MGT411Spring 2009 FinalTerm OPKST MoneyampBankingMGT4111

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\ab\af0 \ltrch\fcs0 \b\insrsid7350076 FINALTERM EXAMINATION
\par Spring 2009
\par MGT411- Money & Banking (Session - 2)
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{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076 Question No: 1
( Marks: 1 ) - Please choose one
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\b\cf0\ulc0\insrsid7350076 }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
Among the following which one is less liquid asset?
\par \u9658\'3f Checking account
\par }{\rtlch\fcs1 \ab\af0 \ltrch\fcs0
\b\cf0\ulc0\insrsid7350076\charrsid16602316 \u9658\'3f Car
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Share
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Debit card
\par }{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076
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000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Which one of the following is the primary cause of inflation?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Decreased
money supply
\par }{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid10623064
\u9658\'3f Increased money supply
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f
Decreased interest rates
\par \u9658\'3f Increased purchasing power
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 }{\rtlch\fcs1 \ab\af0
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076
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000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
In order to understand the link among money, inflation and economic growth. We need
to measure which of the following?
\b\cf0\ulc0\insrsid7350076\charrsid10968911 \u9658\'3f Quantity of money
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Volume of
demand deposits
\par \u9658\'3f Inflation rates
\par \u9658\'3f Interest rates
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A borrower is promised a $100 payment (including interest) one year from today. If
the lender has an 8% opportunity cost of money, he should be willing to ac
cept what amount today?
\par \u9658\'3f Rs.100.00
\par \u9658\'3f Rs.108.20
\b\cf0\ulc0\insrsid7350076\charrsid8723471 \u9658\'3f Rs.92.59
Rs.96.40
\
8effd34580ace9d478c35331c42d728e}
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000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
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Which of the following provides the greatest incentive to borrow?
\par \u9658\'3f A high real interest rate
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076\charrsid1210459
\u9658\'3f A low real interest rate
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f A
high nominal interest rate
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f }
{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid1210459 A low
nominal interest rate}{
\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
\
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010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
The relationship between the price and the interest rate for a zero coupon bond is
best described as _________.
\par \u9658\'3f Volatile
\par \u9658\'3f Stable
\u9658\'3f Inverse
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f No
relationship
\par }\pard \ltrpar\ql \li0\ri0\widctlpar\tx2700\wrapdefault\faauto\rin0\lin0\itap0
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
The coupon rate of bond:
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Is another
term for the current yield
\par \u9658\'3f Is another term for the yield to maturity
\u9658\'3f Could not be calculated for a zero-coupon bond
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f None
of the given options
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Which of the following best describes default risk?
{\rtlch\fcs1 \ab\af0 \ltrch\fcs0
\b\cf0\ulc0\insrsid7350076\charrsid3504000 \u9658\'3f The chance the issuer
will be unable to make interest payments or repay principal
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The chance
the issuer will retire the debt early
\par \u9658\'3f The chance the issuing firm will be sold to another firm
\par \u9658\'3f The chance the issuer will sell more debt
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Which of the following ratings shows \'93Highest quality and credit worthiness\'94?

\u9658\'3f AAA
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f AA
\par }\pard \ltrpar\ql \li0\ri0\widctlpar\tx6840\wrapdefault\faauto\rin0\lin0\itap0
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f BB
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f A
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Considering the Liquidity Premium Theory, if investors expect short term interest
rates to decrease:
\u9658\'3f }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076\charrsid7350076
The yield curve must have a positive slope
}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076\charrsid16455128 \u9658\'3f
}{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid7350076
The yield curve must be inverted}{\rtlch\fcs1 \af0 \ltrch\fcs0
\cf0\ulc0\insrsid7350076\charrsid16455128
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The
yield curve could be flat
\par \u9658\'3f The slope of the yield curve should actually increase
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Stock market bubbles can lead to:
\par }\pard \ltrpar\qj
\li0\ri0\sb100\sa100\sbauto1\saauto1\widctlpar\wrapdefault\faauto\rin0\lin0\itap0
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f An
inefficient allocation of resources
{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid14555130
\u9658\'3f Stock market crashes
Patterns of volatile returns from the stock market
\par \u9658\'3f All of the given options
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Which of the following does not include in the bank's reserves?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
\b\cf0\ulc0\insrsid7350076\charrsid16455128 \u9658\'3f Treasury bills
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Currency
in the bank
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Bank's
deposits at the Federal Reserves
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Currency
in ATM machines
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Which of the following is a Depository institution?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Commercial
bank
\par \u9658\'3f Savings institution
\par \u9658\'3f Credit union
\u9658\'3f All of the given options
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 }{\rtlch\fcs1
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
A bank's Return on Equity is calculated by which of the following?
\par \u9658\'3f Dividing the banks liabilities by the bank's capital
\b\cf0\ulc0\insrsid7350076\charrsid16060827 \u9658\'3f Dividing the bank's net
profit after taxes by the bank's capital
Bank's assets plus the net profit after taxes and dividing this sum by the bank's
capital
\par \u9658\'3f Dividing the bank's net profit after taxes by the sum of the
bank's assets and its liabilities
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
___________ is a component of the liability side of the commercial bank\rquote s
balance sheet.}{\rtlch\fcs1 \ab\af0 \ltrch\fcs0
\b\cf0\ulc0\insrsid7350076\charrsid14906822
\u9658\'3f Deposits
Loans
\par \u9658\'3f Securities
\par }\pard \ltrpar\ql
\li0\ri0\sb100\sa100\nowidctlpar\wrapdefault\faauto\rin0\lin0\itap0 {\rtlch\fcs1
\ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid1646458 {\pict{\*\picprop\shplid1040{\sp{\sn
shapeType}{\sv 75}}{\sp{\sn fFlipH}{\sv 0}}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
Which one of the following is the similiraity between pension funds and insurance
companies?
\par }{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076 \u9658\'3f }
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 Pooling the savings of many
investors
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076 }{\rtlch\fcs1
\ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076\charrsid2049589 \u9658\'3f }
{\rtlch\fcs1 \ab\af0
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid2049589 Spreading risk
\li0\ri0\sb100\sa100\nowidctlpar\wrapdefault\faauto\rin0\lin0\itap0 {\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076 \u9658\'3f }{\rtlch\fcs1
\af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 Accepting deposits
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076 \u9658\'3f }
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 Both pool the savings
of many investors and spread risk
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076 Question No: 17 (
Marks: 1 ) - Please choose one
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid1646458
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\b\f1\cf0\ulc0\insrsid7350076 }{\rtlch\fcs1 \af0 \ltrch\fcs0
\cf0\ulc0\insrsid7350076 Pooling of small savings to provide loans is a function of
which of the following institution?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Insurance
company
\b\cf0\ulc0\insrsid7350076\charrsid13591855 \u9658\'3f Depository Institutions
(Bank)
Investment Bank
\par \u9658\'3f Securities firm
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Funds of depository institution are primarily used in
which of the following?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Corporate
bonds, Government bonds, Stocks, Mortgage
\par \u9658\'3f }{\rtlch\fcs1 \ab\af0 \ltrch\fcs0
\b\cf0\ulc0\insrsid7350076\charrsid6619391 Cash, Loan, Securities
Stocks, Government bonds, corporate bonds, commercial papers
\par \u9658\'3f Commercial papers, Bonds
\par }{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid1646458
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\b\f1\cf0\ulc0\insrsid7350076 }{\rtlch\fcs1 \af0 \ltrch\fcs0 \ulc0\insrsid7350076
Which one of the following refers to the risk assessment and loss reimbursement
guarantee by the individual risk experts of the relevant field?}{\rtlch\fcs1 \af0
\ltrch\fcs0 \cf0\ulc0\insrsid7350076
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid12926103 \u9658\'3f }{\rtlch\fcs1
\ab\af0
\ltrch\fcs0 \b\ulc0\insrsid7350076\charrsid12926103 Underwriting process}
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f }
{\rtlch\fcs1 \af0 \ltrch\fcs0 \ulc0\insrsid7350076 Insurance process }
\par \u9658\'3f }{\rtlch\fcs1 \af0 \ltrch\fcs0 \ulc0\insrsid7350076 Research
process}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
\par \u9658\'3f }{\rtlch\fcs1 \af0 \ltrch\fcs0 \ulc0\insrsid7350076 None of
the given options}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 The federal government is concerned about the health of
the banking system for many reasons. Which of the following reason is the most
important?
\par \u9658\'3f Banks are where government bonds are traded.
\par \u9658\'3f A significant number of people are employed in the banking
industry.
\b\cf0\ulc0\insrsid7350076\charrsid3364466 \u9658\'3f Banks are of great
importance in enabling the economy to operate efficiently.
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Many
people earn the majority of their income from interest on bank deposits.
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 "The Government is too big to fail" policy applies to
the______________.
\par \u9658\'3f Bank run in specific highly populated states which impacts a
large percent of the total population
\par \u9658\'3f Banks that have branches in more than two states
\par \u9658\'3f Large corporate payroll accounts held by some banks where
many people would lose their income
\b\cf0\ulc0\insrsid7350076\charrsid13268778 Large banks whose failure would
certainly start a widespread panic in the financial system
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 One advantage a central bank has over other businesses
including banks is that___________.
\par \u9658\'3f It receives all of its funding from the government
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f It doesn't
have stockholders
{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid8355514 It can
control its balance
sheet at its own will
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f It
doesn't have a board of directors
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 An open market purchase of U.S. Treasury securities by the
Fed will cause the Fed's balance sheet to show _________.
\par \u9658\'3f A decrease in the asset of securities and a decrease in the
liability of reserves
\par \u9658\'3f A decrease in the liability of reserves
\par \u9658\'3f No change in the size of balance sheet except composition of
assets
\b\cf0\ulc0\insrsid7350076\charrsid3816546 \u9658\'3f An increase in the asset
category of securities and the liability category of reserves
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 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:
\par \u9658\'3f r}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\sub\ulc0\insrsid7350076
D}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 D
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f (1/r}
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\sub\ulc0\insrsid7350076 D}{\rtlch\fcs1 \af0
\ltrch\fcs0
\cf0\ulc0\insrsid7350076 ) D
\b\cf0\ulc0\insrsid7350076\charrsid617860 \u9658\'3f 1/r}{\rtlch\fcs1 \ab\af0
\ltrch\fcs0 \b\cf0\sub\ulc0\insrsid7350076\charrsid617860 D}{\rtlch\fcs1 \ab\af0
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid617860
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f r}

{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\sub\ulc0\insrsid7350076 D}{\rtlch\fcs1 \af0
\ltrch\fcs0 \cf0\ulc0\insrsid7350076 times 10
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Which of the following best completes the statement; if
people decrease their currency holdings, all else the same, the monetary base
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Will not
change but the quantity of M2 will increase
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Will
increase along with the quantity of M2
\b\cf0\ulc0\insrsid7350076\charrsid7802052 Will decrease along with the quantity of
M2
There will be no change either to the monetary base or M2
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Identify the most appropriate statement.
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The FOMC
sets the federal funds rate
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The
discount rate is the primary policy tool of the FOMC
\par \u9658\'3f The difference between the target and actual federal funds
rate is the dealer's spread
\u9658\'3f The FOMC sets the target federal funds rate
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 }{\rtlch\fcs1
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Interest rate charged on overnight loans between the banks
is known as:
\par \u9658\'3f Discount rate
\par \u9658\'3f Inflation rate
\par \u9658\'3f Internal rate of return
\b\cf0\ulc0\insrsid7350076\charrsid1656909 Target federal funds rate}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Key assumptions behind the quantity theory of money
include which of the following?
\par \u9658\'3f The change in nominal GDP is zero
\par \u9658\'3f Percentage change in the price level equals the percentage
change in real GDP
\b\cf0\ulc0\insrsid7350076\charrsid8986793 The velocity of money is constant}
\par \u9658\'3f The money supply is fixed
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Which of the following statements is}{\rtlch\fcs1
\ab\ai\af0 \ltrch\fcs0 \b\i\ul\cf0\ulc0\insrsid7350076 incorrect}{\rtlch\fcs1 \af0
\ltrch\fcs0
\cf0\ulc0\insrsid7350076 ?
\par \u9658\'3f The velocity of M2 is more volatile in the short run than
the long run
\par \u9658\'3f Money velocity being stable in the long run was correct as
per Fisher's assumption
\par \u9658\'3f The velocity of M2 is less stable than the velocity of M1
\b\cf0\ulc0\insrsid7350076\charrsid7809430 \u9658\'3f The velocity of M2 is
relatively stable over long time periods
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Inflation in the long run would be determined by which one
of the following?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The
exchange rate
\par \u9658\'3f Aggregate demand
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid14113410 \u9658\'3f }{\rtlch\fcs1
\af0
\ltrch\fcs0 \cf0\ulc0\insrsid7350076\charrsid10240042 The rate of money growth}
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f }
Aggregate supply}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Of all of the component parts of aggregate demand, the
part least sensitive to changes in the real interest rate is:
\par \u9658\'3f Investment
\b\cf0\ulc0\insrsid7350076\charrsid3949699 \u9658\'3f Government purchases
Consumption
\par \u9658\'3f Net exports
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 If government purchases increase and push current output
above potential output, then monetary policymakers are likely to:
\u9658\'3f Raise the real interest rate
Lower the real interest rate
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Keep the
real interest rate constant focussing on changing nominal interest rate only
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Purchase
Treasury securities
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Which one of the following is }{\rtlch\fcs1 \ab\ai\af0
\ltrch\fcs0 \b\i\ul\cf0\ulc0\insrsid7350076 NOT}{\rtlch\fcs1 \af0 \ltrch\fcs0
\cf0\ulc0\insrsid7350076
true for gap analysis?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f It is the
difference between the yield on interest sensitive assets and liabilities
\par \u9658\'3f It is the difference in the maturity of assets and
liabilities
\u9658\'3f Banks manage credit risk by using gap analysis
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f It is a
formal study of what a business is doing currently and where it wants to go in the
future
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 A {\*\xmlopen\xmlns2{\factoidname country-region}}
{\*\xmlopen\xmlns2{\factoidname place}}U.S.{\*\xmlclose}{\*\xmlclose}
institution, United Bank, buys some financial assets denominated in British
pounds. Fluctuations in the dollar value of the pound will give rise to:
\par \u9658\'3f Credit risk
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f
Operational risk
{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid4291252 Foreign
exchange risk}{
\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076
\par \u9658\'3f Country risk
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 High State Bank purchases some U.S. Treasury bonds. We
would view such bonds as being free of:
\u9658\'3f Credit risk
Interest rate risk
\par \u9658\'3f Reinvestment risk
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Required reserve-to-deposit ratio is a factor that affects
the quantity of money. This factor is controlled by which of the following?
\par \u9658\'3f Central bank
\b\cf0\ulc0\insrsid7350076\charrsid7169953 \u9658\'3f Bank regulators
Commercial banks
\par \u9658\'3f Non bank public
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 {\*\bkmkstart OLE_LINK1}{\*\bkmkend OLE_LINK1}The real
purchasing power of money in circulation is expressed as which of the following?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f MV\'b7PY
\b\cf0\ulc0\insrsid7350076\charrsid2322375 \u9658\'3f M/P
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 }
\u9658\'3f}{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076\charrsid2322375
PY}{\rtlch\fcs1 \ab\af0
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid13255667
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f M/Y
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 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?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f}
{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid13255667 The
money growth rate as well
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The

long-term nominal interest rate as well
\par \u9658\'3f The real interest rate as well
\par \u9658\'3f The nominal exchange rate as well
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 If real interest rate increases, investment will:
\par \u9658\'3f Increase
\b\cf0\ulc0\insrsid7350076\charrsid13255667 \u9658\'3f Decrease
Remain constant
\par \u9658\'3f None of the given options
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 The aggregate demand curve will be relatively flat in
which of the following case?
\u9658\'3f If current output is very sensitive to inflation
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f If
current output is not sensitive to inflation
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f If
policymakers react more cautiously, to a movement of current inflation
\par \u9658\'3f If the monetary policy reaction curve is also flat
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Which of the following will shift the Aggregate Demand
curve to the right?
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f A decrease
in autonomous money demand
\par \u9658\'3f An increase in Exports
\par \u9658\'3f An increase in potential output
\b\cf0\ulc0\insrsid7350076\charrsid7896446 \u9658\'3f An increase in Government
purchases
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 When you need more units of money to buy the same amount
of good which you bought a month or a year ago. What does it mean?
\par \u9658\'3f Your economy has a high economic growth rate
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Your
economy\rquote s GDP value is more than previous year
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f Price in
your economy is falling causing deflation
\ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid12345917 \u9658\'3f
Price in your economy is raising causing inflation
Marks: 3 )
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Give a single line definition of the following.
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid4725431
\b\f1\cf0\ulc0\insrsid4725431\charrsid4725431 Answer:
\par }{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid4725431
1) }{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076\charrsid4725431
Credit risk}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid12596447\charrsid4725431
: This is a risk which arises when loan}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid8390053\charrsid4725431 s}{\rtlch\fcs1 \af1 \ltrch\fcs0
are not repaid. It is avoided by diversification and checking credit worthiness.}
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid4725431 \~}
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid12596447\charrsid4725431
\par }{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid4725431 \~
2) }{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid2032096\charrsid4725431
Interest-rate risk}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid2032096\charrsid4725431 : }{
\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid6693883\charrsid4725431 The assets
and liabilities of a bank are sensitive to interest rate but liabilities are of
short term and assets of long term so by an increase in i
nterest rate banks have the risk that value of assets fall more than that of
liabilities affecting the net worth or capital of bank. }{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid12596447\charrsid4725431
\par }{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid4725431 \~
\par 3) }{\rtlch\fcs1 \ab\af1 \ltrch\fcs0
\b\f1\cf0\ulc0\insrsid7350076\charrsid4725431 Liquidity risk}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid10360734\charrsid4725431 : It is a risk associated
with a sudden}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid6298839\charrsid4725431 increase in demand of}{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid4725431 \~}{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid10360734\charrsid4725431 funds. If bank can
not meet the
withdrawal requirement of all its customers, bank is considered illiquid and}
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid11805047\charrsid4725431 it}
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid10360734\charrsid4725431 may
fail.}{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid4725431
Marks: 3 )
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Describe the role of Central bank as \'93The Bankers
Bank\'94.
\b\f1\cf0\ulc0\insrsid6367260\charrsid1210459 Answer}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid6367260\charrsid1210459 : The central Bank works as
a Banker\rquote s Bank. The }{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid6298839\charrsid1210459 role which it plays is}{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid6367260\charrsid1210459
\par {\listtext\pard\plain\ltrpar \rtlch\fcs1 \af1 \ltrch\fcs0
\f3\insrsid6367260\charrsid1210459 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}\pard
\ltrpar\ql \fi-
360\li720\ri0\widctlpar\jclisttab\tx720\wrapdefault\faauto\ls2\rin0\lin720\itap0\pa
rarsid6367260 {
\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid6367260\charrsid1210459 Lender of
last resort. If banks go illiquid or during financial stress central bank provide
discount loans to banks.
\f3\insrsid7217351\charrsid1210459 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7217351\charrsid1210459 Manage
interbank payment system}{\rtlch\fcs1 \af1
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7217351\charrsid1210459 Monitors
the working of banks and}{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid14376416\charrsid1210459 }{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid4530476\charrsid1210459 stabilizing}
financial system
Marks: 3 )
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 What is the effect of an increase in potential output on
inflation and output?
\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid4725431
\li0\ri0\nowidctlpar\wrapdefault\faauto\rin0\lin0\itap0\pararsid2364599
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid4725431\charrsid4725431
Answer: }{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid4725431 }{
\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid12202843 Increase}{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid8395204 in potential output shifts long run
aggregate supply curve}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid12202843
to right}{
\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid8395204
, this shift has no impact on short run aggregate supply curve so inflation and
output remains unchanged. But in long run now as potential output is increased so
current output will be below potential output }{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid13136219 creating recessionary output gap}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid2364599 causing inflation to fall and output
begins to rise.}{\rtlch\fcs1 \af1 \ltrch\fcs0
Marks: 5 )
\li0\ri0\sb100\sa100\sbauto1\saauto1\widctlpar\wrapdefault\faauto\rin0\lin0\itap0
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\cf0\ulc0\insrsid7350076 Which relationship is shown by the monetary policy
reaction curve?
\par What will be the change in monetary policy reaction curve if the given factors
change?
\par {\listtext\pard\plain\ltrpar \rtlch\fcs1 \af0 \ltrch\fcs0 \insrsid7350076
\hich\af0\dbch\af0\loch\f0 a.\tab}}\pard \ltrpar\qj \fi-
360\li720\ri0\sb100\sa100\sbauto1\saauto1\widctlpar\tx720\wrapdefault\faauto\ls1\ri
n0\lin720\itap0 {\rtlch\fcs1 \af0
\ltrch\fcs0 \cf0\ulc0\insrsid7350076 An increase in the Central Bank\rquote s
Inflation Target
\par {\listtext\pard\plain\ltrpar \rtlch\fcs1 \af0 \ltrch\fcs0 \insrsid7350076
\hich\af0\dbch\af0\loch\f0 b.\tab}An increase in the Long-run real interest rate
\li360\ri0\sb100\sa100\sbauto1\saauto1\widctlpar\tx720\wrapdefault\faauto\rin0\lin3
60\itap0\pararsid8798855 {\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid8798855
\b\f1\cf0\ulc0\insrsid8798855\charrsid1210459 Answer}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid8798855\charrsid1210459 : }{\rtlch\fcs1 \af1
Monetary policy reaction curve gives a relationship between inflation and real
interest rate. It is set so that when current inflation equals target inflation,
real interest rate equals long run real interest rate.}{\rtlch\fcs1 \af1
\ltrch\fcs0
\b\f1\cf0\ulc0\insrsid12605859\charrsid1210459 a}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid12605859\charrsid1210459 . Increase in central bank\rquote s
inflation t
arget shifts the monetary policy reaction curve to right
\b\f1\cf0\ulc0\insrsid12605859\charrsid1210459 b}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid12605859\charrsid1210459 . Increase in long run real interest
rate shifts the curve to left.
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076
Marks: 5 )
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\f1\cf0\ulc0\insrsid7350076 Fill the table below:
\par
\par \ltrrow}\trowd \irow0\irowband0\ltrrow\ts11\trgaph108\trrh800\trleft-
108\trbrdrt\brdrs\brdrw10 \trbrdrl\brdrs\brdrw10 \trbrdrb\brdrs\brdrw10
\trbrdrr\brdrs\brdrw10
\trftsWidth1\trpaddl108\trpaddr108\trpaddfl3\trpaddfr3\tblind0\tblindtype3
\clvertalt
\clbrdrt\brdrs\brdrw10 \clbrdrl\brdrs\brdrw10 \clbrdrb\brdrs\brdrw10
\clbrdrr\brdrs\brdrw10 \cltxlrtb\clftsWidth3\clwWidth2156\clshdrawnil
\cellx2048\clvertalt\clbrdrt\brdrs\brdrw10 \clbrdrl\brdrs\brdrw10
\clbrdrb\brdrs\brdrw10 \clbrdrr\brdrs\brdrw10
\cltxlrtb\clftsWidth3\clwWidth2156\clshdrawnil
\cellx6360\clvertalt\clbrdrt\brdrs\brdrw10
\clbrdrl\brdrs\brdrw10 \clbrdrb\brdrs\brdrw10 \clbrdrr\brdrs\brdrw10
\cltxlrtb\clftsWidth3\clwWidth2157\clshdrawnil \cellx8517\pard \ltrpar\ql
\li0\ri0\widctlpar\intbl\wrapdefault\faauto\rin0\lin0 {\rtlch\fcs1 \ab\af1
\ltrch\fcs0
\b\f1\cf0\ulc0\insrsid7350076 Financial intermediary\cell Primary Sources of Funds
\par (Liabilities)\cell Primary Uses of funds (Assess)\cell Services
provided\cell }\pard \ltrpar\ql
\li0\ri0\widctlpar\intbl\wrapdefault\aspalpha\aspnum\faauto\adjustright\rin0\lin0
\trowd \irow0\irowband0\ltrrow\ts11\trgaph108\trrh800\trleft-
108\trbrdrt\brdrs\brdrw10 \trbrdrl\brdrs\brdrw10 \trbrdrb\brdrs\brdrw10
\trbrdrr\brdrs\brdrw10
\clvertalt\clbrdrt
\brdrs\brdrw10 \clbrdrl\brdrs\brdrw10 \clbrdrb\brdrs\brdrw10 \clbrdrr\brdrs\brdrw10
\cltxlrtb\clftsWidth3\clwWidth2157\clshdrawnil \cellx8517\row \ltrrow}\trowd
\irow1\irowband1\ltrrow\ts11\trgaph108\trleft-108\trbrdrt\brdrs\brdrw10
\trbrdrl\brdrs\brdrw10 \trbrdrb
\brdrs\brdrw10 \trbrdrr\brdrs\brdrw10
\clvertalt\clbrdrt\brdrs\brdrw10 \clbrdrl\brdrs\brdrw10 \clbrdrb\brdrs\brdrw10
\clbrdrr\brdrs\brdrw10
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076 Depository institutions (Bank) \cell }
{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid805024\charrsid805024 Checkable deposits, savings
and time deposits}{\rtlch\fcs1 \af1 \ltrch\fcs0
Borrowing from other sources}{\rtlch\fcs1 \ab\af1 \ltrch\fcs0
\b\f1\cf0\ulc0\insrsid805024 \cell }{\rtlch\fcs1 \af1 \ltrch\fcs0
Cash reserves,}{\rtlch\fcs1 \af1 \ltrch\fcs0
Market securities, loans}{\rtlch\fcs1 \ab\af1 \ltrch\fcs0
\b\f1\cf0\ulc0\insrsid15625315 \cell }{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid15625315 Pool savings, access
to payment system,}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076
\par }{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid15625315 Diversification,
\par liquidity}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid15625315\charrsid15625315 \cell }\pard \ltrpar\ql
\trowd \irow1\irowband1\ltrrow\ts11\trgaph108\trleft-108\trbrdrt\brdrs\brdrw10
\trbrdrl\brdrs\brdrw10 \trbrdrb\brdrs\brdrw10 \trbrdrr\brdrs\brdrw10
\clvertalt\clbrdrt
\cltxlrtb\clftsWidth3\clwWidth2157\clshdrawnil \cellx8517\row \ltrrow}\trowd
\irow2\irowband2\lastrow \ltrrow\ts11\trgaph108\trrh647\trleft-
108\trbrdrt\brdrs\brdrw10 \trbrdrl
\brdrs\brdrw10 \trbrdrb\brdrs\brdrw10 \trbrdrr\brdrs\brdrw10
\clbrdrr\brdrs\brdrw10
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076 Insurance company \cell }{\rtlch\fcs1
\af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid805024\charrsid805024 Expected claims}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid805024 \cell }{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid805024\charrsid805024 Corporate and government
bonds, stocks}{
\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid805024 \cell }
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid805024\charrsid805024 Pooling of
risk}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076\charrsid805024 \cell
}\pard \ltrpar\ql
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid7350076 \trowd
\irow2\irowband2\lastrow \ltrrow\ts11\trgaph108\trrh647\trleft-108\trbrdrt
\brdrs\brdrw10 \trbrdrl\brdrs\brdrw10 \trbrdrb\brdrs\brdrw10 \trbrdrr\brdrs\brdrw10
\clbrdrr
\brdrs\brdrw10 \cltxlrtb\clftsWidth3\clwWidth2156\clshdrawnil
\cltxlrtb\clftsWidth3\clwWidth2156\clshdrawnil \cellx4204\clvertalt\clbrdrt
\cltxlrtb\clftsWidth3\clwWidth2157\clshdrawnil \cellx8517\row }\pard \ltrpar\ql
\li0\ri0\nowidctlpar\wrapdefault\faauto\rin0\lin0\itap0 {\rtlch\fcs1 \af0
\ltrch\fcs0 \cf0\ulc0\insrsid7350076
Marks: 10 )
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\f1\cf0\ulc0\insrsid7350076 Discuss the factors that cause an increase or decrease
in the transaction and por}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid6367260 t}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid7350076 folio demand for money.
\b\f1\cf0\ulc0\insrsid14681019\charrsid14681019 Answer:}{\rtlch\fcs1 \ab\af1
\b\f1\cf0\ulc0\insrsid6451409\charrsid6451409 Transaction Demand for money: }
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid6451409 }{\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid6451409
The quantity of money people hold for transaction purposes is called transaction
demand for money. It depend on following factors}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid14681019
\par {\listtext\pard\plain\ltrpar \rtlch\fcs1 \ab\af1 \ltrch\fcs0
\ltrpar\ql \fi-
rarsid6451409 {
\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid6451409\charrsid6451409
Nominal income of people}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid6451409 : As the nominal income increases spending increases
which cause}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid12650686 s}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid6451409 an increase in the demand for money holding.
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid6451409\charrsid6451409 Cost
of holding money}{\rtlch\fcs1 \ab\af1
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid6451409 : }{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid6451409 The cost of money holding is the interest
foregone in holding the money in hand. So if the nominal interest rate is higher
people will prefer keeping money in banks etc so demand for money holding
decreases.}{\rtlch\fcs1 \ab\af1 \ltrch\fcs0
\b\f1\cf0\ulc0\insrsid6451409\charrsid6451409
\f3\insrsid6451409\charrsid6451409 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Availability
of substitutes}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid6451409
: If people have cheaper alternative means of payment they will hold less money.
\li0\ri0\widctlpar\wrapdefault\faauto\rin0\lin0\itap0\pararsid10762813 {\rtlch\fcs1
\af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid10762813
\b\f1\cf0\ulc0\insrsid10762813\charrsid10762813 Portfolio Demand for Money: }
{\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid10762813 }{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid10762813
Money is one instrument that people can hold in their investment portfolio. The
demand for holding money in portfolio is dependent on following factors:
\ltrpar\ql \fi-
rarsid10762813 {
\rtlch\fcs1 \ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid15015248\charrsid15015248
Wealth}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid15015248 : An increase in
wealth increases the demand for money}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid10762813
\f3\insrsid15015248 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}{\rtlch\fcs1 \ab\af1
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid15015248 Return on alternative investments}
{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid15015248\charrsid15015248 :}{\rtlch\fcs1 \af1 \ltrch\fcs0
\f1\cf0\ulc0\insrsid15015248 As the return on alternative investments fall people
hold more money.
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid15015248 Expected future interest rate}
\f1\cf0\ulc0\insrsid15015248 An increase in expected future interest rate
increases holding demand for money
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid15015248 Riskiness of alternatives}
\f1\cf0\ulc0\insrsid15015248 Riskier the alternative investments greater the
demand for money.
\ltrch\fcs0 \b\f1\cf0\ulc0\insrsid15015248 Liquidity}{\rtlch\fcs1 \af1
: If alt}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid5646977 ernative
investments become more}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid15015248
li}{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid5646977 quid demand for money
decreases}{
\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid15015248\charrsid10762813
\li0\ri0\widctlpar\wrapdefault\faauto\rin0\lin0\itap0\pararsid10762813 {\rtlch\fcs1
\ab\af1 \ltrch\fcs0 \b\f1\cf0\ulc0\insrsid10762813\charrsid10762813
\li360\ri0\widctlpar\wrapdefault\faauto\rin0\lin360\itap0\pararsid6451409
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid6451409 }{\rtlch\fcs1 \af1
Marks: 10 )
\
8effd34580ace9d478c35331c42d728e}
010009000003b500000005001c00000000000400000003010800050000000b0200000000050000000c0
20d006c0e040000002e0118001c000000fb029cff0000
000000009001000000000440001254696d6573204e657720526f6d616e0000000000000000000000000
000000000040000002d01000004000000020101000500
00000fa0200000600000000000000040000002d010100
07000000fc020100000000000000040000002d0102000800000025030200040003005f0e03000800000
0fa0200000000000000000000040000002d0103000700
21000070000000000bc02000000000102022253797374656d000000000000fd99807c58bd1e0010f923
\f1\cf0\ulc0\insrsid7350076 If Excess reserves are not available how a bank manages
Liquidity risk?
\b\f1\cf0\ulc0\insrsid9837298\charrsid9837298 Answer: }{\rtlch\fcs1 \af1
One way of managing liquidity risk is to keep excess reserves but this is not
profitable as reserve is interest free.
\par There are two other ways through which a bank can manage liquidity risk.
\f3\insrsid9837298 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}\pard \ltrpar\ql \fi-
360\li780\ri0\nowidctlpar\jclisttab\tx780\wrapdefault\faauto\ls5\rin0\lin780\itap0\
pararsid9837298 {\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid9837298 Adjusting other assets of balance sheet}
{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid9837298\charrsid9837298
\f3\insrsid9837298 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid9837298 Adjusting liability side}{\rtlch\fcs1
\af0 \ltrch\fcs0
\cf0\ulc0\insrsid9837298\charrsid9837298
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid16070174
\par }{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid9837298 In adjusting assets
banks can instead of paying through reserves, fulfill withdrawal requirements }
by adjusting other assets. Banks can either
\ltrch\fcs0 \f1\cf0\ulc0\insrsid12266934 sell their securities}{\rtlch\fcs1 \af1
\f3\insrsid12266934 \loch\af3\dbch\af0\hich\f3 \'b7\tab}}{\rtlch\fcs1 \af1
\ltrch\fcs0 \f1\cf0\ulc0\insrsid12266934 sell their loans
\f3\insrsid12266934 \loch\af3\dbch\af0\hich\f3 \'b7\tab}refuse a loan renewal
{\rtlch\fcs1 \af1 \ltrch\fcs0 \f1\cf0\ulc0\insrsid12266934 The second option banks
have is to adjust their liabilities.
\ltrch\fcs0 \f1\cf0\ulc0\insrsid12266934 Borrow from other banks or central bank
\f3\insrsid12266934 \loch\af3\dbch\af0\hich\f3 \'b7\tab}Attracting more deposits}
\par }}

MGT411Spring 2009 FinalTerm OPKST MoneyampBankingMGT4111

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\par }{\rtlch\fcs1 \ab\af0 \ltrch\fcs0 \b\cf0\ulc0\insrsid7350076\charrsid1979226

\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f r}

\par }{\rtlch\fcs1 \af0 \ltrch\fcs0 \cf0\ulc0\insrsid7350076 \u9658\'3f The

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