Q#1: Core principles of Money and Banking include each of the following EXCEPT:
(A) All people act rationally
(B) Time has value
(C) Information is the basis for decisions
(D) Risk requires compensation
Answer: (A) All people act rationally
Q#2: Debit card works in the same way as:
(A) Cheque
(B) Credit card
(C) Store value card
(D) Pay order
Answer: (A) Cheque
Q#3: The card you get when opening checking account is:
(A) Debit card
(B) Credit card
(C) Store value card
(D) Customer card
Answer: (A) Debit card
Q#4: CPI tends to:
(A) Overstate inflation due to substitution bias
(B) Understate inflation
(C) Be more accurate than GDP deflator
(D) Change monthly basket
Answer: (A) Overstate inflation due to substitution bias
Q#5: Financial intermediation process:
(A) Creates net cost to economy
(B) Used only in underdeveloped countries
(C) Always used for borrowing
(D) Increases economy’s ability to produce
Answer: (D) Increases economy’s ability to produce
Q#6: NOT a function of financial markets:
(A) Relaying information
(B) Means of payment
(C) Allocating resources
(D) Setting prices
Answer: (B) Means of payment
Q#7: Electronic dealer network system is:
(A) NYSE
(B) NASDAQ
(C) London Exchange
(D) Tokyo Exchange
Answer: (B) NASDAQ
Q#8: Difference between options and futures:
(A) Options not binding, futures binding
(B) Futures no risk
(C) Futures not guaranteed
(D) No difference
Answer: (A) Options not binding, futures binding
Q#9: Future value of $200 at 5% for 1 year:
(A) $195.00
(B) $210.00
(C) $197.50
(D) $100
Answer: (B) $210.00
Q#10: Value today of future payment is called:
(A) None
(B) Future value
(C) Present value
(D) Agreed value
Answer: (C) Present value
Q#11: PV of $500 after 3 years:
(A) 500/(1+i)
(B) 500*(1+i)
(C) 500/(1+i)^3
(D) 500*(1+i)^3
Answer: (C) 500/(1+i)^3
Q#12: Most people choose investment with:
(A) Low standard deviation
(B) High standard deviation
(C) Indifference
(D) Insufficient info
Answer: (A) Low standard deviation
Q#13: Risk premium:
(A) Increases with risk
(B) Fixed amount
(C) Negative for Treasury securities
(D) Negative for risk averse investors
Answer: (A) Increases with risk
Q#14: NOT true about T-bill and bond:
(A) A pays less price
(B) Both zero coupon bonds
(C) A receives payment at maturity
(D) B receives payment at maturity
Answer: (B) Both zero coupon bonds
Q#15: Bond price and yield relation:
(A) Move directly
(B) Independent
(C) Move inversely
(D) Fixed coupon
Answer: (C) Move inversely
Q#16: Treasury & corporate bonds are:
(A) Zero coupon
(B) Coupon bonds
(C) Consols
(D) Fixed payment
Answer: (B) Coupon bonds
Q#17: Creditworthiness of issuer is called:
(A) Bond yield
(B) Bond ratings
(C) Bond risk
(D) Bond price
Answer: (B) Bond ratings
Q#18: Tax affects bond return because:
(A) Only interest is taxable
(B) Principal + interest taxable
(C) All bondholders are taxpayers
(D) Tax deducted by default
Answer: (A) Only interest income is taxable
Q#19: Relationship of taxable vs tax-exempt bond yield:
(A) Higher tax rate → wider gap
(B) Taxable always higher
(C) Higher tax rate → smaller gap
(D) Lower tax rate → wider gap
Answer: (A) Higher tax rate → wider gap
Q#20: If tax rate increases, gap between yields:
(A) Increases
(B) Decreases
(C) Becomes zero
(D) No change
Answer: (A) Increases