With respect to the money and capital markets, money market securities generally have, while capital market securities are typically expected to have a: Financial Institution Monetary Theory Other, UTN, Malaysia

1. Concerning the money and capital markets, money market securities generally have, while capital market securities are typically expected to have a.
A. less liquidity; higher annualized return
B. more liquidity; lower annualized return
C. less liquidity; lower annualized return
D. more liquidity; higher annualized return

2. About the payments system the huge number of low-value transactions is:
A. cleared by real-time gross settlement (RTGS).
B. netted and settled at the end of each day.
C. settled immediately by banks’ settlement accounts at the Reserve Bank of
Australia.
D. none of the above.

3. Which of the following statements is incorrect? An exchange settlement account (ESA) is:
A. an account held by deposit-taking institutions at the Reserve Bank of Australia(RBA).
B. used to transfer funds to and from to settle transactions in the payments system.
C. an account whose balance represents bank reserves.
D. the account used by the Commonwealth government for all its spending and all its income.

4. Which of the following statements is incorrect?
A. Financial markets attract funds from investors and channel the funds to
corporations.
B. Money markets enable corporations to borrow funds on a short-term basis
so that they can support their existing operations.
C. Financial institutions serve solely as intermediaries with the financial
markets and never serve as investors.
D. Investors seek to invest their funds in the stock of firms that are presently
undervalued and have much potential to improve.

5. ‘Intermediaries, by managing the deposits they receive, can make long-term loans while satisfying savers’ preferences for liquid claims.’ This statement is referring to which important attribute of financial intermediation?
A. Asset transformation.
B. Maturity transformation.
C. Credit risk transformation.
D. Liability management.

6. If you purchase an Australian government bond, that bond is:
A. an asset to you but a liability for the Australian government.
B. an asset to you as well as an asset for the Australian government.
C. is a liability to you but an asset to the Australian government.
D. a liability to you as well as a liability for the Australian government.

7. Most financial intermediaries issue financial claims and purchase
financial claims.
A. direct; direct.
B. indirect; indirect.
C. direct; indirect.
D. indirect; direct.

8. An example of the problem is when a corporation uses the funds
raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.
A. adverse selection
B. moral hazard
C. credit risk
D. risk sharing

9. Fisher’s quantity theory of money suggests that the demand for money is purely a function of and has no effect on the demand for money.
A. Income; interest rates have
B. Interest rates; income has
C. Government spending; interest rates have
D. Expectations; income has
10. Keynes argued that the precautionary component of the demand for money was primarily determined by the level of people who he believed were
proportional to.
A. incomes; wealth
B. incomes; age
C. transactions; income
D. transactions; age

11. Keynes argued that when people perceive current interest rates to be above the ‘normal’ value of interest rates, people would expect bond prices too so the quantity of money demanded would
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase

12. The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money too and the demand for bonds to
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease

13. In Friedman’s modern quantity theory, velocity depends upon the ratio of:
A. Money to prices.
B. Actual to permanent income.
C. Interest rates to actual income.
D. Prices to interest rates.

14. When banks hold excess reserves:
A. The size of the ‘true’ money multiplier becomes infinite.
B. The size of the ‘true’ money multiplier is less than the simple deposit multiplier would suggest.
C. The size of the ‘true’ money multiplier is equal to the size of the simple deposit multiplier.
D. The size of the ‘true’ money multiplier is greater than the simple deposit multiplier would suggest.

15.  in the money supply creates excess money, causing interest rates
to everything else held constant.
A. A decrease; demand for; rise
B. An increase; demand for; fall
C. An increase; supply of; rise
D. A decrease; supply of; fall

16. According to the expectations theory of term structure, if next year’s short-term interest rate is expected to be lower than the current short-term rate, the:
A. Current short-term rate will be equal to the current long-term rate.
B. Current short-term rate will be higher than the current long-term rate.
C. Current short-term rate will be lower than the current long-term rate.
D. Yield curve will be downward sloping.

17. The liquidity premium theory of the term structure assumes:
A. that interest rates on long-term bonds respond to supply and demand conditions for those bonds.
B. investors prefer short-term bonds, as they have lower interest-rate risk.
C. that an average of expected short-term rates is an important component of
interest rates on long-term bonds.
D. all of the above.

18. The assumption that prices for short-term and long-term securities are determined in the different maturity ranges is the basis for the approach to explaining the term structure.
A. liquidity premium
B. expectations
C. segmented markets
D. yield curve

19. Which of the following statements is incorrect?
A. The greater the default risk of a bond, the greater its yield.
B. The better credit rating a bond gets, the higher its yield.
C. The higher is the probability of non-payment on a bond, the higher is its
yield.
D. Government bonds have lower yields than corporate bonds of similar
characteristics.

20. The federal government demand for loanable funds is  If the budget deficit was expected to increase, the federal government demand for loanable funds would
A. interest elastic; decrease
B. interest elastic; increase
C. interest inelastic; increase
D. interest inelastic; decrease

21. If the Central Bank injects reserves into the banking system and they are held as excess reserves, then the monetary base and the money supply
A. remains unchanged; remains unchanged
B. remains unchanged; increases
C. increases; increases
D. increases; remains unchanged

22. The Central Bank can use three policy tools to manipulate the money supply: open market operations, which affect the changes in borrowed reserves (i.e. discount rate), which affect and changes in reserve requirements, which affect the
A. money multiplier; monetary base; monetary base
B. monetary base; money multiplier; monetary base
C. monetary base; monetary base; money multiplier
D. money multiplier; money multiplier; monetary base

23. The Reserve Bank of Australia will engage in a repurchase agreement when it wants to reserve in the banking system.
A. increase; permanently
B. increase; temporarily
C. decrease; temporarily
D. decrease; permanently

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