BUS-G 345 MIDTERM 1 QUESTIONS AND ANSWERS
What is the typical relationship between interest rates on 6-month Treasury bills, 10-
year Treasury notes, and Baa corporate bonds? - Answers - They tend to move
together over time with the corporate bond having the highest rate of interest
When interest rates decrease, how might businesses and consumers change their
economic behavior? - Answers - There will be more consumption spending on interest-
sensitive items and more investment by businesses.
How does a fall in the value of the pound sterling affect British consumers? - Answers -
Foreign goods are now relatively more expensive; British consumers are hurt
A fall in the value of the pound will cause American businesses to be ______ - Answers
- worse off
When the dollar is worth less in relation to currencies of other countries, are you more
likely to buy American-made or foreign-made electronics? You are more likely to
purchase _______ - Answers - American-made products
Are US companies that manufacture semi-conductors happier when the dollar is strong
or when it is weak? Semi-conductor manufacturers are happier when the dollar is
_______ - Answers - weaker
"What about an American company that is in the business of importing electronic
consumer goods into the United States? Importers of electronic goods into the United
States are happier when the dollar is ______ - Answers - stronger
Which of the following is not an important financial intermediary in the economy? -
Answers - The Fed
Economists group commercial banks, savings and loan associations, credit unions,
mutual funds, mutual savings banks, insurance companies, pension funds, and finance
companies together under the heading financial intermediaries. What function do
financial intermediaries perform? - Answers - They provide a channel for linking those
who want to save with those who want to invest.
Banks, savings and loan associations, mutual savings banks, and credit unions: -
Answers - have been adept at innovating in response to changes in the regulatory
environment.
What was the main cause of the recession that began in 2007? - Answers - Defaults in
subprime residential mortgages.
, Why do managers of financial institutions care so much about the activities of the
Federal Reserve System? - Answers - Because the Federal Reserve affects interest
rates, inflation, and business cycles, all of which have an important impact on the
profitability of financial institutions.
Evidence from business cycle fluctuations in the United States indicates that: - Answers
- recessions have been preceded by a decline in the growth rate of money.
Evidence from the United States and other foreign countries indicates that: - Answers -
there is a strong positive association between inflation and the growth rate of money
over long periods of time.
Much of the U.S. government debt is held as Treasury bonds and bills by foreign
investors. How do fluctuations in the dollar exchange rate affect the value of that debt
held by foreigners? - Answers - As the dollar becomes stronger relative to a foreign
currency, for a given face value of bond holdings, it will yield more home currency to
foreigners, so the asset will be worth more to foreign investors.
The foreign exchange market is: - Answers - where the currency of one country is
converted into the currency of another country
A strong U.S. dollar means that U.S. goods exported abroad will cost: - Answers - more
in foreign countries and foreign goods imported will cost less in the United States.
A share of Microsoft common stock is: - Answers - an asset for its owner, which
Microsoft shows as shareholder equity on its balance sheet.
Which of the following is not a function or service provided by secondary markets -
Answers - "Matching lenders (savers) with borrowers in need of funds
A financial market in which only short-term debt instruments (generally those with
original maturity of less than one year) are traded. - Answers - Money market
A financial market in which securities that have been previously issued can be resold -
Answers - Secondary market
A financial market in which new issues of a security, such as a bond or astock, are sold
to initial buyers by the corporation or government agency borrowing the funds. -
Answers - Primary market
A market in which longer-term debt (generally those with original maturity of one year or
greater) and equity instruments are traded. - Answers - Capital market
What is the typical relationship between interest rates on 6-month Treasury bills, 10-
year Treasury notes, and Baa corporate bonds? - Answers - They tend to move
together over time with the corporate bond having the highest rate of interest
When interest rates decrease, how might businesses and consumers change their
economic behavior? - Answers - There will be more consumption spending on interest-
sensitive items and more investment by businesses.
How does a fall in the value of the pound sterling affect British consumers? - Answers -
Foreign goods are now relatively more expensive; British consumers are hurt
A fall in the value of the pound will cause American businesses to be ______ - Answers
- worse off
When the dollar is worth less in relation to currencies of other countries, are you more
likely to buy American-made or foreign-made electronics? You are more likely to
purchase _______ - Answers - American-made products
Are US companies that manufacture semi-conductors happier when the dollar is strong
or when it is weak? Semi-conductor manufacturers are happier when the dollar is
_______ - Answers - weaker
"What about an American company that is in the business of importing electronic
consumer goods into the United States? Importers of electronic goods into the United
States are happier when the dollar is ______ - Answers - stronger
Which of the following is not an important financial intermediary in the economy? -
Answers - The Fed
Economists group commercial banks, savings and loan associations, credit unions,
mutual funds, mutual savings banks, insurance companies, pension funds, and finance
companies together under the heading financial intermediaries. What function do
financial intermediaries perform? - Answers - They provide a channel for linking those
who want to save with those who want to invest.
Banks, savings and loan associations, mutual savings banks, and credit unions: -
Answers - have been adept at innovating in response to changes in the regulatory
environment.
What was the main cause of the recession that began in 2007? - Answers - Defaults in
subprime residential mortgages.
, Why do managers of financial institutions care so much about the activities of the
Federal Reserve System? - Answers - Because the Federal Reserve affects interest
rates, inflation, and business cycles, all of which have an important impact on the
profitability of financial institutions.
Evidence from business cycle fluctuations in the United States indicates that: - Answers
- recessions have been preceded by a decline in the growth rate of money.
Evidence from the United States and other foreign countries indicates that: - Answers -
there is a strong positive association between inflation and the growth rate of money
over long periods of time.
Much of the U.S. government debt is held as Treasury bonds and bills by foreign
investors. How do fluctuations in the dollar exchange rate affect the value of that debt
held by foreigners? - Answers - As the dollar becomes stronger relative to a foreign
currency, for a given face value of bond holdings, it will yield more home currency to
foreigners, so the asset will be worth more to foreign investors.
The foreign exchange market is: - Answers - where the currency of one country is
converted into the currency of another country
A strong U.S. dollar means that U.S. goods exported abroad will cost: - Answers - more
in foreign countries and foreign goods imported will cost less in the United States.
A share of Microsoft common stock is: - Answers - an asset for its owner, which
Microsoft shows as shareholder equity on its balance sheet.
Which of the following is not a function or service provided by secondary markets -
Answers - "Matching lenders (savers) with borrowers in need of funds
A financial market in which only short-term debt instruments (generally those with
original maturity of less than one year) are traded. - Answers - Money market
A financial market in which securities that have been previously issued can be resold -
Answers - Secondary market
A financial market in which new issues of a security, such as a bond or astock, are sold
to initial buyers by the corporation or government agency borrowing the funds. -
Answers - Primary market
A market in which longer-term debt (generally those with original maturity of one year or
greater) and equity instruments are traded. - Answers - Capital market
