Q1. Components of M1 DO NOT include which one of the following?
- A.Currency in the hands of public
- B.Demand deposits
- C.Small denominations time deposit✓ Correct
- D.Checkable deposits
Q2. An index number is a valuable tool because:
- A.The number by itself provides all of the useful information needed
- B.The index provides a meaningful measurement scale to calculate percentage changes✓ Correct
- C.The index is more stable than the data it reflects
- D.It does not require any calculations to compute percentage changes
Q3. Which one of the following is NOT true for the expectation hypothesis?
- A.Risk free interest rate can be computed
- B.There is uncertainty in the future✓ Correct
- C.Identifying yield of bond today that will be available next year
- D.It focuses on risk free interest rate and the risk premium
Q4. The____________ are an assessment of the creditworthiness of the corporate issuer.
- A.Bond yield
- B.Bond ratings✓ Correct
- C.Bond risk
- D.Bond price
Q5. If the annual interest rate is 6% (.06); the price of a one year Treasury bill would be:
- A.$94.00
- B.$94.33 = 100/(1+.06)✓ Correct
- C.$95.25
- D.$96.10
Q6. _________ measures the probability of worst outcome in any investment project.
- A.Variance
- B.Standard deviation
- C.Value at risk✓ Correct
- D.Hedging
Q7. Risk sharing is the characteristic of which one of the following?
- A.Checks
- B.Checking accounts
- C.Money
- D.Bonds✓ Correct
Q8. Suppose there are two investments, A and B, investment A has low standard deviation where as investment B has high standard deviation. What would you think that most people will choose?
- A.Investment A✓ Correct
- B.Investment B
- C.Indifference between them
- D.Insufficient information to decide
Q9. The return on the bond is equal to which of the following?
- A.Coupon rate + rate of capital gains
- B.Current yield + rate of capital gains✓ Correct
- C.Coupon rate - rate of capital gains
- D.Current yield - rate of capital gains
Q10. An increase in the expected inflation shifts the bond supply to the _________
- A.Right✓ Correct
- B.Left
- C.No change
- D.None of the given options
Q11. Funds of depository institution are primarily used in which of the following?
- A.Corporate bonds, Government bonds, Stocks, Mortgage
- B.Cash, Loan, Securities✓ Correct
- C.Stocks, Government bonds, corporate bonds, commercial papers
- D.Commercial papers, Bonds
Q12. Which one of the following refers to the risk assessment and loss reimbursement guarantee by the individual risk experts of the relevant field?
- A.Underwriting process✓ Correct
- B.Insurance process
- C.Research process
- D.None of the given options
Q13. If required reserves are expressed by RR ; the required reserve rate by rD and deposits by D; the simple deposit expansion multiplier is expressed as:
- A.rDD
- B.(1/rD) D
- C.1/rD✓ Correct
- D.rD times 10
Q14. The quantity of money people hold for transactions purpose depends on which of the following?
- A.Their nominal income
- B.The cost of holding money
- C.The availability of substitutes
- D.All of the given options✓ Correct
Q15. Bank-X's outstanding loans all have fixed interest rates, with maturities in excess of two years. Bank-X's deposit liabilities all have shorter maturity-no more than six months. Bank-X most obviously is facing:
- A.Liquidity risk
- B.Operational risk
- C.Interest rate risk✓ Correct
- D.Credit risk
Q16. Which of the following type/s of transaction/s affect the balance sheets of both the central bank and the banking system?
- A.An open market operation
- B.Central bank’s extension of a discount loan
- C.All of the given options✓ Correct
- D.A foreign exchange intervention
Q17. The use of lagged reserve accounting usually makes the demand for reserves:
- A.Highly unpredictable to the point of volatility
- B.Nearly constant with hardly any change at all
- C.Predictable
- D.Subject to daily changes by the Fed correct 100%✓ Correct
Q18. Banking is a combination of businesses designed___________.
- A.To deliver Services
- B.To pool the savings
- C.To make the loans
- D.All of the given options✓ Correct
Q19. Well run banks have ________________.
- A.High interest income
- B.High interest margin
- C.High interest income and high interest margin✓ Correct
- D.Low interest income and low interest margin
Q20. Why banks do not like to meet their deposit outflows by contracting the asset side of the balance sheet.
- A.Because it will shrink the size of the bank✓ Correct
- B.Because it will shrink the size of the total assets
- C.Because it will increase the liabilities of the bank
- D.None of the given options
Q21. What is the impact of growth of international banking?
- A.It increase the competition in the banking market
- B.It increase the efficiency of banking market
- C.Profits are harder to come as borrowers and depositors have more options
- D.All of the given options✓ Correct
Q22. Managing _______ is a major concern for today’s banks.
- A.Trading risk✓ Correct
- B.Interest rate risk
- C.Systematic risk
- D.Other risk
Q23. Which of the following is included in the government-sponsored enterprise?
- A.Small and Medium Enterprise (SME)
- B.House Building Finance Corporation (HBFC)
- C.Khushhali Bank
- D.All of the given options✓ Correct
Q24. The number of times each rupee is used (per unit of time) in making payments is called the_________.
- A.Velocity of money✓ Correct
- B.Quantity of money
- C.Exchange of money
- D.Aggregate money
Q25. With a higher inflation target, the central bank will set a lower current __________ at every level of current inflation, shifting the monetary policy reaction curve to the right.
- A.Real interest rate✓ Correct
- B.Nominal interest rate
- C.Effective interest rate
- D.None of the given options
Q26. Who set the relationship between current inflation and real interest rate?
- A.Monetary policy makers✓ Correct
- B.Fiscal policy makers
- C.Budget makers
- D.Monetary policy maker or fiscal policy maker
Q27. Inflation falls and output rises until the economy returns to the point where current output _______ potential output and inflation equals the central bank’s target.
- A.Equals✓ Correct
- B.Greater than
- C.Lower than
- D.Incomplete information
Q28. The shape of the yield curve is usually:
- A.Upward sloping✓ Correct
- B.Downward sloping
- C.Upward sloping for shorter maturities and downward sloping for longer maturities
- D.Flat
Q29. Which one of the following is extended usually overnight to sound institutions on a very short-term basis?
- A.Primary credit✓ Correct
- B.Secondary credit
- C.Seasonal credit
- D.All of the given options
Q30. ___________ refers to the instruments that are not directly under the control of central bank:
- A.Financial instruments
- B.Intermediate instruments & 115✓ Correct
- C.Operating instruments
- D.All of the given options
Q31. In general, if the financial institution's balance sheet displays assets and liabilities that are "mis-matched" to a significant degree, the institution faces:
- A.Operational risk
- B.Sovereign risk
- C.Interest rate risk✓ Correct
- D.Liquidity risk
Q32. When the currency that people are holding loses value much rapidly, what will be the behavior of people?
- A.The will spend money as quickly as possible✓ Correct
- B.They will try to save the money for future
- C.They will not bother the value of money
- D.None of the given option
Q33. The rate will change if one of the following components of aggregate demand that is not sensitive to the real interest rate goes up (or down) or if potential output changes.
- A.Consumption
- B.Investment
- C.Net exports
- D.Govt. spending✓ Correct
Q34. Price of 100 goods under the barter system would be _________.
- A.5050
- B.19800
- C.4950✓ Correct
- D.20200
Q35. Which of the following market allowed networks of dealers that are connected electronically?
- A.New York Stock Exchange
- B.NASDAQ✓ Correct
- C.Large exchanges in London
- D.Large exchanges in Tokyo
Q36. The liquidity premium theory suggests that yield curves should usually be:
- A.Up-sloping✓ Correct
- B.Inverted
- C.Flat
- D.Up-sloping through year 1, then flat thereafter
Q37. One way for a bank to deal with liquidity risk is ____________.
- A.To hold sufficient excess reserves✓ Correct
- B.To charge all borrowers from the same industry an average rate for that industry
- C.To avoid making loans to borrowers from a broad spectrum
- D.To limit the number of loans made in any year
Q38. Which one of the following refers to actual tools of policy instruments that the central bank controls directly?
- A.Operating instruments✓ Correct
- B.Intermediate instruments
- C.Financial instruments
- D.None of the given options
Q39. What kind of relationship is there between rate of inflation and aggregate demand?
- A.Positive relationship
- B.Negative relationship✓ Correct
- C.Direct relationship
- D.Strong relationship
Q40. _________ evolved from coffee houses to trading places to electronic networks.
- A.Financial companies
- B.Financial markets✓ Correct
- C.Financial institutions
- D.Financial intermediaries
Q41. Which of the following is the formula for calculating ROE (Return on equity)?
- A.ROE = Net profit before taxes / bank capital
- B.ROE = Net profit after taxes / total assets
- C.ROE = Net profit after taxes / bank capital✓ Correct
- D.ROE = Net profit before taxes / total assets
Q42. Which of the following are the primary uses of funds of Insurance Company?
- A.Cash, loans, securities
- B.Corporate bonds, government bonds✓ Correct
- C.Commercial paper, bonds, mortgages
- D.Mortgages, consumer loans, business loans
Q43. The higher the inflation is, the less predictable it is, and the more ___________risk it creates.
- A.Trading
- B.Inflation
- C.Systematic✓ Correct
- D.Non-systematic
Q44. If we label the quantity of money M and the monetary base MB, the money multiplier m is defined by which of the following relationship?
- A.M= m x MB✓ Correct
- B.M= m / MB
- C.M= m – MB
- D.M= m + MB
Q45. ______________ grow at a rate equal to the rate of real growth plus the desired level of inflation.
- A.Monetary base
- B.Monetary aggregates✓ Correct
- C.Money multiplier
- D.Deposit multiplier
Q46. Current yield is equal to which of the following?
- A.Price paid / yearly coupon payment
- B.Price paid *yearly coupon payment
- C.Yearly coupon payment / face value of bond
- D.Yearly coupon payment / price paid✓ Correct
Q47. ___________ is a component of the liability side of the commercial bank’s balance sheet.
- A.Deposits✓ Correct
- B.Loans
- C.Securities
- D.All of the given options
Q48. A stand by letter of credit is a form of:
- A.Loan
- B.Insurance✓ Correct
- C.Security
- D.Deposits
Q49. Securities firms include _________.
- A.Brokerage firms
- B.Investment banks
- C.Mutual fund companies
- D.All of the given options✓ Correct
Q50. _________is the combination of the term life insurance and savings account.
- A.Property insurance
- B.Health insurance
- C.Whole life insurance✓ Correct
- D.Casualty insurance
Q51. The _____________ shows how the quantity of money is related to the monetary base:
- A.Money multiplier✓ Correct
- B.Deposit expansion multiplier
- C.Fiscal multiplier
- D.Tax multiplier
Q52. Zero-Coupon Bonds are pure discount bonds since they sell at a price __________.
- A.Equal their face value
- B.Below their face value✓ Correct
- C.Above their face value
- D.None of the given options
Q53. The relationship between the price and the interest rate for a zero coupon bond is best described as:
- A.Volatile
- B.Stable
- C.Non-existent
- D.Inverse✓ Correct
Q54. Required reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?
- A.Central bank
- B.Bank regulators✓ Correct
- C.Commercial banks
- D.Non bank public
Q55. The procedure that estimates the interest rate sensitivity of a bank's assets and liabilities is called ___________.
- A.Managing credit risk
- B.Gap analysis✓ Correct
- C.Trading risk minimization
- D.Managing liquidity risk
Q56. Which of the following is not a function of Investment banks?
- A.Research and advice for investors
- B.Immediate sale of assets
- C.Access to payment system✓ Correct
- D.Access to spectrum of assets allowed diversification
Q57. Liquidity is the risk that is arises as a result of which one of the following consequences?
- A.It arises because of sudden demands of funds✓ Correct
- B.It arises when two sides of the balance sheet do not match up
- C.It arises when banks make additional profit by using derivatives
- D.It arises when loan is not repaid
Q58. For securities issued across international borders, changes in the legal and governmental environment can make it difficult for the investor to collect. Such a risk would be termed as:
- A.Credit risk
- B.Sovereign risk✓ Correct
- C.Insolvency risk
- D.Interest rate risk
Q59. Which of the following is the component of monetary base?
- A.Currency in the hands of the public
- B.Reserves of the banking system
- C.Vault cash plus deposits at the central bank
- D.All of the given options✓ Correct
Q60. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED
- A.Downward shift
- B.Any shift✓ Correct
- C.None of the given options
- D.Upward shift
Q61. Expectation hypothesis focuses on which one of the following?
- A.Risk premium
- B.Risk free interest rate✓ Correct
- C.Yield to maturity
- D.None of the given options
Q62. Excess reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?
- A.Central bank
- B.Bank regulators
- C.Commercial banks✓ Correct
- D.Non bank public
Q63. The quantity of money people hold for transaction purposes does NOT depends upon:
- A.Nominal income
- B.Cost of holding money
- C.Availability of substitutes
- D.Real income✓ Correct
Q64. Cash in ATM can not be consider as reserve as that cash can be withdrawn by any client. __________ measures how efficiently a bank uses its assets.
- A.Return on Assets✓ Correct
- B.Return on Equity
- C.Bank Capital
- D.Net Interest Margin
Q65. Operating instruments refer to actual tools of policy, instruments that the central bank controls directly. Which one of the following is used primarily by small agricultural banks to help in managing the cyclical nature of farmer’s loans and deposits?
- A.Primary credit
- B.Secondary credit
- C.Seasonal credit✓ Correct
- D.All of the given options
Q66. Seasonal credit is used primarily by small agricultural banks to help in managing the cyclical nature of farmers’ loans and deposits Over the long run if central banks want to avoid high rates of inflation they need to be concerned with which of the following?
- A.Unemployment
- B.Money growth✓ Correct
- C.Real economic growth
- D.Productivity of labor
Q67. Investment, and Net Exports The long-run supply curve is:
- A.Horizontal
- B.Vertical✓ Correct
- C.Downward-sloping
- D.Upward-sloping
Q68. Which of the following is related to leverage? Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED
- A.Return on assets and return on equity✓ Correct
- B.Return on assets
- C.Return on equity
- D.None of the given options
Q69. Money Growth + Velocity Growth = Inflation + Real Growth MG + 3 = 2+3.5 MG = 2.5 When interest rates are expected to_________, money demand goes up as people switch from holding bonds into holding money.
- A.Rise✓ Correct
- B.Decrease
- C.Remain stable
- D.Incomplete information
Q70. As the liquidity of alternatives falls, the demand for money goes up Rising inflation makes foreign goods cheaper in relation to domestic goods, driving imports ___________ and net exports __________.
- A.Up, down✓ Correct
- B.Down, up
- C.Down, down
- D.Up, up
Q71. Any shift in the aggregate demand curve, regardless of its source, will change inflation but not output Investing was an activity reserved for only __________ in the past.
- A.Business men
- B.Traders
- C.Wealthy people✓ Correct
- D.Stock brokers
Q72. 70+90.70 = 181.4 _________ measures the probability of worst outcome in any investment project.
- A.Variance
- B.Standard deviation
- C.Value at risk✓ Correct
- D.Hedging
Q73. Government bonds are not taxable. Which of the following statement is true for the given sentence, "that tax affects the bond return"?
- A.Because only interest income they receive from bond is taxable✓ Correct
- B.Because principal amount and interest income they receive from bond is taxable
- C.Because bond holders are taxpayers
- D.Because all bond is sold with a condition that tax will be deducted from its return
Q74. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED The fact that common stockholders are residual claimants me
- A.The stockholders receive their dividends before any other residuals are paid
- B.The stockholders receive the remains after everyone else is paid✓ Correct
- C.The stockholders are paid any past due dividends before other claims are paid
- D.The common stockholders are responsible for all corporate debts
Q75. Net worth is the owner’s stake in the firm, the value of the firm minus the vale of its liabilities __________ measures how efficiently a bank uses its assets.
- A.Return on Assets✓ Correct
- B.Return on Equity
- C.Bank Capital
- D.Bank Profitability
Q76. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED Funds of depository institution are primarily used in which of the following?
- A.Corporate bonds, Government bonds, Stocks, Mortgage
- B.Cash, Loan, Securities✓ Correct
- C.Stocks, Government bonds, corporate bonds, commercial papers
- D.Commercial papers, Bonds
Q77. Which one of the following is the unique problem that banks face?
- A.They hold illiquid assets to meet liquid liabilities✓ Correct
- B.They hold liquid assets to meet illiquid liabilities
- C.They hold liquid assets to meet liquid liabilities
- D.Both banks' assets and liabilities are illiquid
Q78. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED Stock exchange is an example of:
- A.Financial companies
- B.Financial institution
- C.Financial market✓ Correct
- D.Bank
Q79. /1.06 =94.33 If YTM equals the coupon rate the price of the bond is __________.
- A.Greater than its face value
- B.Lower than its face value
- C.Equals to its face value✓ Correct
- D.Cannot be determined
Q80. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED According to Milton Friedman, central banks should set the money growth at:
- A.Constant rate✓ Correct
- B.Increasing rate
- C.Decreasing rate
- D.None of the given options
Q81. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED The portfolio demand for money reflects which of the following?
- A.The money we hold for our everyday transactions
- B.The money we hold to purchase stocks and bonds and other financial securities
- C.The portion of wealth people desire to hold in the form of money
- D.None of the given option✓ Correct
Q82. Prepared By: SHAIKH, SAJJAD AL! & TANVEER AHMED Portfolio demand for money goes up as the riskiness of the alternative __________
- A.Falls
- B.Rises (123)✓ Correct
- C.Remain stable
- D.Cannot be determined
Q83. Which one of the following is included in the functions of both Finance company as well as Government Sponsored Enterprise?
- A.Consumer loans
- B.Farm loans
- C.Business loans
- D.Mortgages ( Lec # 28 ) see in table last 2 rows✓ Correct
Q84. Monetary Base is a factor that affects the quantity of money. This factor is controlled by which of the following?
- A.Central bank✓ Correct
- B.Bank regulators
- C.Commercial banks
- D.Non bank public
Q85. Aggregate demand curve slopes down because of many reasons which of the following is NOT the reason of its downward slope?
- A.Higher inflation increases real money balances ( lec 40 )✓ Correct
- B.Higher inflation induces policymakers to raise the real interest rate
- C.Rising inflation also reduces wealth
- D.Rising inflation lowers consumption
Q86. Which of the following side of a balance sheet represent that central bank is a bankers’ bank?
- A.Asset side of the balance sheet
- B.Liabilities side of the balance sheet✓ Correct
- C.Equity side of the balance sheet
- D.The whole balance sheet
Q87. If we ignore risk, the dividend discount model says the fundamental price of a stock is simply:
- A.The current dividend divided by the interest rate less the dividend growth rate
- B.The annual growth rate of the dividend minus the interest rate divided by the
- C.current dividend✓ Correct
- D.The
Q88. House Building Finance Corporation (HBFC) is:
- A.A Finance company
- B.A Securities firm
- C.A Government sponsored enterprise✓ Correct
- D.An insurance company
Q89. A zero coupon bond:
- A.Does not pay any coupon payments because the issuer is in default
- B.Pays coupons only once a year versus the usual twice a year
- C.Promises a single future payment✓ Correct
- D.Pays coupons only if the bond price is below face value
Q90. A bank can usually offer a saver a higher return for the same risk because:
- A.The bank can usually purchase assets at a higher cost than any one saver
- B.The bank can pool the resources of larger savers and purchase lower denominated
- C.assets✓ Correct
- D.Economies of scale can be applied by the bank in its purchase of
Q91. Which of the following is true of a nation's central bank?
- A.It makes important decisions about the nation's tax and public spending policies
- B.It lends only to the nation's largest and most important business firms
- C.It has many interactions with the nation's citizens and businesses
- D.It is responsible for conducting the nation's monetary policy✓ Correct
Q92. When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts to the:
- A.Right✓ Correct
- B.Left
- C.No change
- D.None of the given options
Q93. Which one of the following is the narrowest definition of money?
Q94. What is difference between warrant and check?
- A.Check is cleared from bank but warrant is not cleared by bank
- B.Check is not necessarily pay able on demand but warrant is payable on
- C.demand✓ Correct
- D.Warrant is not necessarily pay able on
Q95. Internal Rate of Return is _______.
- A.Present value of investment✓ Correct
- B.Future value of its investment +Cost of investment
- C.Cost of investment
- D.Present value of investment + cost of investment
Q96. The price of a coupon bond can best be described as:
- A.The present value of the face value✓ Correct
- B.The future value of the coupon payments and the face value
- C.The present value of the coupon payments
- D.Both
Q97. Previously financial markets are located in which of the following?
- A.Coffee houses or Taverns
- B.Stock exchanges✓ Correct
- C.Bazaar
- D.Coffee houses and
Q98. Debt instruments is categorized on the basis of which one of the following?
- A.Loan maturity period✓ Correct
- B.Interest rates
- C.Mode of payment of interest
- D.Amount of the debt taken
Q99. Which of the following is NOT included in the definition of M1?
- A.Traveler’s checks
- B.Demand deposits
- C.Currency
- D.Gold coins issued by treasury✓ Correct
Q100. According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%
- A.Doubles✓ Correct
- B.Triples
- C.halves
- D.3/4
Q101. Which of the following institution take direct deposit from customer and give loan to customer directly?
- A.Zarai Tarkaytee Bank LTD
- B.Soneri Bank
- C.Khushali Bank
- D.Credit unions✓ Correct
Q102. If bond’s rating is lower, what will be its price?
- A.Higher
- B.Lower✓ Correct
- C.Equal to
- D.No change
Q103. What is the true relationship that exists between default risk and yield?
- A.Higher the default risk, higher the yield✓ Correct
- B.Lower the default risk, higher the yield
- C.Higher the default risk yield will remain constant
- D.Lower the default risk yield will remain constant
Q104. Home loans and car loans are the example of which one of the following?
- A.Mortgage loans
- B.Pledge
- C.Fixed Payment Loans✓ Correct
- D.Ordinary loan
Q105. You receive a check for $100 two years from today. The discounted present value of this $100 is:
- A.$100/(1+i)✓ Correct
- B.$100*(1+i)2
- C.$100*(1+i)
- D.$100/(1+i)2
Q106. Spreading involves:
- A.Finding assets whose returns are perfectly negatively correlated✓ Correct
- B.Building a portfolio of assets whose returns move together
- C.Investing in bonds and avoiding stocks during bad times
- D.Adding assets to a portfolio that move independently
Q107. A graph in which time to maturity is along x-axis and yield to maturity is along yaxis is called __________.
- A.Government curve
- B.SWAP curve
- C.Yield curve ( Lec 17 )✓ Correct
- D.LIBOR curve
Q108. Join us On
- A.Central bank
- B.Bank regulators
- C.Commercial banks✓ Correct
- D.Non bank public
Q109. When the currency that people are holding loses value much rapidly, they will work to spend what they have as quickly as possible
- A.Nominal income
- B.Cost of holding money
- C.Availability of substitutes
- D.Real income✓ Correct
Q110. Primary sources of funds (liabilities) Primary uses of funds (assets) Services provided Depository institution (Banks) Checkable deposits Saving and time deposits Borrowing from
- A.A Finance company
- B.A Securities firm
- C.A Government sponsored enterprise✓ Correct
- D.An insurance company