16

Federal funds are…?

Answer 16

Short-term loans between banks.

Question 17

When Jane Brown writes a $100 check to her nephew and he cashes the check, Ms. Brown’s bank ___ assets of $100 and ____ liabilities of $100.

Answer 17

Loses; loses.

Question 18

Rist that is related to the uncertainty about interest rate movements is called…?

Answer 18

Interest-rate risk

Question 19

Because of an expected rise in interest rates in the future, a banker will likely…

Answer 19

Buy short-term rather than long-term bonds

Question 20

Any reserves beyond what is required are called…?

Answer 20

Excess reserves