Tuesday, August 17, 2010

MGT411 Final Paper 2010


FINALTERM  EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 4)
Time: 90 min
Marks: 69

  Question No: 1    ( Marks: 1 )    - Please choose one
 Among the following reasons, which is the most appropriate cause of inefficiency of the barter system over monetary system?
       Barter system involves commodities
       Barter system involves double coincidence of wants
       Barter system lacks a system for future payments
       Barter system lacks a system for storage of value
   
Question No: 2    ( Marks: 1 )    - Please choose one
 A Financial Intermediary:
       Is an agency that guarantees a loan
       Is involved in direct finance
       Would be used in indirect finance
       None of the given options
   
Question No: 3    ( Marks: 1 )    - Please choose one
 The process of financial intermediation:
       Creates a net cost to an economy but is unavoidable
       Is used primarily in underdeveloped countries
       Is always used when a borrower needs to obtain funds
       Increases the economy's ability to produce
   
Question No: 4    ( Marks: 1 )    - Please choose one
 Commissions paid to an insurance broker are an example of which of the following?
       Risk transfer
       Information asymmetry
       Transaction costs
       All of the given options
   
Question No: 5    ( Marks: 1 )    - Please choose one
 Which of the following market allowed networks of dealers that are connected electronically?
       New York Stock Exchange
       NASDAQ
       Large exchanges in London
       Large exchanges in Tokyo
   
Question No: 6    ( Marks: 1 )    - Please choose one
 If you put $1,000 per year into bank at 4% interest, how much would you have saved after 40 years?
       $90,000
       $98,826
       $82,286
       $85,880
   
Question No: 7    ( Marks: 1 )    - Please choose one
 The relationship between the price and the interest rate for a zero coupon bond is best described as _________.
       Volatile
       Stable
       Inverse
       No relationship
   
Question No: 8    ( 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: 9    ( Marks: 1 )    - Please choose one
 Which of the following would probably NOT earn an A rating from Standard & Poor's:
       30 years bond issued by the U.S. Treasury
       New vegetarian fast-food chain
       90 days T-Bills issued by the U.S. Treasury
       Both 30 years bond and 90 days T-Bills issued by U.S. Treasury
   
Question No: 10    ( Marks: 1 )    - Please choose one
 Expectation hypothesis focuses on which one of the following?
       Risk premium
       Risk free interest rate
       Yield to maturity
       None of the given options
   
Question No: 11    ( Marks: 1 )    - Please choose one
 Other things remaining equal, the liquidity premium theory is based upon the idea that ____________.
       Investors prefer long-term bonds
       Investors prefer short-term bonds
       Investors are indifferent between short-term and long-term bonds
       Investors prefer intermediate-term bonds
   
Question No: 12    ( Marks: 1 )    - Please choose one
 The shape of the yield curve is usually:
       Upward sloping
       Downward sloping
       Upward sloping for shorter maturities and downward sloping for longer maturities
       Flat
   
Question No: 13    ( Marks: 1 )    - Please choose one
 Common stocks (or corporate stocks):
       Are short term debt instruments
       Entitle the holder to contractual payments
       Were poor investments over the period 1982‑1996
       Allows the holder to share in the earnings of the firm
   
Question No: 14    ( Marks: 1 )    - Please choose one
 Stock market bubbles can lead to:
       An inefficient allocation of resources
       Stock market crashes
       Patterns of volatile returns from the stock market
       All of the given options
   
Question No: 15    ( Marks: 1 )    - Please choose one
 Which of the following represents correct equation for balance sheet of the bank?
       Total banks assets = Total banking liability + Banks Capital
       Total banks assets + Banks Capital = Total banking liability
       Total banks assets + Banks Capital +Total banking liability = 0
       Banks Capital = Total banking liability + Total banks assets
   
Question No: 16    ( Marks: 1 )    - Please choose one
 A stand by letter of credit is a form of:

       Loan
       Insurance
       Security
       Deposits
   
Question No: 17    ( Marks: 1 )    - Please choose one
 The difference between a bank's reserves and their required reserves is equal to which of the following?


       Equity
       Excess reserves
       Net interest income
       None of the given options
   
Question No: 18    ( Marks: 1 )    - Please choose one
 Which of the following is the primary source of funds for Depository institutions?

       Short term loans
       Shares sold to customers
       Savings and time deposits
       Commercial papers
   
Question No: 19    ( 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: 20    ( Marks: 1 )    - Please choose one
 All of the followings are the primary source of funds for Government sponsored Enterprise EXCEPT?

       Commercial paper
       Bonds
       Loan guarantees
       Policy benefits to be paid out to future retirees
   
Question No: 21    ( Marks: 1 )    - Please choose one
 The "trade off" which can impact bank's likelihood of faliure is described as:
       The larger the bank in asset size the more likely it will fail
       The more competitive the banking environment, the more likely the bank will fail
       The more profitable the bank, the less liquid the bank will be and the more likely it will fail
       The greater the regulation from government the more likely the bank will fail
   
Question No: 22    ( Marks: 1 )    - Please choose one
 Khushhali bank is:
       A Finance company
       A Securities firm
       A Government sponsored enterprise
       An insurance company
   
Question No: 23    ( Marks: 1 )    - Please choose one
 ___________ is the strategy of buying and selling government securities:
       Open market operations
       Reserve requirement
       Discount loans
       Cash withdrawal
   
Question No: 24    ( Marks: 1 )    - Please choose one
 Instruments that the central bank controls directly are known as:

       Operating instruments
       Intermediate instruments
       Financial instruments
       None of the given options
   
Question No: 25    ( Marks: 1 )    - Please choose one
 Which one of the following is extended usually overnight to sound institutions on a very short-term basis?
       Primary credit
       Secondary credit
       Seasonal credit
       All of the given options
   
Question No: 26    ( Marks: 1 )    - Please choose one
 Inflation in the long run would be determined by which one of the following?

       The exchange rate
       Aggregate demand
       The rate of money growth
       Aggregate supply
   
Question No: 27    ( Marks: 1 )    - Please choose one
 Which one of the following is vertical at the point where current output equals potential output?

       Short run aggregate supply curve
       Aggregate demand curve
       Long  run aggregate supply curve
       Monetary policy reaction curve
   
Question No: 28    ( 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: 29    ( Marks: 1 )    - Please choose one
 Excess reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?
       Central bank
       Bank regulators
       Commercial banks
       Non bank public
   
Question No: 30    ( Marks: 1 )    - Please choose one
 The Fed was reluctant to make discount loans beacause of which one of the following reason?
       Beacause it was a destabilizing force for financial markets
       Beacause it resulted in banks in poor financial standing
       Beacause it pushed the discount rate above the target federal funds rate
       Beacause it  proved to be a very stabilizing force for financial markets
   
Question No: 31    ( Marks: 1 )    - Please choose one
 Monetary Base is a factor that affects the quantity of money. This factor is controlled by which of the following?
       Central bank
       Bank regulators
       Commercial banks
       Non bank public
   
Question No: 32    ( Marks: 1 )    - Please choose one
 Inflation in the long run would be determined by which one of the following?
       The exchange rate
       Aggregate demand
       The rate of money growth
       Aggregate supply
   
Question No: 33    ( Marks: 1 )    - Please choose one
 Complete crowding-out will occur if:
       The money supply rises when Government purchases increases
       An increase in Government purchases does not change Consumption
       Taxes rise when Government purchases increases
       An increase in Government purchases causes an equal fall in Consumption, Investment, and Net Exports
   
Question No: 34    ( Marks: 1 )    - Please choose one
 Bank can borrow by using a ___________ or repo which is a short term collateralized loan.

       Letter of credit
       Discounted loan
       Repurchase agreement
       Federal funds
   
Question No: 35    ( Marks: 1 )    - Please choose one
 What happens when a bank does not meet customer’s request for immediate funds?

       There will be risk of failure even with positive net worth
       Liquidity will drive it out of business
       There will be risk of failure with negative net worth
       None of the given options
   
Question No: 36    ( 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: 37    ( Marks: 1 )    - Please choose one
 Which of the following are not under the control of a central bank?

       Govt. budget
       Fiscal policy
       Securities market
       All of the given options
   
Question No: 38    ( Marks: 1 )    - Please choose one
 The ______________ framework is made up of the objectives of central banks and requirements that central bank be independent, accountable and good communicator.

       Monetary policy
       Fiscal policy
       Insurance policy
       Trade policy
   
Question No: 39    ( Marks: 1 )    - Please choose one
 
“Pooling the knowledge of a number of people yields better decisions than decision making by an individual” represent which of the following principle of central bank design?

       Independence
       Decision making by committee
       Accountability and transparency
       Policy framework
   
Question No: 40    ( Marks: 1 )    - Please choose one
 
If the cost of the currency is the interest it would earn on deposits then what would be its benefit?

       Higher risk and lower liquidity
       Higher risk and higher liquidity
       Lower risk and lower liquidity
       Lower risk and higher liquidity
   
Question No: 41    ( Marks: 1 )    - Please choose one
 The quantity of money people hold for transaction purposes does NOT depends upon:

       Nominal income
       Cost of holding money
       Availability of substitutes
       Real income
   
Question No: 42    ( 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: 43    ( Marks: 1 )    - Please choose one
 There must be some level of the __________at which aggregate demand equals potential output.

       Real interest rate
       Nominal interest rate
       Effective interest rate
       None of the given options
   
Question No: 44    ( Marks: 1 )    - Please choose one
 The higher real interest rate reduces consumption, investment, and net exports causing aggregate demand (output) to ________.


       Fall
       Rise
       Remain constant
       Incomplete information
   
Question No: 45    ( Marks: 1 )    - Please choose one
 In which of the following situation part of the economy’s capacity is idle, and firms tend to raise their prices and wages less than they did when current output equaled potential output?


       When current output is below potential output
       When current output is exceeds potential output
       When current output equals potential output
       None of the given options
   
Question No: 46    ( Marks: 1 )    - Please choose one
 In which of the following situation firms increase their prices and wages more than they would if they were operating at normal levels?


       When current output is below potential output
       When current output exceeds potential output
       When current output equals potential output
       None of the given options
   
Question No: 47    ( Marks: 1 )    - Please choose one
 Which of the following is determined by the intersection of the aggregate demand curve with the short-run aggregate supply curve?


       Short-run equilibrium
       Long-run equilibrium
       Both short-run and long-run equilibrium
       None of the given options
   
Question No: 48    ( Marks: 1 )    - Please choose one
 An increase in aggregate demand causes a temporary increase in which of the following?


       Out put
       Inflation
       Both output and inflation
       Incomplete information
   
Question No: 49    ( Marks: 3 )
 Discuss velocity both in long and short run.

   
Question No: 50    ( Marks: 3 )
 What is the effect of an increase in potential output on inflation and output?
   
Question No: 51    ( Marks: 5 )
 If  banks offers Mr. A a choice, that whether he leaves his entire monthly salary in his account or shifting funds back and forth between checking account and bond fund. What should be Mr. A's frequency of shifting the funds between the bond fund and checking account?
(Note: Bond fund pays interest but adds a service charge of Rs.20 for each withdrawal)

   
Question No: 52    ( Marks: 5 )
 Briefly explain the reasons that why the government gets involved in the financial system.

   
Question No: 53    ( Marks: 5 )
 A well-designed policy framework helps policymakers establish credibility. Discuss the principles of central bank design.

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