Q#1: If more students didn’t pay back their student loans then which of the following statement would imply?
(A) Student loans may become more difficult to obtain
(B) The interest rate on student loans would increase
(C) Fewer people may attend college
(D) All of the given options
Answer: (D) All of the given options
Q#2: The reason for the government to get involved in the financial system is to:
(A) Protect investors
(B) Ensure the stability of the financial system
(C) Protect bank customers from monopolistic exploitation
(D) All of the given options
Answer: (D) All of the given options
Q#3: Banks usually offer lower rates of interest to people willing to keep their funds in the bank for a short time because:
(A) Banks really do not want these people as customers
(B) Banks really do not want a lot of people coming into the bank
(C) Banks realize that time has value
(D) All of the given options
Answer: (C) Banks realize that time has value
Q#4: For the valuation of goods and for quoting prices under the barter system the general formula which is used for n goods is ___________.
(A) n (n+1)/2
(B) n (n-1)*2
(C) n (n-1)/2
(D) (n-1)/2
Answer: (C) n (n-1)/2
Q#5: Which of the following is the final mode of payment?
(A) Money
(B) ATM
(C) Cheque
(D) Yet to discover
Answer: (A) Money
Q#6: When a buyer buys a pair of shoes with a credit card, which statement describes the payment procedure?
(A) Buyer pays shopkeeper at the spot with credit card
(B) Buyer’s bank makes payment to shopkeeper later on
(C) Buyer’s bank makes payment to shopkeeper’s bank immediately
(D) Shopkeeper’s bank makes payment to shopkeeper
Answer: (C) Buyer’s bank makes payment to shopkeeper’s bank immediately
Q#7: ___________ includes currency and various deposit accounts on which people can write cheque.
(A) M1
(B) M2
(C) M3
(D) M4
Answer: (A) M1
Q#8: Economists study the link between money and inflation because:
(A) There is inverse correlation between money supply and inflation
(B) Inflation 3–5% is healthy
(C) As prices increase money becomes more valuable
(D) There is direct correlation between money supply and inflation
Answer: (D) There is direct correlation between money supply and inflation
Q#9: The financial intermediary that obtains funds through premium payments and invests in corporate bonds and mortgages is:
(A) Credit unions
(B) Mutual funds
(C) Life insurance companies
(D) Pension funds
Answer: (C) Life insurance companies
Q#10: Which of the following is NOT a non depository institution?
(A) House Building Finance Corporation
(B) Zarai Tarkaytee Bank LTD
(C) United Bank LTD
(D) Khushali Bank
Answer: (C) United Bank LTD
Q#11: What will be the effect on the present value if we double the future value of the payment?
(A) Decrease by one-half
(B) Increase by one-half
(C) Doubles the value
(D) No effect
Answer: (C) Doubles the value
Q#12: If a bond sells at a premium (price > face value), then we expect:
(A) Market interest rate = coupon rate
(B) Market interest rate above coupon rate
(C) Market interest rate below coupon rate
(D) None
Answer: (C) Market interest rate below coupon rate
Q#13: The real interest rate is:
(A) Nominal rate + inflation
(B) Nominal rate − inflation
(C) Nominal rate / CPI
(D) Nominal rate × CPI
Answer: (B) Nominal rate − inflation
Q#14: Which provides greatest incentive to borrow?
(A) High real interest rate
(B) Low real interest rate
(C) High nominal interest rate
(D) Low nominal interest rate
Answer: (B) Low real interest rate
Q#15: The difference of real and nominal interest rate represents:
(A) Cost of borrowing
(B) Effect of inflation
(C) Price of bonds
(D) Return of bonds
Answer: (B) Effect of inflation
Q#16: Two investments A (low risk) and B (high risk), most people choose:
(A) Investment A
(B) Investment B
(C) Indifference
(D) Insufficient information
Answer: (A) Investment A
Q#17: True relationship between return and risk is:
(A) Lower risk higher return
(B) Higher risk higher return
(C) Higher risk no change
(D) No relationship
Answer: (B) Higher risk higher return
Q#18: A risk-averse investor will:
(A) Prefer lower expected return
(B) Prefer certain return over uncertain with same expected return
(C) Always require certain return
(D) Focus only on expected return
Answer: (B) Prefer certain return over uncertain with same expected return
Q#19: Risk premium for an investment:
(A) Increases with risk
(B) Fixed amount added to risk-free return
(C) Negative for U.S. Treasury securities
(D) Negative for risk averse investors
Answer: (A) Increases with risk
Q#20: Return on holding a bond till maturity is called:
(A) Coupon rate
(B) Yield to maturity
(C) Current yield
(D) Fixed return
Answer: (B) Yield to maturity
Q#21: Price of 6-month Treasury bill is ______ 1-year T-bill.
(A) Lower than
(B) Higher than
(C) Equal to
(D) None
Answer: (A) Lower than
Q#22: Current yield is equal to:
(A) Price paid / coupon payment
(B) Price × coupon payment
(C) Coupon / face value
(D) Coupon payment / price paid
Answer: (D) Coupon payment / price paid
Q#23: Besides default risk, bond return is affected by:
(A) Taxes
(B) Monetary policy
(C) Junk bonds
(D) Debt
Answer: (A) Taxes
Q#24: Tax affects bond return because:
(A) Only interest is taxable
(B) Principal and interest are taxable
(C) Bondholders are taxpayers
(D) Tax is deducted at source
Answer: (A) Only interest income is taxable
Q#25: Yield curve predicts economy performance with:
(A) 3 months lag
(B) 2 years lag
(C) Few weeks
(D) 1 year lag
Answer: (A) 3 months lag
Q#26: Expectations theory assumes:
(A) Bonds are perfect substitutes
(B) Markets are separate
(C) Preference for short-term bonds
(D) Preference for long-term bonds
Answer: (A) Bonds are perfect substitutes
Q#27: Risk premium of a bond will:
(A) Higher for investment-grade bonds
(B) Positive but small if no default risk
(C) Decrease when default risk rises
(D) Increase when default risk rises
Answer: (D) Increase when default risk rises
Q#28: Segmented markets theory suggests:
(A) Strong maturity preference
(B) No preference
(C) Interest rates influence demand
(D) Perfect substitutes
Answer: (A) Strong maturity preference
Q#29: Portfolio: -40% then +50%, final value:
(A) $900
(B) $600
(C) $1000
(D) $1100
Answer: (A) $900
Q#30: Dividend discount model (ignore risk):
(A) D / (r − g)
(B) g − r / D
(C) D / (r + g)
(D) D / (g − r)
Answer: (A) D / (r − g)
Q#31: Efficient market theory says prices reflect:
(A) All available information
(B) Some information
(C) No information
(D) Imperfect information
Answer: (A) All available information
Q#32: Dice game in efficient market theory implies:
(A) Previous outcomes matter
(B) Skill matters
(C) Probability and expected payoff matter
(D) All options
Answer: (C) Probability and expected payoff matter
Q#33: Without financial intermediaries pooling small savings:
(A) Borrowing becomes cheaper
(B) Economy grows faster
(C) People save more
(D) Lending risk increases
Answer: (D) Lending risk increases
Q#34: Asymmetric information means:
(A) Same information
(B) Lenders lack information
(C) Perfect information
(D) Borrowers have more information
Answer: (D) Borrowers have more information
Q#35: Small investors participate via:
(A) Mutual funds
(B) Small corporations
(C) Stock brokers
(D) Not possible
Answer: (A) Mutual funds
Q#36: ______ evolved from coffee houses to electronic networks.
(A) Financial companies
(B) Financial markets
(C) Financial institutions
(D) Financial intermediaries
Answer: (B) Financial markets
Q#37: Home improvement loan is:
(A) Asset for borrower, liability for bank
(B) Asset for borrower, liability for depositors
(C) Liability for borrower, asset for bank
(D) Both liability
Answer: (C) Liability for borrower, asset for bank
Q#38: Spreading involves:
(A) Perfect negative correlation assets
(B) Same movement assets
(C) Avoiding stocks
(D) Independent assets
Answer: (D) Adding independent assets
Q#39: Without maturity dates:
(A) Zero coupon bonds
(B) Coupon securities
(C) Consols
(D) Preferred bonds
Answer: (C) Consols
Q#40: Zero-coupon bonds sell at price:
(A) Equal face value
(B) Below face value
(C) Above face value
(D) None
Answer: (B) Below face value