FIN 321 FINAL EXAM
Theoumajoroumonetaryoupolicy-
makingoubodyouofoutheouFederalouReserveouisoutheou________________ou-ouans--
FederalouOpenouMarketouCommittee
TheouFedoucanoutargetoubothoumoneyousupplyouandouinterestouratesousimultaneously.ou(T/
F)ou-ouans--False
Theou_____________ouisoutheourateouFederalouReserveouBanksouchargeouonouloansoutoou
financialouinstitutionsouinoutheiroudistrict.ou-ouans--Discountourate
IfoutheouFedouisoutargetingouinterestouratesouandoutheoudemandouforoumoneyoudrops,outheo
uFedouwouldoulikelyouincreaseoutheoumoneyousupply.ou(T/F)ou-ouans--False
Theouprimaryoucreditourateouisouhigherouthanoutheousecondaryoucreditourate.ou(T/F)ou-
ouans--False
Inouperiodsouofouhyperinflation,outargetingoumoneyousupplyou(toousetoumonetaryoupolicies)
ouwouldoubeoumoreouappropriateouthanoutargetingouinterestouratesou(toousetoumonetaryoup
olicies).ou(T/F)ou-ouans--True
Inouperiodsouofouhyperinflation,outargetingouinterestouratesou(toousetoumonetaryoupolicies)o
uwouldouhelpoulowerouinflation.ou(T/F)ou-ouans--False
OpenoumarketousalesouofouTreasuryousecuritiesoubyoutheouFedouleadsoutoouaoudecreaseoui
noutheoumoneyousupply.ou(T/F)ou-ouans--True
Allouexpansionaryoumonetaryoupoliciesouincreaseoutheoumoneyousupply.ou(T/F)ou-ouans--
True
IfoutheouFedouwishesoutooustimulateougrowthouinoutheoueconomy,ouitoucould
I.oubuyouU.S.ougovernmentousecurities.
II.ouloweroutheoudiscountourate.
III.ouincreaseoureserveourequirements.ou-ouans--IouandouIIouonly
,Duringouperiodsouofoudeflation,ouinvestingouinoufixed-
principalouTreasuryousecuritiesouisoubetterouthanouinvestingouinouinflation-
indexedouTreasuryousecurities.ou(T/F)ou-ouans--True
ForouTIPSou(TreasuryouInflationouProtectedouSecurities),oubothoutheoucouponoupaymentso
uandoutheoufinalouprincipalou(i.e.oufaceouvalue)oupaymentouareouadjustedouwithouinflation.ou
(T/F)ou-ouans--True
Accruedouinterestouisoutheouportionouofoutheoucouponoupaymentouaccruedoubetweenoutheo
usettlementoudateouandoutheounextoucouponoupaymentoudate.ou(T/F)ou-ouans--False
TheouU.S.ouannualoufederalougovernmentoudeficitouhasoustayedoupositiveouforoumostouyea
rsouoveroutheoupastou20ouyears.ou(T/F)ou-ouans--True
TheoucleanoupriceouofouaouT-bondouorouT-
noteouisoutheoupriceouthatoualreadyouaccountsouforouaccruedouinterest.ou(T/F)ou-ouans--
False
Allouelseouconstant,oudueoutooutheiroulongeroumaturity,ouT-notesouandouT-
bondsouhaveoulowerouinterestourateourisksouthanoumoneyoumarketousecurities.ou(T/F)ou-
ouans--False
Accruedouinterestoumustoubeoupaidoubyoutheou__________ouofouaoubondoutooutheou______
____ouofouaoubondouifoutheoubondouisoupurchasedouonou_______________.ou-ouans--
buyer;ouseller;ouaoudateouinoubetweenoucouponoupaymentoudates
T-notesouandouT-
bondsouareousoldoubyoutheouU.S.ouTreasuryouthroughouTreasuryouauctionsouinoutheouseco
ndaryoumarket.ou(T/F)ou-ouans--False
HowoumanyouTreasuryouzero-couponoubondsoucanoubeoucreatedoufromouaouT-
bondouwithou20ouyearsoutooumaturity,oucouponourateouofou9.50%,ouyieldoutooumaturityouofou
9.55%,oufaceouvalueouofou$10,000,oupayingoucouponsousemiannually?ou-ouans--41
Yououbuyouanou8%oucoupon,ou$1,000ouparouT-
bondouwhichoupaysoucouponsousemiannually.ouYououbecomeoutheouownerou32oudaysouaft
eroutheoulastoucouponoupaymentoudate,ouandoufromoutheoudateouyououbecomeoutheouowne
r,outhereouareou150oudaysouremainingouuntiloutheounextoucouponoupaymentoudate.ouTheoub
ond'soucleanoupriceouquoteouisou99.6858.ouWhatouisoutheoufullouoroudirtyoupriceouofoutheoub
ond?ou-ouans--$1,003.89
WhenouaouforeignoucurrencyoudepreciatesouagainstoutheouUSoudollar,ouaouUSoufinancialoui
nstitutionouwithouaou_______________ouinouthatouforeignoucurrencyouwilloubenefit,ouandou
whenoutheouforeignoucurrencyouappreciatesouagainstoutheouUSoudollar,ouaouUSoufinancialo
uinstitutionouwithouaou___________ouinouthatouforeignoucurrencyouwilloubenefit.ou-ouans--
negativeounetouexposure;oupositiveounetouexposure
, Allouelseouconstant,ouaouU.S.oufinancialouinstitutionouwithouaou___________ounetouexposur
eouinouanyougivenouforeignoucurrencyouisounotouexposedoutooufluctuationsouinoutheouexcha
ngeourateouofouthatoucurrencyouagainstoutheouUSoudollar.ou-ouans--Zero
Matchingouforeignouassetsouandouforeignouliabilitiesoucanouhelpouaoufirmouhedgeouagainsto
uforeignouexchangeouriskoubecauseouifoutheouforeignoucurrencyoudepreciatesourelativeoutoo
utheoudomesticoucurrency,outheoufirmouwilloureceiveou________ouonoutheouassetousideoubu
toutheyouwilloupayou________ouonoutheouliabilityousideouandouifoutheouforeignoucurrencyouap
preciatesourelativeoutooutheoudomesticoucurrency,outheoufirmouwilloupayou_________ouonout
heouliabilityousideoubutoutheyouwilloureceiveou___________ouonoutheouassetouside.ou-
ouans--Less;ouless;oumore;oumore
Allouelseouequal,ouifouJapan'souinflationouisouhigherouthanoutheouU.S.'souinflation,oudemand
ouforougoodsouwilloushiftoutoou____________,oupushingoutheoudemandouforoutheou_______
__ouup.ouAsouaouresult,outheouyenouwilloutendoutoou_________ourelativeoutooutheouUSoudoll
ar.ou-ouans--TheouU.S;ouU.Soudollars;oudepreciate
Aoubankouissuedou$200oumillionouworthouofouone-
yearouBrazilianouCDsou(asouliabilities)ouinouBrazilianourealsouatouaourateouofou6.5%.
Assumingounoouhedge,ouwithoutheouBrazilianouCDsouabove,outhisoubankouisouexposedoutoo
utheouriskouofoutheouBrazilianourealouappreciatingouagainstoutheouUSoudollar.ou(T/F)ou-
ouans--True
Whichouofoutheoufollowingoustatementsouisoufalse?
-
Aoufinancialouinstitution'souforeignouexchangeouriskoucanoucomeoufromouholdingouforeignou
assetsouand/orouforeignouliabilities.ou
-
Theoubalanceouofoutradeoucanouimpactoucurrencyouexchangeouratesoubutoucurrencyouexch
angeouratesoucannotouimpactoutheoubalanceouofoutrade.
ou-
TheouinternationalouFisheroueffectouimpliesouthatoubetweenouanyoutwooucountries,outheouc
ountryouwithoutheouhigherounominalouinterestourateouwilloutendoutoouseeouitsoucurrencyoude
preciateouagainstoutheouotheroucountry'soucurrency.
-AouweakeningoudollaroucanougenerateouinflationouinoutheouU.S.ou-ouans--
Theoubalanceouofoutradeoucanouimpactoucurrencyouexchangeouratesoubutoucurrencyouexch
angeouratesoucannotouimpactoutheoubalanceouofoutrade.
Aoubankouissuedou$200oumillionouworthouofouone-
yearouBrazilianouCDsou(asouliabilities)ouinouBrazilianourealsouatouaourateouofou6.5%.ou(Note:
ou6.5%ouisoutheourateoubasedouonouBrazilianoureals)
Theoumajoroumonetaryoupolicy-
makingoubodyouofoutheouFederalouReserveouisoutheou________________ou-ouans--
FederalouOpenouMarketouCommittee
TheouFedoucanoutargetoubothoumoneyousupplyouandouinterestouratesousimultaneously.ou(T/
F)ou-ouans--False
Theou_____________ouisoutheourateouFederalouReserveouBanksouchargeouonouloansoutoou
financialouinstitutionsouinoutheiroudistrict.ou-ouans--Discountourate
IfoutheouFedouisoutargetingouinterestouratesouandoutheoudemandouforoumoneyoudrops,outheo
uFedouwouldoulikelyouincreaseoutheoumoneyousupply.ou(T/F)ou-ouans--False
Theouprimaryoucreditourateouisouhigherouthanoutheousecondaryoucreditourate.ou(T/F)ou-
ouans--False
Inouperiodsouofouhyperinflation,outargetingoumoneyousupplyou(toousetoumonetaryoupolicies)
ouwouldoubeoumoreouappropriateouthanoutargetingouinterestouratesou(toousetoumonetaryoup
olicies).ou(T/F)ou-ouans--True
Inouperiodsouofouhyperinflation,outargetingouinterestouratesou(toousetoumonetaryoupolicies)o
uwouldouhelpoulowerouinflation.ou(T/F)ou-ouans--False
OpenoumarketousalesouofouTreasuryousecuritiesoubyoutheouFedouleadsoutoouaoudecreaseoui
noutheoumoneyousupply.ou(T/F)ou-ouans--True
Allouexpansionaryoumonetaryoupoliciesouincreaseoutheoumoneyousupply.ou(T/F)ou-ouans--
True
IfoutheouFedouwishesoutooustimulateougrowthouinoutheoueconomy,ouitoucould
I.oubuyouU.S.ougovernmentousecurities.
II.ouloweroutheoudiscountourate.
III.ouincreaseoureserveourequirements.ou-ouans--IouandouIIouonly
,Duringouperiodsouofoudeflation,ouinvestingouinoufixed-
principalouTreasuryousecuritiesouisoubetterouthanouinvestingouinouinflation-
indexedouTreasuryousecurities.ou(T/F)ou-ouans--True
ForouTIPSou(TreasuryouInflationouProtectedouSecurities),oubothoutheoucouponoupaymentso
uandoutheoufinalouprincipalou(i.e.oufaceouvalue)oupaymentouareouadjustedouwithouinflation.ou
(T/F)ou-ouans--True
Accruedouinterestouisoutheouportionouofoutheoucouponoupaymentouaccruedoubetweenoutheo
usettlementoudateouandoutheounextoucouponoupaymentoudate.ou(T/F)ou-ouans--False
TheouU.S.ouannualoufederalougovernmentoudeficitouhasoustayedoupositiveouforoumostouyea
rsouoveroutheoupastou20ouyears.ou(T/F)ou-ouans--True
TheoucleanoupriceouofouaouT-bondouorouT-
noteouisoutheoupriceouthatoualreadyouaccountsouforouaccruedouinterest.ou(T/F)ou-ouans--
False
Allouelseouconstant,oudueoutooutheiroulongeroumaturity,ouT-notesouandouT-
bondsouhaveoulowerouinterestourateourisksouthanoumoneyoumarketousecurities.ou(T/F)ou-
ouans--False
Accruedouinterestoumustoubeoupaidoubyoutheou__________ouofouaoubondoutooutheou______
____ouofouaoubondouifoutheoubondouisoupurchasedouonou_______________.ou-ouans--
buyer;ouseller;ouaoudateouinoubetweenoucouponoupaymentoudates
T-notesouandouT-
bondsouareousoldoubyoutheouU.S.ouTreasuryouthroughouTreasuryouauctionsouinoutheouseco
ndaryoumarket.ou(T/F)ou-ouans--False
HowoumanyouTreasuryouzero-couponoubondsoucanoubeoucreatedoufromouaouT-
bondouwithou20ouyearsoutooumaturity,oucouponourateouofou9.50%,ouyieldoutooumaturityouofou
9.55%,oufaceouvalueouofou$10,000,oupayingoucouponsousemiannually?ou-ouans--41
Yououbuyouanou8%oucoupon,ou$1,000ouparouT-
bondouwhichoupaysoucouponsousemiannually.ouYououbecomeoutheouownerou32oudaysouaft
eroutheoulastoucouponoupaymentoudate,ouandoufromoutheoudateouyououbecomeoutheouowne
r,outhereouareou150oudaysouremainingouuntiloutheounextoucouponoupaymentoudate.ouTheoub
ond'soucleanoupriceouquoteouisou99.6858.ouWhatouisoutheoufullouoroudirtyoupriceouofoutheoub
ond?ou-ouans--$1,003.89
WhenouaouforeignoucurrencyoudepreciatesouagainstoutheouUSoudollar,ouaouUSoufinancialoui
nstitutionouwithouaou_______________ouinouthatouforeignoucurrencyouwilloubenefit,ouandou
whenoutheouforeignoucurrencyouappreciatesouagainstoutheouUSoudollar,ouaouUSoufinancialo
uinstitutionouwithouaou___________ouinouthatouforeignoucurrencyouwilloubenefit.ou-ouans--
negativeounetouexposure;oupositiveounetouexposure
, Allouelseouconstant,ouaouU.S.oufinancialouinstitutionouwithouaou___________ounetouexposur
eouinouanyougivenouforeignoucurrencyouisounotouexposedoutooufluctuationsouinoutheouexcha
ngeourateouofouthatoucurrencyouagainstoutheouUSoudollar.ou-ouans--Zero
Matchingouforeignouassetsouandouforeignouliabilitiesoucanouhelpouaoufirmouhedgeouagainsto
uforeignouexchangeouriskoubecauseouifoutheouforeignoucurrencyoudepreciatesourelativeoutoo
utheoudomesticoucurrency,outheoufirmouwilloureceiveou________ouonoutheouassetousideoubu
toutheyouwilloupayou________ouonoutheouliabilityousideouandouifoutheouforeignoucurrencyouap
preciatesourelativeoutooutheoudomesticoucurrency,outheoufirmouwilloupayou_________ouonout
heouliabilityousideoubutoutheyouwilloureceiveou___________ouonoutheouassetouside.ou-
ouans--Less;ouless;oumore;oumore
Allouelseouequal,ouifouJapan'souinflationouisouhigherouthanoutheouU.S.'souinflation,oudemand
ouforougoodsouwilloushiftoutoou____________,oupushingoutheoudemandouforoutheou_______
__ouup.ouAsouaouresult,outheouyenouwilloutendoutoou_________ourelativeoutooutheouUSoudoll
ar.ou-ouans--TheouU.S;ouU.Soudollars;oudepreciate
Aoubankouissuedou$200oumillionouworthouofouone-
yearouBrazilianouCDsou(asouliabilities)ouinouBrazilianourealsouatouaourateouofou6.5%.
Assumingounoouhedge,ouwithoutheouBrazilianouCDsouabove,outhisoubankouisouexposedoutoo
utheouriskouofoutheouBrazilianourealouappreciatingouagainstoutheouUSoudollar.ou(T/F)ou-
ouans--True
Whichouofoutheoufollowingoustatementsouisoufalse?
-
Aoufinancialouinstitution'souforeignouexchangeouriskoucanoucomeoufromouholdingouforeignou
assetsouand/orouforeignouliabilities.ou
-
Theoubalanceouofoutradeoucanouimpactoucurrencyouexchangeouratesoubutoucurrencyouexch
angeouratesoucannotouimpactoutheoubalanceouofoutrade.
ou-
TheouinternationalouFisheroueffectouimpliesouthatoubetweenouanyoutwooucountries,outheouc
ountryouwithoutheouhigherounominalouinterestourateouwilloutendoutoouseeouitsoucurrencyoude
preciateouagainstoutheouotheroucountry'soucurrency.
-AouweakeningoudollaroucanougenerateouinflationouinoutheouU.S.ou-ouans--
Theoubalanceouofoutradeoucanouimpactoucurrencyouexchangeouratesoubutoucurrencyouexch
angeouratesoucannotouimpactoutheoubalanceouofoutrade.
Aoubankouissuedou$200oumillionouworthouofouone-
yearouBrazilianouCDsou(asouliabilities)ouinouBrazilianourealsouatouaourateouofou6.5%.ou(Note:
ou6.5%ouisoutheourateoubasedouonouBrazilianoureals)
