Business Multiple Choice Questions

1. Idiosyncratic risk is: 
Common to everyone.
Represented by Beta.
Specific to a particular business.
Due to changes in the interest rate.
2. Bond prices (and yields) are determind by supply and demand in the bond market. The demand for bonds increases when: 
Wealth falls
Expected future interests rises
Expected inflation falls
Government needs to borrow more
3. The current yield is:  
Coupon rate divided by price
Coupon rate divided by face value
Coupon rate divided by principle value
Present value of bond future payments at a price of zero
4. The term structure of interest rates is the relationship between time to maturity and:  
Coupon to yield maturity (CPN)
Current yield to maturity (CYM)
Average yield to maturity (AYM)
Yield to maturity (YTM)
5. Financial markets are essential to the operation of our economic system because they do all but one of the following: 
Derive their value from an underlying security
Offer savers and borrowers liquidity
Pool and communicate information through prices
Allow for the sharing of risk
6. Stock prices are a central element in a market economy because they:  
Provide equity
Crashes distort the economy
Ensure resources flow to profitable areas
Act as the other side of bonds
7. The intrinsic and time value of an option depend on all but:  
Strike price
Original price of option
Price and volatility of underlying asset
Time to expiration
8. The real exchange rate is strongly related to the:  
Purchasing power parity
Technical specifications
Inflation differential
Government yield rate
9. Adverse selection means:  
Borrower may not use the borrowed funds productively
Borrower safeguards the funds in an improper location
Least creditworthy borrowers are the ones who borrow
The problem of distinguishing a good credit risk from a bad credit risk.
10. The risks faced by banks in day-to-day operations include:  
Default
Liquidity
Credit
All of the above
11. Banks assets are all but:  
Loans
Deposits
Reserves
Securities
12. Banks make a profit for their owners. Banks typically measure their own profitability by all except: 
Interest coverage  
Net interest income  
Net interest margin  
Return on assets
13. All of the following are non-depository institutions except:
Banks
Insurance companies
Pension funds
Finance companies
14. A bank run can place a bank into which of the following positions?  
Illiquidity
Stability
Receivership
None of the above
15. Government is involved in every part of the financial system. Government officials may intervene in the financial system in order to do all but:  
Protect small depositors  
Protect large depositors  
Safeguard the stability of the financial system  
Government can intervene to do all of the above
16. Functions of the modern central bank is to do all but:
Adjust interest rates and other tools to control quantity of money and credit in the economy
Assure a free market economy without regulation
Oversee the financial system
Lend to sound banks during times of stress
17. Which of the following does not describe the Federal Open Market Committee (FOMC):  
Sets interest rates 
Has 12 voting members 
Is controlled largely by the chair  
Meets every month
18. Money multiplier depends on:  
Reserve requirement
Banks' desire to hold excess reserves
Public's desire to hold currency
All of the above
19. The six core principles include all but:
Time has value
Risks requires compensation
Instability improves welfare
Markets develop prices and allocate resources
20. Changes in the amount of money in the economy are related to changes in all but:
Interest Rates
Diversity Rates
Inflation Rates
Monetary Policy

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    Business Multiple Choice Questions Answers

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