FIN 3080 Exam 1 questions well
answered already passed
Investment funds are financial institutions that pool financial resources of individuals and
companies and invest those resources - correct answer ✔✔In diversified pools of assets
List one way that financial institutions benefit suppliers of funds - correct answer ✔✔Reduce
need for monitoring, reduce liquidity/price risk, maturity intermediation, transaction cost
services, denomination intermediation
List one factor affecting the growth in foriegn fin markets - correct answer ✔✔Increase in pool
of savings, ability to diversify portfolio, information, new low-cost products, rising importance of
the euro, growth in pacific basin and China, deregulation
What is one way that financial institutions benefit the overall economy? - correct answer
✔✔Money supply transmission, credit allocation, intergenerational wealth transfer, payment
services
The long-term trend in the financial sector has been a shift of assets away from commercial
banks to - correct answer ✔✔Investment companies (or securities firms)
Who are the main suppliers of funds in the economy? - correct answer ✔✔Households and
foreign participants in US markets
Who are the main demanders of funds in the economy? - correct answer ✔✔Non-financial
businesses
, In class, we discussed "Banking Examples" of 7 common transactions. List one of the
transactions that resulted in an increase to the money supply. - correct answer ✔✔Bank makes
a loan / Store sells government securities (T-Bonds), Bank buys government securities
List one of the 4 major functions of the Federal Reserve System - correct answer ✔✔monetary
policy / supervise / financial stability / payment services
What was the target range for the federal funds rate in December 2008? - correct answer
✔✔0% to 0.25%
A bank has $400M in deposits on its balance sheet, and the Federal Reserve lowers the reserve
ratio from 12% of deposits to 7%. What is the maximum amount of total deposits in the bank
after the full effect of the decrease in reserve ratio? - correct answer ✔✔$686M
($400M X 5% = $20M in new excess reserves. $20/0.07=$286M in new deposits. $400+
$286=$686.)
You calculate that the fair interest rate on a bond issued by NEP, Inc. is 15.78%. Your analysis
also shows the following: the inflation risk premium is 2.15%, the real risk-free rate is 1.77%, the
bond's liquidity premium is 3.41%, and the bond's maturity premium is 5.11%. The bonds have
no special covenants. Calculate the bond's default risk premium. - correct answer ✔✔3.34%
Which of the following characteristics of a security lead to a lower interest rate, all else equal? -
correct answer ✔✔Favorable tax treatment for investors
A zero-coupon bond has a face value of $1,000 and a maturity of one year. You calculate that
the fair interest rate (i.e., discount rate) on the bond is 9.56%. Calculate the price of the bond. -
correct answer ✔✔$912.74
Suppose that a monetary policy contraction shifts only the supply curve (the demand curve
remains constant). What can you say about the new equilibrium interest rate and quantity of
answered already passed
Investment funds are financial institutions that pool financial resources of individuals and
companies and invest those resources - correct answer ✔✔In diversified pools of assets
List one way that financial institutions benefit suppliers of funds - correct answer ✔✔Reduce
need for monitoring, reduce liquidity/price risk, maturity intermediation, transaction cost
services, denomination intermediation
List one factor affecting the growth in foriegn fin markets - correct answer ✔✔Increase in pool
of savings, ability to diversify portfolio, information, new low-cost products, rising importance of
the euro, growth in pacific basin and China, deregulation
What is one way that financial institutions benefit the overall economy? - correct answer
✔✔Money supply transmission, credit allocation, intergenerational wealth transfer, payment
services
The long-term trend in the financial sector has been a shift of assets away from commercial
banks to - correct answer ✔✔Investment companies (or securities firms)
Who are the main suppliers of funds in the economy? - correct answer ✔✔Households and
foreign participants in US markets
Who are the main demanders of funds in the economy? - correct answer ✔✔Non-financial
businesses
, In class, we discussed "Banking Examples" of 7 common transactions. List one of the
transactions that resulted in an increase to the money supply. - correct answer ✔✔Bank makes
a loan / Store sells government securities (T-Bonds), Bank buys government securities
List one of the 4 major functions of the Federal Reserve System - correct answer ✔✔monetary
policy / supervise / financial stability / payment services
What was the target range for the federal funds rate in December 2008? - correct answer
✔✔0% to 0.25%
A bank has $400M in deposits on its balance sheet, and the Federal Reserve lowers the reserve
ratio from 12% of deposits to 7%. What is the maximum amount of total deposits in the bank
after the full effect of the decrease in reserve ratio? - correct answer ✔✔$686M
($400M X 5% = $20M in new excess reserves. $20/0.07=$286M in new deposits. $400+
$286=$686.)
You calculate that the fair interest rate on a bond issued by NEP, Inc. is 15.78%. Your analysis
also shows the following: the inflation risk premium is 2.15%, the real risk-free rate is 1.77%, the
bond's liquidity premium is 3.41%, and the bond's maturity premium is 5.11%. The bonds have
no special covenants. Calculate the bond's default risk premium. - correct answer ✔✔3.34%
Which of the following characteristics of a security lead to a lower interest rate, all else equal? -
correct answer ✔✔Favorable tax treatment for investors
A zero-coupon bond has a face value of $1,000 and a maturity of one year. You calculate that
the fair interest rate (i.e., discount rate) on the bond is 9.56%. Calculate the price of the bond. -
correct answer ✔✔$912.74
Suppose that a monetary policy contraction shifts only the supply curve (the demand curve
remains constant). What can you say about the new equilibrium interest rate and quantity of
