Q#1: Which of the following are used to transfer resources from savers to investors and
transfer risk?
(A) Financial markets
(B) Financial instruments
(C) Financial institutions
(D) Banks
Answer: (B) Financial instruments
Q#2: Which of the following are used to monitor and stabilize the economy?
(A) Stock exchanges
(B) Commercial banks
(C) Central banks
(D) Financial institutions
Answer: (C) Central banks
Q#3: Government gets involved in financial system to:
(A) Protect investors
(B) Ensure stability of financial system
(C) Protect bank customers
(D) All of the given options
Answer: (D) All of the given options
Q#4: The one 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#5: E-money is a form of:
(A) Paper money
(B) Fiat money
(C) Government money
(D) Private money
Answer: (D) Private money
Q#6: All are components of M EXCEPT:
(A) M
(B) Travelers cheques
(C) Saving deposits
(D) Mutual funds shares
Answer: (D) Mutual funds shares
Q#7: 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#8: Longer time until payment makes instrument:
(A) Less valuable
(B) Greater risk → greater value
(C) More valuable
(D) No effect
Answer: (A) Less valuable
Q#9: Insurance broker commissions are:
(A) Risk transfer
(B) Information asymmetry
(C) Transaction costs
(D) All of the given options
Answer: (C) Transaction costs
Q#10: Economies’ central nervous system are:
(A) Financial instruments
(B) Financial markets
(C) Financial institutions
(D) Financial companies
Answer: (B) Financial markets
Q#11: NOT centralized exchange:
(A) NYSE
(B) NASDAQ
(C) London exchanges
(D) Tokyo exchanges
Answer: (B) NASDAQ
Q#12: Dealer network electronic market:
(A) NYSE
(B) NASDAQ
(C) London exchanges
(D) Tokyo exchanges
Answer: (B) NASDAQ
Q#13: Government issued bonds are:
(A) Government bonds
(B) Treasury bonds
(C) Corporate bonds
(D) Callable bonds
Answer: (B) Treasury bonds
Q#14: Interest rate vs future value:
(A) Lower rate → higher FV
(B) Higher rate → higher FV
(C) Higher rate → lower FV
(D) No effect
Answer: (B) Higher rate → higher FV
Q#15: FV of $100 at 4.5% for 2.5 years:
(A) $100(1.045)3/2
(B) $100(0.45)2.5
(C) $100(1.045)2.5
(D) 100 × 2.5 × 1.045
Answer: (C) $100(1.045)^2.5
Q#16: If time (n) increases:
(A) PV decreases
(B) PV increases
(C) Interest rate decreases
(D) No effect
Answer: (A) PV decreases
Q#17: PV of $200 given PV of $100 = 90.70:
(A) $45.35
(B) $272.1
(C) $181.4
(D) $362.8
Answer: (C) $181.4
Q#18: Greatest incentive to borrow:
(A) High real interest rate
(B) Low real interest rate
(C) High nominal rate
(D) Low nominal rate
Answer: (B) Low real interest rate
Q#19: Fisher equation:
(A) Nominal = real + inflation
(B) Nominal + inflation = real
(C) Nominal = real – inflation
(D) Nominal = real / inflation
Answer: (A) Nominal = real + inflation
Q#20: Difference of real and nominal rate shows:
(A) Cost of borrowing
(B) Effect of inflation
(C) Price of bonds
(D) Return of bonds
Answer: (B) Effect of inflation
Q#21: Amortized loan means:
(A) Full principal in payment
(B) Only interest paid
(C) Interest + part principal
(D) Principal fully at end
Answer: (C) Interest + part principal
Q#22: Zero coupon bond:
(A) No default
(B) Pays yearly coupons
(C) Single future payment
(D) Pays only if price low
Answer: (C) Single future payment
Q#23: Price of T-bill formula:
(A) $100(1+i)
(B) $100/(1+i)
(C) $100/(1+i)^n
(D) 1 + $100/(1+i)
Answer: (B) $100/(1+i)
Q#24: If YTM = coupon rate:
(A) Above face value
(B) Below face value
(C) Equal to face value
(D) Cannot determine
Answer: (C) Equal to face value
Q#25: Return on bond equals:
(A) Coupon + capital gain
(B) Current yield + capital gain
(C) Coupon – capital gain
(D) Current yield – capital gain
Answer: (B) Current yield + capital gain
Q#26: Business downturn shifts bond supply to:
(A) Right
(B) Left
(C) No change
(D) None
Answer: (B) Left
Q#27: Long run yield curve:
(A) Upward sloping
(B) Downward sloping
(C) Vertical
(D) Horizontal
Answer: (A) Upward sloping
Q#28: Yield curve shows:
(A) Interest vs price
(B) Liquidity vs interest
(C) Risk vs interest
(D) Time to maturity vs interest
Answer: (D) Time to maturity vs interest
Q#29: Investment decision with tax deduction Rs.3:
(A) Rs.100 only
(B) Rs.97 considered
(C) Only tax portion
(D) No effect
Answer: (B) Rs.97 considered
Q#30: Local government bond NOT true:
(A) Tax affects return
(B) Municipal bond
(C) Lifetime interest
(D) Default risk affects return
Answer: (A) Tax affects return
Q#31: Tax affects bond return because:
(A) Only interest is taxable
(B) Principal + interest taxable
(C) All bonds taxed automatically
(D) Bondholders are taxpayers
Answer: (A) Only interest is taxable
Q#32: Expectations theory assumes:
(A) Bonds are perfect substitutes
(B) Markets separate
(C) Prefer short bonds
(D) Prefer long bonds
Answer: (A) Bonds are perfect substitutes
Q#33: Residual claimant means:
(A) Paid first
(B) Paid last after others
(C) Past dividends priority
(D) Pay debts
Answer: (B) Paid last after others
Q#34: Index number is useful because:
(A) Gives all info directly
(B) Measures percentage changes
(C) More stable
(D) No calculation needed
Answer: (B) Measures percentage changes
Q#35: Efficient market theory:
(A) High returns guaranteed
(B) Insider info helps efficiency
(C) Rules out high returns due to chance
(D) Equal luck assumption
Answer: (C) Rules out high returns due to chance
Q#36: Symmetric information means:
(A) Same info for both parties
(B) One party knows more
(C) Only one can access info
(D) All options
Answer: (A) Same info for both parties
Q#37: Small investors participate via:
(A) Mutual funds
(B) Small corporations
(C) Stock brokers
(D) No participation
Answer: (A) Mutual funds
Q#38: Gold & silver coins replaced by:
(A) Plastic money
(B) Paper money
(C) Commodity money
(D) E-money
Answer: (B) Paper money