FINALTERM EXAMINATION
Fall 2009
MGT411- Money & Banking

Question No: 1 ( Marks: 1 ) - Please choose one
Stock exchange is an example of:
► Financial companies
► Financial institution
► Financial market
► Bank

Question No: 2 ( Marks: 1 ) - Please choose one
In electronic transfer the most common method is to send money through a system maintained by Federal reserve called __________.
► Fedex
► Fedwire
► Fedtransfer
► Fedmoney

Question No: 3 ( Marks: 1 ) - Please choose one
Financial markets enable the transfer of risk by:
► Not allowing risk averse investors access to U.S. Treasury bond markets
► Making sure that higher default risk is offset by greater liquidity
► Allowing firms less willing to bear risk to transfer risk to others who are more willing to bear risk
► Enabling even unsophisticated investors to purchase highly complex investment

Question No: 4 ( Marks: 1 ) - Please choose one
Risk sharing is the characteristic of which one of the following?
► Checks
► Checking accounts
► Money
► Bonds

Question No: 5 ( Marks: 1 ) - Please choose one
Suppose there are two investments, A and B, investment A has low standard deviation where as investment B has high standard deviation. What would you think that most people will choose?
► Investment A
► Investment B
► Indifference between them
► Insufficient information to decide

Question No: 6 ( Marks: 1 ) - Please choose one
If the annual interest rate is 6% (.06); the price of a one year Treasury bill would be:
► $94.00
► $94.33
► $95.25
► $96.10
Question No: 7 ( Marks: 1 ) - Please choose one
If YTM equals the coupon rate the price of the bond is __________.
► Greater than its face value
► Lower than its face value
► Equals to its face value
► Insufficient information is given

Question No: 8 ( Marks: 1 ) - Please choose one
The return on the bond is equal to which of the following?
► Coupon rate + rate of capital gains
► Current yield + rate of capital gains
► Coupon rate - rate of capital gains
► Current yield - rate of capital gains

Question No: 9 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond supply to the _________
► Right
► Left
► No change
► None of the given options

Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following ratings shows “Highest quality and credit worthiness”?
► AAA
► AA
► BB
► A

Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following patterns of term structure occur most frequently?
► Ascending yield curve
► Descending yield curve
► Flat yield curve
► Humped yield curve

Question No: 12 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for the expectation hypothesis?
► Risk free interest rate can be computed
► There is uncertainty in the future
► Identifying yield of bond today that will be available next year
► It focuses on risk free interest rate and the risk premium

Question No: 13 ( Marks: 1 ) - Please choose one
According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects
► Short-term interest rates to rise sharply
► Short-term interest rates to stay near their current levels
► Short-term interest rates to drop sharply
► Short-term interest rates does not change

Question No: 14 ( Marks: 1 ) - Please choose one
The Segmented Markets Theory of term structure suggests that:
► Investors have strong preferences for bonds of a particular maturity
► Investors have no preference for short-term bonds over long-term bonds, or vice versa
► Interest rates on long-term bonds strongly influence the demand for short-term bonds
► Bonds of different maturities are perfect substitutes for each other

Question No: 15 ( Marks: 1 ) - Please choose one
Funds of depository institution are primarily used in which of the following?

►Corporate bonds, Government bonds, Stocks, Mortgage
► Cash, Loan, Securities
► Stocks, Government bonds, corporate bonds, commercial papers
► Commercial papers, Bonds

Question No: 16 ( Marks: 1 ) - Please choose one
Which one of the following refers to the risk assessment and loss reimbursement guarantee by the individual risk experts of the relevant field?
► Underwriting process
► Insurance process
► Research process
► None of the given options

Question No: 17 ( Marks: 1 ) - Please choose one
Regulators of credit unions are which of the following?
► Office of thrift Supervision
► State authorities
► National Credit Union Administration
► Federal Reserve System

Question No: 18 ( Marks: 1 ) - Please choose one
Central banks perform all of the following functions EXCEPT:

► Issue currency
► Operate a payments system
► Control the availability of money and credit
► Manage fiscal policy

Question No: 19 ( Marks: 1 ) - Please choose one
One advantage a central bank has over other businesses including banks is that___________.

► It receives all of its funding from the government
► It doesn't have stockholders
► It can control its balance sheet at its own will
► It doesn't have a board of directors

Question No: 20 ( Marks: 1 ) - Please choose one
If required reserves are expressed by RR ; the required reserve rate by rD and deposits by D; the simple deposit expansion multiplier is expressed as:

► rDD
► (1/rD) D
► 1/rD
► rD times 10

Question No: 21 ( Marks: 1 ) - Please choose one
The central bank makes which type of loans?

► Primary credit
► Secondary credit
► Seasonal credit
► All of the given options

Question No: 22 ( Marks: 1 ) - Please choose one
According to Milton Friedman, central banks should set the money growth at:

► Constant rate
► Increasing rate
► Decreasing rate
► None of the given options

Question No: 23 ( Marks: 1 ) - Please choose one
The quantity of money people hold for transactions purpose depends on which of the following?

► Their nominal income
► The cost of holding money
► The availability of substitutes
► All of the given options

Question No: 24 ( Marks: 1 ) - Please choose one
Interest rate risk arises as a result of which one of the following consequences?
► It arises when banks make additional profit by using derivatives
► It arises when loan is not repaid
► It arises because of sudden demands of funds
► It arises when two sides of the balance sheet do not match up

Question No: 25 ( Marks: 1 ) - Please choose one
Bank-X's outstanding loans all have fixed interest rates, with maturities in excess of two years. Bank-X's deposit liabilities all have shorter maturity-no more than six months. Bank-X most obviously is facing:
► Liquidity risk
► Operational risk
► Interest rate risk
► Credit risk

Question No: 26 ( Marks: 1 ) - Please choose one
One thing that is true about economic policy in the U.S. is that:
► Monetary and Fiscal policy often times conflict
► Fiscal and monetary policy never conflict
► Monetary policy ultimately controls fiscal policy
► Fiscal policy ultimately controls monetary policy


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Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following type/s of transaction/s affect the balance sheets of both the central bank and the banking system?
► An open market operation
► Central bank’s extension of a discount loan
► All of the given options
► A foreign exchange intervention

Question No: 28 ( Marks: 1 ) - Please choose one
The use of lagged reserve accounting usually makes the demand for reserves:
► Highly unpredictable to the point of volatility
► Nearly constant with hardly any change at all
► Predictable
► Subject to daily changes by the Fed


Question No: 29 ( Marks: 1 ) - Please choose one
The portfolio demand for money reflects which of the following?
► The money we hold for our everyday transactions
► The money we hold to purchase stocks and bonds and other financial securities
► The portion of wealth people desire to hold in the form of money
► None of the given option

Question No: 30 ( Marks: 1 ) - Please choose one
The FOMC targets the federal funds rate, but if they are going to alter the course of the economy they must influence which one of the following?
► The money growth rate as well
► The long-term nominal interest rate as well
► The real interest rate as well
► The nominal exchange rate as well

Question No: 31 ( Marks: 1 ) - Please choose one
Which one of the following statement is true for investment if all other factors are held constant?
► An investment with less risk should sell for a lower price and offer a lower return
► An investment with more risk should sell for a lower price and offer a higher return
► An investment with less risk should sell for a lower price and offer a higher return
► An investment with more risk should offer a lower return and sell for a higher price

Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following are without maturity dates?
► Zero coupon bonds
► Coupon securities
► Consols
► Preferred Bonds

Question No: 33 ( Marks: 1 ) - Please choose one
Banking is a combination of businesses designed___________.
► To deliver Services
► To pool the savings
► To make the loans
► All of the given options

Question No: 34 ( Marks: 1 ) - Please choose one
Well run banks have ________________.

► High interest income
► High interest margin
► High interest income and high interest margin
► Low interest income and low interest margin

Question No: 35 ( Marks: 1 ) - Please choose one
If a customer makes a withdrawal of $3 million, from where the bank will deduct this withdrawal?


► From capital
► From cash at hand
► From reserves
► Other assets

Question No: 36 ( Marks: 1 ) - Please choose one
Why banks do not like to meet their deposit outflows by contracting the asset side of the balance sheet.

► Because it will shrink the size of the bank
► Because it will shrink the size of the total assets
► Because it will increase the liabilities of the bank
► None of the given options

Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following technique is necessary for making profit in a bank?

► Interest rate on liabilities must be lower
► Interest rate on deposits must be higher
► Interest rate on deposits must be higher than the interest rate on the liabilities
► Interest rate on deposits must be lower than the interest rate on the liabilities

Question No: 38 ( Marks: 1 ) - Please choose one
What is the impact of growth of international banking?
► It increase the competition in the banking market
► It increase the efficiency of banking market
► Profits are harder to come as borrowers and depositors have more options
► All of the given options

Question No: 39 ( Marks: 1 ) - Please choose one
Managing _______ is a major concern for today’s banks.

► Trading risk
► Interest rate risk
► Systematic risk
► Other risk

Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following provides a payment to the policyholder’s beneficiaries in the event of the insured’s death at any time during the policy term?


► Life insurance
► Term life insurance
► Whole life insurance
► Causality insurance

Question No: 41 ( Marks: 1 ) - Please choose one
Which of the following is included in the government-sponsored enterprise?

► Small and Medium Enterprise (SME)
► House Building Finance Corporation (HBFC)
► Khushhali Bank
► All of the given options

Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following are the primary uses of funds of Finance Company?

► Cash, loans, securities
► Corporate bonds, government bonds
► Commercial paper, bonds, mortgages
► Bonds, bank loans, commercial paper

Question No: 43 ( Marks: 1 ) - Please choose one
Which of the following situation in a central bank can wreak havoc on the economic and financial system of a country?

► Weak fiscal policy
► Extreme political pressure
► Incompetence of the central banks
► Extreme political pressure and incompetence of the central banks

Question No: 44 ( Marks: 1 ) - Please choose one
Which function was the Central Bank originally designed to perform?

► Control the money supply
► Clearing checks
► Acting as lender of last resort
► All of the above

Question No: 45 ( Marks: 1 ) - Please choose one
Which of the following are costs of high and/or unexpected inflation?

► Increased uncertainty
► Higher nominal interest rates
► Hurts net creditors
► All of the above

Question No: 46 ( Marks: 1 ) - Please choose one
Which of the following side of a balance sheet represent that central bank is a government’s bank?

► Asset side of the balance sheet
► Liabilities side of the balance sheet
► Equity side of the balance sheet
► The whole balance sheet

Question No: 47 ( Marks: 1 ) - Please choose one
The legal requirement of reserve of a bank is called________.


► Actual reserve
► Required reserve
► Excess reserve
► None of the given option

Question No: 48 ( Marks: 1 ) - Please choose one
If a bank holds excess reserve it depends upon which of the following?

► Cost of holding the excess reserve
► Benefit of holding excess reserve
► Duration of holding excess reserve
► Cost and benefit of holding excess reserve

Question No: 49 ( Marks: 1 ) - Please choose one
The number of times each rupee is used (per unit of time) in making payments is called the_________.

► Velocity of money
► Quantity of money
► Exchange of money
► Aggregate money

Question No: 50 ( Marks: 1 ) - Please choose one
Portfolio demand for money goes up as the riskiness of the alternative __________

► Falls
► Rises
► Remain stable
► Cannot be determined

Question No: 51 ( Marks: 1 ) - Please choose one
Monetary policy makers react to changes in current inflation by changing the __________

► Effective interest rate
► None of the given options
► Real interest rate
► Nominal interest rate

Question No: 52 ( Marks: 1 ) - Please choose one
With a higher inflation target, the central bank will set a lower current __________ at every level of current inflation, shifting the monetary policy reaction curve to the right.

► Real interest rate
► Nominal interest rate
► Effective interest rate
► None of the given options

Question No: 53 ( Marks: 1 ) - Please choose one
Who set the relationship between current inflation and real interest rate?


► Monetary policy makers
► Fiscal policy makers
► Budget makers
► Monetary policy maker or fiscal policy maker

Question No: 54 ( Marks: 1 ) - Please choose one
Inflation falls and output rises until the economy returns to the point where current output _______ potential output and inflation equals the central bank’s target.


► Equals
► Greater than
► Lower than
► Incomplete information