1. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Bonds, 9%; Mortgages, 43%; Other loans, 48%.
Liabilities and Net Worth: Deposits, 59%; Bonds, 5%; Other borrowings,
22%; Net Worth, 14%. Which of the following is most likely to have this
balance sheet?
a. U.S. household
b. Japanese household
c. Life insurance company
*d. Commercial bank
2. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Real Estate, 48%; Other physical assets, 12%;
Deposits, 20%; Pension and Insurance Reserves, 20%. Liabilities and Net
Worth: Mortgages, 13%; Other borrowings, 12%; Net Worth, 75%. Which of
the following is most likely to have this balance sheet?
a. U.S. household
*b. Japanese household
c. Life insurance company
d. Commercial bank
3. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Real Estate, 48%; Other physical assets, 12%;
Deposits, 10%; Bonds, 3%; Pension and Insurance Reserves, 17%; Stocks,
10%. Liabilities and Net Worth: Mortgages, 23%; Other borrowings, 9%;
Net Worth, 68%. Which of the following is most likely to have this
balance sheet?
*a. U.S. household
b. Japanese household
c. Life insurance company
d. Commercial bank
4. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Deposits, 2%; Bonds, 62%; Other loans, 6%; Stocks,
30%. Liabilities and Net Worth: Pension and insurance reserves, 73%;
Other borrowings, 21%; Net Worth, 6%. Which of the following is most
likely to have this balance sheet?
a. U.S. household
b. Japanese household
*c. Life insurance company
d. Commercial bank
5. Which asset class dominates debt markets in Japan?
a. Commercial paper
b. Corporate bonds
*c. Government bonds
d. Mortgage-backed securities
,6. Approximately what was the amount of mortgage debt outstanding in
the United States in 2010?
a. $14 billion
b. $140 billion
c. $1.4 trillion
*d. $14 trillion
7. Approximately what was the GDP of the United States in 2010?
a. $14.5 billion
b. $145 billion
c. $1.45 trillion
*d. $14.5 trillion
8. Approximately what was the outstanding amount of United States
Treasury securities in 2010?
a. $12.8 billion
b. $128 billion
c. $1.28 trillion
*d. $12.8 trillion
9. Why would managers of pension plans with benefits tied to the cost
of living find inflation-linked bonds particularly useful?
a. They have very low default risk.
b. They are tax-advantaged investments.
*c. They offer a real rate of return.
d. They fund otherwise unfunded plans.
10. Which statement best describes the debt of a government-sponsored
entity (GSE) in the United States?
a. It is explicitly guaranteed by the federal government of the
United States.
*b. It is implicitly guaranteed by the federal government of the
United States.
c. It is implicitly guaranteed by that GSE.
d. It is guaranteed by the taxing power of the United States.
11. Which statement best describes a general obligation (GO) municipal
bond in the United States?
*a. It is backed by the taxing power of the issuing municipality.
b. It is backed by the taxing power of the United States.
c. It is backed by the revenue of the project financed by the
bond.
, d. It is backed by the revenue of all projects in the issuing
municipality.
12. Which description accurately characterizes commercial paper sold by
corporations to raise funds?
*a. Unsecured and matures in less than 9 months
b. Unsecured and matures in less than 1 week
c. Secured and matures in less than 9 months
d. Secured and matures in less than 1 week
13. Which of these situations would be described as having financing
risk?
a. Borrowing new funds to finance a project
*b. Borrowing money through new debt to pay off existing debt
c. Lending new funds to finance a project
d. Lending money through new securities as existing securities
mature.
14. Which of the following forms of financing is least stable?
a. Equity
b. Bonds spread evenly across maturities
*c. Fed funds and repo
d. Deposits up to the government-insured amount
15. Corporate bonds comprise about 23% of nonfinancial business sector
liabilities. Why will the percentage for a particular corporation
differ from this average?
*a. Large corporations raise relatively more of their funds
through corporate bonds.
b. Small corporations raise relatively more of their funds
through corporate bonds.
c. Large corporations invest more of their working capital in
corporate bonds.
d. Small corporations invest more of their working capital in
corporate bonds.
16. Please read the following statement that U.S. Congressman Barney
Frank made in March 2010 and then answer the question. "Throughout the
debate over Fannie and Freddie in past years, I have noted that Fannie
and Freddie did not have the same legal standing as Treasury debt. This
does not prevent the Treasury from treating the debt of Fannie and
Freddie in a manner that it believes best supports the important goal
of stabilizing the financial system." What is this statement meant to
convey with respect to the creditworthiness of the debt of Fannie and
Feddie?
, a. The debt is not backed by the full faith and credit of the
United States.
b. The debt has the implicit backing of the United States.
c. neither a) nor b)
*d. both a) and b)
17. Two balance sheets, in percentages, show the following assets and
liabilities. Balance sheet #1—Assets: Bonds, 10%; Mortgages, 54%; Other
loans, 36%. Liabilities and Net Worth: Deposits, 74%; Bonds, 2%; Other
borrowings, 12%; Net Worth, 11%. Balance sheet #2—Assets: Bonds, 9%;
Mortgages, 43%; Other loans, 48%. Liabilities and Net Worth: Deposits,
59%; Bonds, 5%; Other borrowings, 22%; Net Worth, 141%. To which market
participants are these balance sheets most likely to belong?
a. #1 to a central bank and #2 to a household
b. #1 to a household and #2 to a central bank
*c. #1 to a small commercial bank and #2 to a large commercial
bank
d. #1 to a large commercial bank and #2 to a small commercial
bank
18. A bank has €100 of assets, 50% of which are invested in mortgages,
and €90 of liabilities. Defining capital as the difference between
assets and liabilities, by what percentage do mortgages need to fall in
value to wipe out the bank's capital?
a. 25%
*b. 20%
c. 15%
d. 10%
19. Which statement describes the policy of the Fed, ECB, and BoJ since
the onset of the 2007–2009 financial crisis?
a. Decreased lending to banks and direct purchases of securities
b. Decreased lending to banks and increased direct purchases of
securities
c. Increased lending to banks and decreased direct purchases of
securities
*d. Increased lending to banks and direct purchases of securities
20. Which statement describes pension and insurance savings vehicles
around the world?
*a. They are tax-advantaged relative to other forms of savings.
b. They are tax-disadvantaged relative to other forms of savings.
c. They are provided only by national governments.
d. They are provided only by private corporations.
21. The global trend of pension-fund plans has been to move away from
which of the following?
liabilities. Assets: Bonds, 9%; Mortgages, 43%; Other loans, 48%.
Liabilities and Net Worth: Deposits, 59%; Bonds, 5%; Other borrowings,
22%; Net Worth, 14%. Which of the following is most likely to have this
balance sheet?
a. U.S. household
b. Japanese household
c. Life insurance company
*d. Commercial bank
2. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Real Estate, 48%; Other physical assets, 12%;
Deposits, 20%; Pension and Insurance Reserves, 20%. Liabilities and Net
Worth: Mortgages, 13%; Other borrowings, 12%; Net Worth, 75%. Which of
the following is most likely to have this balance sheet?
a. U.S. household
*b. Japanese household
c. Life insurance company
d. Commercial bank
3. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Real Estate, 48%; Other physical assets, 12%;
Deposits, 10%; Bonds, 3%; Pension and Insurance Reserves, 17%; Stocks,
10%. Liabilities and Net Worth: Mortgages, 23%; Other borrowings, 9%;
Net Worth, 68%. Which of the following is most likely to have this
balance sheet?
*a. U.S. household
b. Japanese household
c. Life insurance company
d. Commercial bank
4. A balance sheet, in percentages, shows the following assets and
liabilities. Assets: Deposits, 2%; Bonds, 62%; Other loans, 6%; Stocks,
30%. Liabilities and Net Worth: Pension and insurance reserves, 73%;
Other borrowings, 21%; Net Worth, 6%. Which of the following is most
likely to have this balance sheet?
a. U.S. household
b. Japanese household
*c. Life insurance company
d. Commercial bank
5. Which asset class dominates debt markets in Japan?
a. Commercial paper
b. Corporate bonds
*c. Government bonds
d. Mortgage-backed securities
,6. Approximately what was the amount of mortgage debt outstanding in
the United States in 2010?
a. $14 billion
b. $140 billion
c. $1.4 trillion
*d. $14 trillion
7. Approximately what was the GDP of the United States in 2010?
a. $14.5 billion
b. $145 billion
c. $1.45 trillion
*d. $14.5 trillion
8. Approximately what was the outstanding amount of United States
Treasury securities in 2010?
a. $12.8 billion
b. $128 billion
c. $1.28 trillion
*d. $12.8 trillion
9. Why would managers of pension plans with benefits tied to the cost
of living find inflation-linked bonds particularly useful?
a. They have very low default risk.
b. They are tax-advantaged investments.
*c. They offer a real rate of return.
d. They fund otherwise unfunded plans.
10. Which statement best describes the debt of a government-sponsored
entity (GSE) in the United States?
a. It is explicitly guaranteed by the federal government of the
United States.
*b. It is implicitly guaranteed by the federal government of the
United States.
c. It is implicitly guaranteed by that GSE.
d. It is guaranteed by the taxing power of the United States.
11. Which statement best describes a general obligation (GO) municipal
bond in the United States?
*a. It is backed by the taxing power of the issuing municipality.
b. It is backed by the taxing power of the United States.
c. It is backed by the revenue of the project financed by the
bond.
, d. It is backed by the revenue of all projects in the issuing
municipality.
12. Which description accurately characterizes commercial paper sold by
corporations to raise funds?
*a. Unsecured and matures in less than 9 months
b. Unsecured and matures in less than 1 week
c. Secured and matures in less than 9 months
d. Secured and matures in less than 1 week
13. Which of these situations would be described as having financing
risk?
a. Borrowing new funds to finance a project
*b. Borrowing money through new debt to pay off existing debt
c. Lending new funds to finance a project
d. Lending money through new securities as existing securities
mature.
14. Which of the following forms of financing is least stable?
a. Equity
b. Bonds spread evenly across maturities
*c. Fed funds and repo
d. Deposits up to the government-insured amount
15. Corporate bonds comprise about 23% of nonfinancial business sector
liabilities. Why will the percentage for a particular corporation
differ from this average?
*a. Large corporations raise relatively more of their funds
through corporate bonds.
b. Small corporations raise relatively more of their funds
through corporate bonds.
c. Large corporations invest more of their working capital in
corporate bonds.
d. Small corporations invest more of their working capital in
corporate bonds.
16. Please read the following statement that U.S. Congressman Barney
Frank made in March 2010 and then answer the question. "Throughout the
debate over Fannie and Freddie in past years, I have noted that Fannie
and Freddie did not have the same legal standing as Treasury debt. This
does not prevent the Treasury from treating the debt of Fannie and
Freddie in a manner that it believes best supports the important goal
of stabilizing the financial system." What is this statement meant to
convey with respect to the creditworthiness of the debt of Fannie and
Feddie?
, a. The debt is not backed by the full faith and credit of the
United States.
b. The debt has the implicit backing of the United States.
c. neither a) nor b)
*d. both a) and b)
17. Two balance sheets, in percentages, show the following assets and
liabilities. Balance sheet #1—Assets: Bonds, 10%; Mortgages, 54%; Other
loans, 36%. Liabilities and Net Worth: Deposits, 74%; Bonds, 2%; Other
borrowings, 12%; Net Worth, 11%. Balance sheet #2—Assets: Bonds, 9%;
Mortgages, 43%; Other loans, 48%. Liabilities and Net Worth: Deposits,
59%; Bonds, 5%; Other borrowings, 22%; Net Worth, 141%. To which market
participants are these balance sheets most likely to belong?
a. #1 to a central bank and #2 to a household
b. #1 to a household and #2 to a central bank
*c. #1 to a small commercial bank and #2 to a large commercial
bank
d. #1 to a large commercial bank and #2 to a small commercial
bank
18. A bank has €100 of assets, 50% of which are invested in mortgages,
and €90 of liabilities. Defining capital as the difference between
assets and liabilities, by what percentage do mortgages need to fall in
value to wipe out the bank's capital?
a. 25%
*b. 20%
c. 15%
d. 10%
19. Which statement describes the policy of the Fed, ECB, and BoJ since
the onset of the 2007–2009 financial crisis?
a. Decreased lending to banks and direct purchases of securities
b. Decreased lending to banks and increased direct purchases of
securities
c. Increased lending to banks and decreased direct purchases of
securities
*d. Increased lending to banks and direct purchases of securities
20. Which statement describes pension and insurance savings vehicles
around the world?
*a. They are tax-advantaged relative to other forms of savings.
b. They are tax-disadvantaged relative to other forms of savings.
c. They are provided only by national governments.
d. They are provided only by private corporations.
21. The global trend of pension-fund plans has been to move away from
which of the following?
