货银期末习题课习题

1) If the liquidity effect is larger than the other effects, an increase in money growth will

(a) lower interest rates.

(b) raise interest rates.

(c) cause interest rates to rise initially but then fall below the initial level. (d) cause interest rates to fall initially but then rise above the initial level.

Answer: A 2) Deposit insurance

(a) attracts risk-prone entrepreneurs to the banking industry.

(b) encourages bank managers to take on greater risks than they otherwise would.

(c) reduces the incentives of depositors to monitor the riskiness of their banks’ asset

portfolios.

(d) does all of the above.

Answer: D

3) The formula linking the money supply to the monetary base is

(a) M ＝ m ＋ MB..

(b) M ＝ m × MB. (c) m ＝ M × MB. (d) MB ＝ M × m.

Answer: B

4) Using the one-period valuation model, assuming a year-end dividend of $0.50, an

expected sales price of $50, and a required rate of return of 10%, the current price of the stock would be

(a) $50.50.

(b) $50.00.

(c) $45.91. (d) $45.00.

Answer: C

5) The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the _____; changes in discount lending, which affect the _____ by influencing the quantity of discount loans; 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 Answer: C

6） Disadvantages of using reserve requirements to control the money supply and interest rates include

a) their overly-powerful impact on the money supply.

b) creating potential lending problems for banks with high levels of excess reserves. c) their overly-powerful impact on reserves and the monetary base. d) all of the above.

Answer: A

7) If the expected return on NBC stock rises from 5 to 10 percent and the expected return on CBS stock rises from 12 to 18 percent, then the expected return of holding CBS stock _____ relative to NBC stock and the demand for CBS stock _____.

a) rises; rises

b) rises; falls c) falls; rises d) falls; falls Answer: A

8） When the default risk in corporate bonds increases, other things equal, the

demand curve for corporate bonds shifts to the _____ and the demand curve for Treasury bonds shifts to the _____.

e) right; right f) right; left g) left; left

h) left; right

Answer: D

9）If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is

a) $8000.

b) $1200.

c) $1200.8.

d) $8400.

Answer: B 10）A security that pays $52.50 in one year and $110.25 in two years, with an interest rate of 5 percent, has a present value of

a) $150.

b) $162.50. c) $200. d) $300. Answer: A

1.Assume that no banks hold excess reserves, and the public holds no currency. If a bank sells a $100 security to the Fed, show, using T-accounts, what happens to this bank and two

additional steps in the deposit expansion process, assuming a 10% reserve requirement. How much do deposits and loans increase for the banking system when the process is completed?

Step 1

Bank A

Assets Securities Liabilities ?$100 Reserves +$100 Step 2

Bank A

Assets Reserves Liabilities ?$100 Loans +$100 Next, the proceeds are deposited in Bank B, and then Bank B lends it $90 of excess reserves.

Step 3

Bank B

Assets Reserves +$100 Step 4

Liabilities Deposits +$100

Bank B

Assets

Reserves Liabilities ?$90 Loans +$90 Next, the loan proceeds are deposited in Bank C, which then lends its excess reserves Step 5

Bank C

Assets +$90 Deposits

Reserves Liabilities +$90 Step 6

Bank C

Assets

Liabilities Reserves -81 Loans +81 For the banking system, both loans and deposits increase by $1000.

2.If over the next five years, the interest rates on 1-year bonds are expected to be 5, 7, 7, 6, and 5 percent, and the liquidity premium for five-year bonds is 1 percent. According to the expectations theory of the term structure, what is the rate on five-year bonds? According to the liquidity premium theory, what is the rate on five-year bonds? Explain the difference between the two answers.

The expectations theory predicts that the five-year interest rate is the average of five

1-year interest rates, which is 6 percent in this problem. The liquidity premium theory adds a term premium due to a preference for short-term bonds to the expectations theory. In this problem, the liquidity premium theory predicts a rate of 7 percent.

3.Explain the concepts of asymmetric information, adverse selection, and moral hazard. When do adverse selection and moral hazard become relevant to the lending process? How has the financial system developed to deal with these problems?

Answer: Asymmetric information is uneven information, which creates the problems of

adverse selection and moral hazard. Adverse selection is having a

disproportionate number of high-risk loan applications. Moral hazard is the risk that the borrower will engage in risky behavior after the loan is made. Adverse selection is a problem before a loan is made, and moral hazard is a problem that exists after a loan is made. Financial intermediaries develop the expertise to screen and monitor loans, overcoming these problems. Regulations require timely provision of information.

4.What is the yield to maturity of a corporate bond with a 3-year maturity, 5 percent coupon(semiannual payments),and $1000 face value if the bond sold for $978.3?

Payments comprise an ordinary annuity of $25 every 6 months for 3 years plus a

25252525251,025 = + + + ? ?= $978.30 Pb23456(1 + i/2)(1 + i/2)(1 + .i/2)(1 + i/2)?1?1/2?(1 +i/2)lump sum of $1,000 at end of 3 years. What discount rate equates this payment stream to $978.30?

Calculator: 6 N 25 PMT -978.30 PV 1,000 FV I = 2.899% (semiannual yield, or i/2 in the equation above); double to annualize: 5.80%.

5.A 180-day bank accepted bill (face value $100) is issued at$93. What is the yield on a discount basis?

Answer: idb=(100-93)/100 *（360/180)=14%

6.After careful analysis, you have determined that a firm’s dividends should grow at 7% on average in the foreseeable future. The firm’s last dividend was $3. Compute the current price of this stock, assuming the required return is 18%.

Answer: Po=(3*1.07）/(18%-7%)=29.18

7.Explain the complete formula for the money supply, and explain how changes in required reserves, excess reserves, the currency ratio, the nonborrowed base, and discount borrowing affect the money supply.

The formula indicates that the money supply is the product of the multiplier times the

base.Increases in any of the multiplier components, required reserves, r; excess reserves, e; or the currency ratio, c, reduce the multiplier and the money supply. Increases in the

nonborrowed base and discount borrowing both increase the base and the money supply.

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