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quiz 1

Terms in this set (56)

according to Carl Menger money first emerged when
barterers developed better trading strategies
compared to gold dust, the main advantage of gold coins as a medium of exchange, over gold dust, was greater
uniformity
if a usury ceiling is binding on the interest rate then
some would-be borrowers cannot find willing borrowers
which of the following does not represent a debt claim?
mutual fund share
which type of firm is not, as such, a financial intermediary?
unfunded pension issuer
which of the following securities has the highest default risk?
high-yield corporate bond
when Gilligan gives Chuck claims to future coconuts in exchange for Chuck's present coconuts, we can say that Chuck
lends or supplies loanable funds
which of the above curves represents a normal yield curve?
A
which of the following four bonds carries the least interest rates
10 year, $5000 bond with 5% annual coupons
commercial banks (as see on the balance sheet on the "typical US Main Street bank") have traditionally specialized in holding what type of assets?
loans
if next year's one-year interest rate is expected to be higher than the current one year rate then the yield curve will
be steeper than usual
you but a 2-year treasury bond today and see it two years later. Is it possible for your realized return on this invest to be negative?
no, provided treasury bonds remain free from default risk
if the expected rate of inflation is 1.5% and the normal rate of interest is 0.5%, the real rate of interest is approximately
-1%
the use of money avoids what central problem associated with direct barter
mutual coincidence of wants
using a credit card is
(is not) a money payment, b/c your credit-card is an IOU
governments historically took over the minting of coins primarily in order to
get revenue from mint monopoly/debasement
in medieval Europe what were the two main advantages of payment by bank deposit transfer over payment in coin
greater portability
greater uniformity
when placing its savings with a financial intermediary (indirect finance), a household gets what two key tasks done more cheaply, by comparison to directly buying IOUs or shared or business firms(direct finance)?
gathering information on borrowers
diversification
a bond investor can reduce her default risk by switching to bonds that are
AAA or higher-rated/ US treasuries
to explain the shape of the yield curve by reference to a "preferred habitat" or "term-premiums" is to say that bonds buyers normally prefer
shorter-duration bonds/ shorter maturities
a good reason for a preference to shorter-duration bonds
means less interest rate risk
why are securities brokers not as such financial intermediaries
they don't hold portfolio of assets/ they don't issue claims against themselves
you buy a 10-year coupon bond today and sell it 2 years later. What determines the price you get for it when you sell?
the discount rate prevailing on the sale sate
in the evolution of commodity money, traders preferred coins to raw metal (like silver nuggets) in payment because coins were
better for assuring the weight and uniformity of the metal paid
which of the following was not among the reasons that the public kept using
fiat money involves lower transactions costs than gold-backed money
interest can not be accurately described as
the "price of money"
the monetary aggregate M1 consists of traveler's checks, transactions, deposits, and
money-market mutual funds
which of the following is a claim issued by a financial intermediary
insurance policy
Giligan agrees to give up present coconuts in exchange for Chuck's future coconuts (Giligans lends, Chuck borrows) when, other things equal
Giligan has poorer coconut investment prospects than Chuck
Suppose an investor seeking maximum real yield is choosing between a US dollar denominated bond yielding 4%, and a peso-denominated bond yielding 9%. Assume that the bonds are the same in every important respect other than currency denomination. She would purchase the peso bond instead of dollar bond if and only if she expects that dollar will
appreciated less than 5%
what distinguishes a Money-Market Mutual Fund from other mutual funds is that a MMMF
holds only short-maturity debt assets
which of these is (like a commercial banks) a depository intermediary?
credit union
rank the following bonds from lowest to highest nominal yield, assuming that the yen is expected appreciated against the dollar, the yield curve has its normal shape, and all the treasury bonds are considered default-risk free
A.1-year treasury bill(in US$), B. 1-year Japanese treasury bill (in yen), C. 10-year US$ corporate bonds, D. 10 year US treasury build
ABCD
if the expected real rate of interest is 5% and the nominal rate of interest is 3%, the expected rate of inflation is approximately
-1%
by definition, something is a medium of exchange but not money if it is
acquired by one trade away later, but NOT commonly so used
what does it mean to say that using a particular good (say,silver) as money is a "social convention"
each person accepts and spends silver because many others in society do
under what conditions is a business firm a net supplier of loanable funds
when it has retained earnings but poor investment prospects
if the market rate rises, how will such a firm respond
supply a greater quantity of loanable funds
a security is defined as a
tradable financial claim
if a bond is selling at a premium we can infer than its coupon rate is
above the market interest rate
when characteristic of their portfolios killed most of the US savings-and -loans when interest rates rose in the 1979-82?
positive duration gap, or burrowing short and lending long
if the real rate of interest is 3% and the expected rate of inflation is 17% the nominal rate of interest is approximately
20%
in the 1970s, mutual funds increased their share of financial intermediation relative to banks in the US because
Reg Q capped bank deposit interest rates below market rates that MFs paid
a rise in interest rates means that holders of existing bonds experience
capital losses
a securities investor can reduce her interest rate risk by what strategy?
holder shorter duration securities
money is defined as a _____ that is _________ accepted
medium of exchange; commonly
historically, government monopolized the minting of coins mostly
as a source of revenue
today a Federal Reserve note is
not redeemable for gold or silver
the market demand curve for loanable funds slopes _______ because, among other reasons, a higher interest rate means that
downward; fewer investments projects will cover their interest costs, so businesses will want to borrow less
an intermediary that finances its portfolio entirely by issuing equity claims to a saver is a
mutual fund
which of these is not a depository intermediary?
finance company
company A's bonds would have a lower yield than company B's bonds if they have a _____ default risk or are ______ liquid
lower; more
the higher the market interest rate at the time you sell a bond
the lower your realized yield
the yield curve has an inverted slope when
long-duration securities have lower yield than short-duration securities
you buy a 20-year treasury bond today and sell it one year later. Is it possible for your realized return on this investment to be negative
Yes, if the market interest rate rises over the year
a bond's duration is the best measure of its
interest-rate risk
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