Chapter 1: The Financial Environment

Multiple Choice

1. _______________ is the study of how individuals, institutions, governments, and businesses

acquire, spend, and manage money and other financial assets.
a. budgeting
b. business career
c. finance
d. investments

Answer: c
Level: easy
Section: What is Finance?

2. Financial institutions are intermediaries that aid in the flow of funds between borrowers and
investors. Which of the following is not a financial institution?
a. banks
b. real estate developers
c. insurance companies
d. investment companies

Answer: b
Level: medium
Section: What is Finance?

3. Typically, successful businesses move through a series of five life-style stages. These stages
include:
a. final stage, startup stage, survival stage, rapid-growth stage, and maturity
b. first stage, top-down stage, survival stage, rapid-growth stage, and failure
c. development stage, startup stage, survival stage, rapid growth stage, and maturity
d. initiation stage, maintenance stage, middle stage, complete stage, and maturity

Answer: c
Level: difficult
Section: Two Themes

4. The study of how individuals prepare for financial emergencies, protect against premature
death and the loss of property, and accumulate wealth over time is called:
a. financial planning
b. personal finance
c. estate planning
d. insurance planning

Answer: b
Level: medium
Section: Two Themes

5. Which of the following career opportunities would a finance major typically not be interested
in pursuing after his or her college days?
a. credit analyst
b. investment research analyst
c. management consultant
d. stockbroker

Answer: c
Level: medium
Section: Careers in Finance

6. Finance is founded on _____ principles.

a. one
b. five
c. six
d. ten

Answer: c
Level: easy
Section: Six Principles of Finance

7. What does the time value of money principle help individuals to understand?
a. the social impact of monetary policy
b. the economic behavior of individuals and the businesses they run
c. the political oversight that exists in businesses today.
d. the economic development policies in the United States.

Answer: b
Level: difficult
Section: The Time Value of Money

8. Risk is the __________ about the outcome or payoff of an investment in the future.
a. guarantee
b. obligation
c. uncertainty
d. promise

Answer: c
Level: difficult
Section: Risk versus Returns

9. How much return is expected for taking on more risk?

a. lower
b. equal
 c. zero
d. higher

Answer: d
Level: medium
Section: Diversification of Risk

10. A financial market is said to be ___________ if the pieces of securities reflect all information
that is available to the public.
a. more efficient
b. energy efficient
c. information efficient
d. less efficient

Answer: c
Level: difficult
Section: Financial Markets are Efficient

11. How can you bring a manager’s objectives in line with the owner’s objective at a firm?
a. The objectives are always equal.
b. Tie the manager’s compensation to performance measures that are beneficial to the owner.
c. Tie the owner’s compensation to performance measures that are beneficial to the manager.
d. You never tie the manager’s objectives in line with the owner’s objective at a firm.

Answer: b
Level: difficult
Section: Management versus Owner Objectives

12. ______ ______ is how an individual or organization treats others legally, fairly, and
honestly.
a. Ethical behavior
b. Organizational behavior
c. Coordinated behavior
d. Reflective behavior

Answer: a
Level: easy
Section: Reputation Matters

13. Effective financial systems must have several sets of ______ ______ who pass laws and
make decisions related to fiscal and monetary policies.
a. financial analysts
b. policy makers
c. decision makers
d. organizational leaders
Answer: b
Level: difficult
Section: Overview of the Financial System

14. What is the name of the market where debt securities with maturities longer than one year
and corporate stocks are issued or traded?
a. money market
b. primary market
c. secondary market
d. capital market

Answer: d
Level: difficult
Section: Financial Markets Characteristics

15. What is the name of the market where money market securities, bonds, and mortgages are
originated and traded?
a. debt securities market
b. foreign exchange market
c. derivative securities market
d. equity securities market

Answer: a
Level: medium
Section: Major Types of Financial Markets

16. A ______ is a loan backed by real property in the form of buildings and houses.
a. derivative
b. mortgage
c. security
d. brokerage account

Answer: b
Level: easy
Section: Mortgage Markets

17. Why did the United States government pass the Economic Stabilization Act of 2008?
a. to allow the U.S. Treasury to sell toxic assets to foreign financial institutions
b. to allow the U.S. Treasury to sell toxic assets to financial institutions
c. to allow the U.S. Treasury to purchase toxic assets from financial institutions
d. to allow the U.S. Treasury to purchase toxic assets from Russis

Answer: c
Level: difficult
Section: The 2007-09 Financial Crisis
 Chapter 2: Money and the Monetary System

Multiple Choice

1. Historically, which of the following has been a reliable surplus economic unit?
a. Individuals
b. Federal government
c. State and local governments
d. Corporations

Answer: a
Level: easy
Section: Process of Moving Savings into Investments

2. Money was first developed to serve as a _____ _____.

a. a credit offer
b. medium of non-exchange
c. medium of exchange
d. a debt offer

Answer: c
Level: easy
Section: Importance and Functions of Money

3. Which of the following should be classified as a financial asset?

a. gold
b. real estate
c. long-term bond issued by a corporation
d. credit card debt

Answer: c
Level: easy
Section: Importance and Functions of Money

4. What is a bimetallic standard?

a. a nonmonetary standard based on commercial paper
b. a monetary standard based on two metals, usually silver and gold
c. a monetary standard based on a banker’s acceptance
d. coins that do not contain the same value in metal as their face value

Answer: b
Level: medium
Section: Development of Money in the United States

5. The two basic components of money supply in the United States include _____ _____ and
_____ _____.
 a. mortgage notes; physical money
b. loan applications; credit defaults
c. bankers acceptances; precious metals
d. physical money; deposit money

Answer: d
Level: difficult
Section: Development of Money in the United States

6. Which of the following best describes a banker’s acceptance?

a. a debt that is accepted by a bank
b. a promise of future payment issued by a bank and guaranteed by an importing firm
c. a promise of future payment issued by an importing firm and guaranteed by a bank
d. a promise of current payment issued by an importing firm and guaranteed by the
government

Answer: c
Level: difficult
Section: Money Market Securities

7. What is commercial paper?

a. short-term unsecured promissory note issued by a high credit-quality corporation
b. short-term secured promissory note issued by a low credit-quality corporation
c. long-term unsecured promissory note issued by a low credit-quality corporation
d. long-term secured promissory note issued by a high credit-quality corporation

Answer: a
Level: easy
Section: Money Market Securities

8. What is a negotiable certificate of deposit (NCD)?

a. a long-term debt instrument issued by depository institutions to individual or institutional
depositors.
b. a short-term debt instrument issued by depository institutions to individual or institutional
depositors.
c. a long-term debt instrument issued to a depository institution for individual and
institutional depositors.
d. a short-term debt instrument issued to a depository institution for individual and
institutional depositors.

Answer; b
Level: difficult
Section: Money Market Securities

9. Which of the following is not a characteristic of a treasury bill?

a. long-term debt obligation
 b. short-term debt obligation
c. issued by the U.S. Federal Government
d. it is useful when imbalances exist between tax revenue and government expenditures

Answer: a
Level: difficult
Section: Money Market Securities

10. Which of the following best describes a money market security?

a. a debt instrument or security that never matures
b. a debt instrument or security with maturities of one year or less
c. a credit instrument or security with maturities of one year or less
d. a debt instrument or security with a high default risk and a low liquidity

Answer: b
Level: medium
Section: Money Market Securities

11. The M1 measure of money includes all of these components except for
a. demand deposits
b. currency
c. savings accounts
d. travelers’ checks

Answer: c
Level: easy
Section: Measures of U.S. Money Supply

12. Why are credit cards useful?

a. they provide unlimited credit limits to consumers that are in bankruptcy.
b. they provide undetermined credit limits to consumers when the cards are issued
c. they provide predetermined credit limits to consumers when the cards are issued
d. they provide unlimited credit limits to consumers when the cards are issued

Answer: c
Level: easy
Section: Exclusions From the Money Supply

13. What is inflation?

a. the decrease in the prices of goods and services not offset by an increase in quality
b. the rise in the prices of goods and services not offset by an increase in quality
c. the stability in the prices of goods and services not offset by an increase in quality
d. the demand in the prices of goods and services not offset by an increase in quality

Answer: b
Level: medium
Section: Money Supply and Economic Activity

14. What does the velocity of money measure?

a. the rate money deteriorates in the economy
b. the rate of circulation of the money supply
c. the rate of international goods imported in the United States
d. the rate that money is mutilated in the United States

Answer: b
Level: medium
Section: Money Supply and Economic Activity

15. Which of the following best describes the gross domestic product (GDP)?
a. the sum of all domestic products in the United States
b. input of goods and services in the economy
c. output of goods and services in the economy
d. the sum of the defective products in the United States

Answer: c
Level: medium
Section: Money Supply and Economic Activity

16. The international monetary system was previously tied to what historical standard?
a. money
b. bronze
c. silver
d. gold

Answer: d
Level: easy
Section: International Monetary System
 Chapter 3: Banks and Other Financial Institutions

Multiple Choice

1. ____________ is the process by which individual savings are accumulated in depository

institutions where the funds are then loaned out to consumers or invested in businesses.
a. Savings/investment
b. Financial intermediation
c. Contractual savings
d. Mortgage banking

Answer: b
Level: easy
Section: Types and Roles of Financial Institutions

2. Contractual savings organizations provide all of the following services with the exception of
__________.
a. collecting premiums on insurance policies
b. accepting deposits or savings from individuals and then lending these pooled savings to
businesses.
c. providing retirement benefits and insurance against major financial losses.
d. collecting employee or employer contributions from pension fund participants.

Answer: b
Level: easy
Section: Types and Roles of Financial Institutions

3. ________________ ________________ receive contributions from employees or their

employers and invest the proceeds on behalf of the employees.
a. Pension funds
b. Insurance companies
c. Credit unions
d. Savings banks

Answer: a
Level: medium
Section: Depository Institutions

4. All of the following are characteristics of a commercial bank EXCEPT

a. A commercial bank accepts deposits.
b. A commercial bank issues check writing accounts to facilitate purchases and pay bills.
c. A commercial bank helps businesses sell their new debt and equity securities to raise
financial capital.
d. A commercial bank makes loans to individuals and businesses.

Answer: c
Level: difficult
Section: Overview of the Banking System

5. Which legislative act provided for the separation of commercial banks and investment banks
in the United States?
a. Glass-Steagall Act of 1933
b. Gramm-Leach-Bliley Act of 1999
c. Hudson-Glenna Act of 1942
d. Van Buren-Cline Act of 1938

Answer: a
Level: easy
Section: Commercial Investment and Universal Banking

6. Who established the first incorporated bank in North America?

a. Alexander Hamilton
b. Andrew Jackson
c. Robert Morris
d. John Jacob Astor

Answer: c
Level: medium
Section: Historical Development of the U.S. Banking System

7. The Federal Reserve Act of 1913

a. gave more powers to state banks.
b. brought a system of central banks.
c. made it possible for banks to receive federal charters for the first time.
d. separated commercial banks and investment banks.

Answer: b
Level: medium
Section: Regulation of Banking System

8. When federal deposit insurance was increased from $40,000 to $100,000 for each account, the
U.S. Treasury stated that _________________________.
a. it undermined market discipline and enabled depository institutions to make high risk loans
loans for which the taxpayers in the long run have become liable.
b. it amended the Home Owners’ Loan Act of 1933.
c. it expanded the uses of the funds of S&L’s.
d. it established interest rate ceilings on time and savings deposits.

Answer: a
Level: difficult
Section: Regulation of the Banking System
9. What allows commercial banks to obtain charters from either the federal government or a state
government?
a. reserve requirements set by the Fed for member banks extended to state nonmember banks
b. dual banking system
c. reducing insurable deposit limits to protect only the small deposits
d. eliminating all deposit insurance

Answer: b
Level: easy
Section: Structure of Banks

10. The policies of banks controlled by a holding company are determined by _____________.
a. the placement of branches.
b. the parent company and coordinated for the purposes of that organization.
c. both OBHCs and MBHCs.
d. limited branch banking.

Answer: b
Level: medium
Section: Structure of Banks

11. ______________ are the financial debts and obligations owed by the bank.
a. Liabilities
b. Owners’ capital
c. Financial equity
d. Assets

Answer: a
Level: easy
Section: The Bank Balance Sheet

12. The interest rate charged by banks for short term unsecured loans to their highest quality
business customers is referred to as what rate?
a. unsecured
b. industrial
c. prime rate
d. secured

Answer: c
Level: medium
Section: The Bank Balance Sheet

13. ___________ reflects the ability to keep the value of a bank’s assets greater than its
liabilities.
a. Bank solvency
b. Bank safety
 c. Bank liquidity
d. Capital adequacy management

Answer: a
Level: difficult
Section: Bank Management

14. What is necessary to ensure that banks remain solvent, meet depositor demands, and pay
their debts as they come due?
a. owners’ capital
b. underlying debt instruments
c. adequate capital
d. an inverse relationship between the price or value and interest rates

Answer: c
Level: difficult
Section: Bank Management

15. The purpose of the Basel Accord has been to

a. establish capital adequacy requirement for banks with international operations.
b. increase short term liquidity positions of key international banks.
c. try to stem capital flight to offshore tax havens.
d. improve the monetary coordination between the main economies of western Europe.

Answer: a
Level: difficult
Section: International Banking and Foreign System
 Chapter 5: Policy Makers and the Money Supply

Multiple Choice

1. Our country’s economic policy actions are directed toward all of these general goals except
a. economic growth
b. high employment
c. price stability
d. balance in international trade and other transactions

Answer: d
Level: easy
Section: National Economic Policy Objectives

2. The standard of living of U.S. citizens has improved dramatically during the history of the
United States as a result of what factors?
a. the growth of the economy and its productivity
b. international trade
c. foreign exchange markets
d. industrial downsizing and restructuring

Answer: a
Level: medium
Section: National Economic Policy Objectives

3. The Great Recession of 2008-09 was the steepest U.S. recession since the Great Depression of
the 1930’s. Which of these factors did not play a role in causing the Great Recession?
a. The housing price “bubble” burst in 2006.
b. Individuals began defaulting in record numbers on their home mortgages.
c. The U.S. Treasury purchased billions of dollars of toxic assets held by financial institutions.
d. Stock prices fell between 2007 and 2009.

Answer: c
Level: difficult
Section: Government Reaction to the Perfect Financial Storm

4. The government raises funds to pay for its activities in all of the following ways except
a. levies taxes
b. borrows
c. prints money for its own use
d. prints money as a gift to citizens.

Answer: d
Level: easy
Section: Government Influence on the Economy
5. Congress delegated the power to create money to ___________.
a. the Fed
b. the IRS
c. the economic advisor
d. the U.S. Treasury

Answer: a
Level: medium
Section: Government Influence on the Economy

6. The Fed increasing the money supply to help offset the demand for increased funds to finance
the deficit is called ____________.
a. disbursing funds
b. monetizing the debt
c. influencing the money market
d. stimulating the economy

Answer: b
Level: difficult
Section: Government Influence on the Economy

7. How would a massive withdrawal of taxes from the banking system without offsetting actions
impact monetary affairs?
a. the increase in revenue would result in a lower overall tax rate
b. it would aid in the balance between full employment and price stability
c. the decrease in bank deposits would result in a temporary breakdown of the system’s ability
to serve the credit needs of the public
d. it would cause an imbalance in international transactions.

Answer: c
Level: difficult
Section: Policy Instruments of the U.S. Treasury

8. Treasury operations involve spending over _____________ a year.

a. $30 billion
b. $300 billion
c. $1 trillion
d. $3 trillion

Answer: c
Level: difficult
Section: Policy Instruments of the U.S. Treasury

9. Which of the following government policy actions would not serve as automatic stabilizers
during periods of economic downturn?
a. requirement that state budgets must be balanced each year
 b. unemployment insurance programs
c. welfare payments
d. progressive income taxes

Answer: a
Level: medium
Section: Policy Instruments of U.S. Treasury

10. Crowding out refers to

a. having to reduce the government budget when tax revenue falters during a recession.
b. lack of funds for private borrowing caused by the sale of government debt used to cover
budget deficits.
c. cuts in government spending that results when imports drive out domestic production.
d. the credit crunch that occurs when investors do not take on risks and let their funds lie
idle.

Answer: b
Level: medium
Section: Debt Management

11. A lesser Treasury objective is to maintain satisfactory conditions in the government securities
market by maintaining ______________.
a. wide price swings
b. investor confidence
c. an increase in buying and selling
d. evenly spaced scheduling of debt maturities

Answer: b
Level: easy
Section: Debt Management

12. The banking system of the United States can change the volume of deposits as the need for
funds by individuals, businesses, and governments change. This ability to alter the size of the
money supply is based on the use of what system or principle?
a. Primary Deposit System
b. Federal Reserve System
c. Fractional Reserve System
d. Marginal Reserve System

Answer: c
Level: difficult
Section: Changing the Money Supply

13. The maximum increase in deposits (and money supply) that can result from a specific
increase in excess reserves can be referred to as ______________.
a. a cumulative contraction
 b. excess reserves
c. required reserves ratio
d. a money multiplier

Answer: d
Level: medium
Section: Changing the Money Supply

14. Reserve balances held at Federal Reserve Banks and vault cash held in the banking system
are known as _________________.
a. bank reserves
b. capital investments
c. required reserves
d. deficit reserves

Answer: a
Level: easy
Section: Factors Affecting Bank Reserves

15. The rate of circulation of the money supply is referred to as ________________.

a. economic resurgence
b. M1 growth rates
c. velocity of money
d. nominal GDP

Answer: c
Level: medium
Section: The Monetary Base and the Money Multiplier
 Chapter 6: International Finance and Trade

Multiple Choice

1. The global or international monetary system is a system of institutions and mechanisms

created for all of these purposes except to ___________.
a. foster world trade
b. regulate interest rates
c. manage the flow of financial capital
d. determine the currency exchange rates

Answer: b
Level: medium
Section: Global or International Monetary System

2. Prior to the start of World War I in 1914, the international monetary system operated mostly
under what kind of system or standard?
a. a dual banking system
b. an international trade system
c. a gold standard
d. full bodied money standard

Answer: c
Level: easy
Section: How the International Monetary System Evolved

3. The exchange rate agreement that stated individual currencies would be tied to gold through
the U.S. dollar via fixed or pegged exchange rates, is known as the _______________.
a. monetary reserve system
b. Bretton Wood system
c. gold stock system
d. fiat money system

Answer: b
Level: difficult
Section: How the International Monetary System Evolved

4. The Maastricht Treaty was created for all of the following purposes except
a. to promote international trade.
b. the introduction of the euro as the common currency.
c. to provide for economic convergence.
d. to fix member country exchange rates.

Answer: a
Level: difficult
Section: European Unification
5. At the beginning of 2002, individual EMU countries’ currencies began being phased out and
only the __________________________ were legal tender by July 2002.
a. yen and dollar
b. euro coin and currency
c. dinar and euro
d. franc and euro

Answer: b
Level: easy
Section: European Unification

6. As a result of the 2007-08 financial crisis, the nations of the European Union experienced all
of the following except
a. high unemployment
b. increased government budget deficits
c. no economic growth
d. a steep decline in the value of the Euro relative to the dollar.

Answer: d
Level: difficult
Section: European Union Financial Crisis

7. A country has a balance of trade when

a. the country has neither an increase nor a decrease in gold reserves.
b. its exports of goods and services equals its imports.
c. its exports of goods (but not services) equals its imports.
d. all foreign private and government investment in the United States equals U.S. investment
foreign countries.

Answer: b
Level: difficult
Section: Balance of Payments Accounts

8. _________________ indicates the number of units of a foreign currency needed to purchase

one unit of the home country’s currency.
a. The foreign exchange market
b. Indirect quotation method
c. Direct quotation method
d. The economic monetary equivalent

Answer: b
Level: difficult
Section: Currency Exchange Markets and Rates
9. _______________ is the rate for the purchase or sale of a currency where delivery will take
place at a future date.
a. The forward exchange rate
b. EMU member demand
c. The demand exchange rate
d. The spot exchange rate

Answer: a
Level: difficult
Section: Currency Exchange Markets and Rates

10. _______________ is the simultaneous or nearly simultaneous purchasing of commodities,

securities, or bills of exchange in one market and selling them in another where the price is
higher.
a. Economic convergence
b. Forward exchange
c. Arbitrage
d. Spot exchange

Answer: c
Level: medium
Section: Currency Exchange Markets and Rates

11. The risk associated with the possibility of slow or negative economic growth and variability
in economic growth is called
a. currency risk
b. political risk
c. economic risk
d. investor risk

Answer: c
Level: easy
Section: Inflation, Interest Rates, and Other Factors

12. ____________________________ states that a country with a relatively higher inflation rate
will have its currency depreciate relative to a country (or group of countries that use one
currency) with a relatively lower inflation rate.
a. The U.S. Travel Act
b. Purchasing Power Parity (PPP)
c. The Multinational Trade Act
d. The Interstate Commerce Act

Answer: b
Level: medium
Section: Conducting Business Internationally
13. _________________ is an unconditional written order, signed by the party drawing it,
requiring the party to whom it is addressed to pay a certain sum of money to order or to a bearer.
a. A sight draft
b. A draft
c. A documentary draft
d. A visionary draft

Answer: b
Level: easy
Section: Financing International Trade

14. The _________________ represents the written acceptance of goods for shipment by a
transportation company and the terms that the goods are to be transported to their destination.
a. export protection draft
b. clean draft
c. order bill of lading
d. documentary draft

Answer: c
Level: difficult
Section: Financing International Trade

15. Policy makers of all economies must recognize the interdependence of their actions in
attempting to maintain a balance in international transactions. This is referred to as international
_________________.
a. financial equilibrium
b. global lending symmetry
c. economic balance
d. administrative accountability

Answer: a
Level: easy
Section: Balance in International Transactions Goal
 Chapter 8: Interest Rates

Multiple Choice

1. The basic price that equates the demand for and the supply of loanable funds in the financial
markets is the ________________.
a. rate of inflation
b. equilibrium rate
c. interest rate
d. capital interest rate

Answer: c
Level: medium
Section: Supply and Demand for Loanable Funds

2. The fourth period of declining long-term interest rates began in 1982 when the rates peaked,
and they continued through what year?
a. Present
b. 1990
c. 1999
d. 2004

Answer: a
Level: difficult
Section: Supply and Demand for Loanable Funds

3. The loanable funds theory states that ____________________.

a. the major factor that determines the volume of savings, corporate as well as individual, is
the level of national income.
b. interest rates are a function of the supply of and demand for loanable funds.
c. money supply contracts and the level of current savings dictate the current interest rates.
d. interest rates are a function of the supply of savings from all sectors of the economy.

Answer: b
Level: medium
Section: Supply and Demand for Loanable Funds

4. The interest rate (r) that we observe in the marketplace is called a _________________
because it includes a premium for expected inflation.
a. default risk premium
b. real rate of interest
c. inflation premium
d. nominal interest rate

Answer: d
Level: easy
Section: Determinants of Market Interest Rates

5. Compensation for securities that cannot easily be converted to cash without major price
discounts is the definition of what term?
a. liquidity premium
b. interest rate risk
c. maturity risk premium
d. default risk premium

Answer: a
Level: difficult
Section: Determinants of Market Interest Rates

6. The risk-free rate of interest is a combination of which two factors?

a. the real rate of interest and the inflation premium
b. the default risk premium and the liquidity premium
c. the maturity risk premium and the inflation premium
d. the liquidity premium and the real rate of interest

Answer: a
Level: medium
Section: Risk Free Securities: U.S. Treasury Debt Obligations

7. Given a real rate of 2% and an inflation premium of 5%, a short-term government security
with no default risk premium or maturity risk premium will have a nominal interest rate of
a. 3%
b. 5%
c. 7%
d. 9%

Answer: c
Level: easy
Section: Risk Free Securities: U.S. Treasury Debt Obligations

8. The term for federal obligations issued with maturities up to one year is _______________.
a. treasury bills
b. treasury notes
c. treasury bonds
d. government securities notes

Answer: a
Level: medium
Section: Risk Free Securities: U.S. Treasury Debt Obligations
9. A properly constructed yield curve must first reflect what factor?
a. the term structure of interest rates
b. securities of similar default risk
c. yields on a number of securities with differing lengths of time to maturity
d. yields for the remaining time to maturity

Answer: b
Level: difficult
Section: Term or Maturity Structure of Interest Rates

10. As a result of quantitative easing in 2008, interest rates

a. rose to historical highs.
b. remained about the same.
c. fell to historic lows.
d. became very unstable.

Answer: c
Level: easy
Section: Term or Maturity Structure of Interest Rates

11. The Expectations Theory states that the shape of the yield curve indicates investor
expectations about ______________________.
a. maturity risk premium rates
b. yields for the remaining time to maturity
c. the term structure of interest rates
d. future inflation rates

Answer: d
Level: difficult
Section: Term or Maturity Structure of Interest Rates

12. What theory states that investors are willing to accept lower interest rates on short-term debt
securities that provide greater liquidity and less interest rate risk?
a. liquidity preference theory
b. market segmentation theory
c. expectations theory
d. differential maturities theory

Answer: a
Level: easy
Section: Term or Maturity Structure of Interest Rates

13. Inflation occurs when an _________________ in the price of goods or services is not offset
by an _______________ in quality.
a. increase, increase
b. increase, decrease
 c. decrease, increase
d. decrease, decrease

Answer: a
Level: easy
Section: Inflation Premium and Price Movements

14. The first outstanding example of inflation due to the issuing of an excessive amount of paper
money was in what country or province?
a. Germany
b. France
c. America
d. England

Answer: b
Level: medium
Section: Inflation Premiums and Price Movements

15. Ratings of Baa or higher that meet financial institution investment standards are considered
__________________.
a. single maturity bonds
b. junk bonds
c. investment grade bonds
d. treasury bonds

Answer: c
Level: medium
Section: Default Risk Premiums