Mid Term Mgt411 Vu-New

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Money & Banking (MGT411)

Fall Semester 2006
(Solution)Quize # 01
(Marks 10)
1- The present value of an asset can be found by __________________ the future value.
A. Stripping
B. Discounting
C. Compounding
D. Annualizing
2- The interest rate used in the present value calculation is often referred to as the
A. Internal rate of return
B. Inflation rate
C. Discount rate
D. Nominal rate
3- When the yearly coupon payments rises then

A. The value of the coupon bond falls
B. The value of the coupon bond rises
C. The price of the coupon bond rises
D. The price of the coupon bond falls
4- Bond prices are

A. Equal to the face value of the bond
B. Equal to the real interest rate
C. Equal to the nominal interest rate
D. Inversely related to the interest rate
5- If the inflation rate is expected to be 5 % and nominal interest rate is 9%, then the real
interest rate will be
A. 14%
B. 9%
C. 5%
D. 4%
6- Riskier investment must have

A. Lower expected returns
B. Higher expected returns
C. No expected return
D. None of the above
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7- If market interest rate is higher than the individual’s personal discount rate then people will
made
A. Higher savings
B. Lower savings
C. Dissavings
D. None of the above option
8- The internal rate of return is the interest rate that equates

A. The present value of an investment with its future value
B. The present value of an investment with its cost
C. The future value of an investment with its cost
D. None of the given options
9- The central bank of Pakistan is the

A. Federal Reserve
B. Securities and Exchange Commission
C. State Bank
D. Department of the Treasury
10- Studying money, banking, and financial markets will help you to
B. Answer basic questions about financial relationships from family members
C. Better understand financial newspapers
D. Get a job after your graduate
E. All of the above

Fall Semester 2006
Solution: Quiz # 02
Marks 10
1. “Don’t put all your eggs in one basket” is the famous statement of:
A. Moral hazard
B. Indirect finance
C. Asymmetric information
D. Diversification
2. According to which principle, people and companies concentrate on such

activities for which their opportunity cost is lower?
A. Principle of absolute advantage

B. Principle of comparative advantage
C. Principle of management
3. The problem of “asymmetric information” arises because:
A. Lender knows more than the borrower

B. Borrower knows more than the lender
C. Borrower and lender have different goals
D. Borrower and lender know the future much less than they do the present
4. Nonprofit depository institutions that are owned by people with a common bond
are known as:
A. Commercial banks
B. Central banks
C. Credit unions
D. Insurance companies
5. Which of the following is true?
A. Total bank assets = Total bank liabilities + Bank capital

B. Bank capital = Total bank assets – Total bank liabilities
C. Total bank liabilities = Total bank assets – Bank capital
D. All of the above are true
6. Securities are highly liquid and can be sold quickly if the bank needs cash, that’s
why these are also called:
A. Primary reserves
B. Secondary reserves
C. Excess reserves
7. Cash has a high opportunity cost because:
A. It earns no interest
B. It earns less interest
C. It earns more interest
D. Both B & C
8. The net worth of banks is known as the:
A. Bank capital
B. Bank liability
C. Bank assets
D. Bank profit
9. ____________ is a measure of how efficiently a particular bank uses its assets:
A. Return on assets
B. Return on equity
C. Return on bonds
10. If return on equity is higher for larger banks then it shows the existence of:
A. Economies of scope
B. Economies of scale
C. Diseconomies of scale
D. All of the given options
‫۝۝۝‬BEST OF LUCK‫۝۝۝‬

Fall Semester 2006
Quiz # 03
Marks 10
1) Instruments that are not directly under the control of the Central Bank are
referred to as:
E. Operating instruments
F. Intermediate targets
G. Economic instruments
H. Social instruments
2) Every country with high inflation has ____________ money growth:
A. High
B. Low
C. Medium
D. Zero
3) Which of the following statement is true?
A. Nominal GDP = PY
B. Nominal GDP > PY

C. Nominal GDP < PY
D. Nominal GDP ≠ PY
4) According to Milton Friedman, Central Banks should set money

growth at a __________ rate:
A. Increasing rate
B. Decreasing rate
C. Constant rate
D. Zero rate
5) ____________ is one of the financial instruments that we can hold in our

investment portfolios:
A. Bonds
B. Shares
C. Money
D. Term finance certificates (TFC)
6) Increases in price level will ____________ the purchasing power of money:
A. Increase
B. Decrease
C. No change
D. Balance
7) At long run real interest rate:
A. AD = Potential Output
B. AD > Potential Output
C. AD < Potential Output
8) __________ curve is downward sloping because higher inflation reduces real

money balances:
A. Aggregate Demand Curve

B. Aggregate Supply Curve
C. IS Curve
D. LM Curve
9) Increases in government purchases will ________ the aggregate demand:
A. Increase
B. Decrease
C. No change
D. Balance
10) A change in cost of producing output causes the ________ curve to shift:
A. Aggregate Demand Curve

B. Aggregate Supply Curve
C. IS Curve
D. LM Curve
‫۝۝۝‬BEST OF LUCK‫۝۝۝‬
1. Future value is equal to:
a. PV/ i
b. PV + PV +i
c. PV + i
d. None of the given options.
2. In compounding we calculate the future value for:
a. Less than 1 year.

b. Equal to 1 year.
c. More than 1 year.
d. All of the given options.
3. ___________ is used in the calculation of present value:
a. Compounding
b. Discounting.
c. Yield to maturity.
4. You receive a check for $100 two years from today. The discounted present
value of this $100 is:
a. $100*(1+i)2
b. $100/ (1+i)
c. $100/(1+i)2
d. $100*(1+i)
5. As bond prices increase:
a. Yields to maturity increase.

b. Yields to maturity do not change.
c. Yields to maturity decrease.
6. For a $1000 one year discount bond with a price of $975, the yield to maturity
is:
$1000/$975
($1000 – $975)/$975
($1000 – $975)/ ($1000)
$975/$1000
7. For a coupon bond, the current yield is calculated as:
a. Coupon Payment/Price
b. The current yield is the same as the coupon rate.
c. Coupon Payment/Face Value
d. Coupon Payment/((Price + Face Value)/2)
8. For a coupon bond, the yield to maturity is the:
a. Difference between the bond's price and its face value.

b. Annual interest payment divided by the bond's face value.
c. Interest rate that equates the bond's present value with its face value.
d. Interest rate that equates the bond's present value with its price.
9. The real interest rate is:
a. The nominal rate plus the expected inflation rate.

b. The nominal interest rate/the CPI.
c. The product of the nominal rate and the CPI.
d. The nominal rate minus the expected inflation rate.
10. Other things remaining equal, which of the following will increase the demand
(shift the demand curve to the right) for bond J?
a. An increase in the risk level of bond J.
b. An increase in the interest rate on bond K.

c. An increase in the level of wealth in the economy.
d. An increase in the interest rate on bond J.
11. At a bond price above the equilibrium,
a. There is an excess supply and the price will tend to rise.

b. There is an excess supply and the price will tend to fall.
c. There is an excess demand and the price will tend to rise.
d. There is an excess demand and the price will tend to fall.
12. Using money demand and money supply:
a. An increase in prices will increase money demand and decrease the interest
rate.
b. An increase in expected inflation will decrease money demand and decrease
interest rates.
c. An increase in income will increase money demand and increase the
interest rate.
d. An increase in the money supply will increase the interest rate.
13. According to the ________ effect, an increase in the money supply lowers the
interest rate.
a. Price-level
b. Liquidity
c. Income
d. Expected-inflation
14. Riskier investment must have:
a. Lower expected returns

b. Zero expected returns
c. Higher expected returns.
15. _____________ risks affect everyone.
a. Idiosyncratic
b. Systematic
c. Hedging
16. Zero- Coupon bonds are sold at a price:
a. Equal t their face value

b. Below their face value.
c. Above their face value.

17. If the bond is selling above the face value than it is called:
a. Discount
b. Compound
c. Premium
18. Municipal bonds generally have lower interest rates than U.S. Government
bonds because:
a. They have less risk.

b. They are more liquid.
c. They never mature.
d. They are exempt from Federal taxes.
19. Yield curves show:
a. The relationship between liquidity and bond interest rates (yields).

b. The relationship between risk and bond interest rates (yields).
c. The relationship between bond interest rates (yields) and bond prices.
d. The relationship between time to maturity and bond interest rates (yields).
20. The expectations theory of the term structure assumes:
a. Buyers of bonds prefer bonds with longer maturities.

b. Buyers of bonds consider bonds of different maturities to be perfect
substitutes.
c. Buyers of bonds prefer bonds with shorter maturities.
d. Markets for different maturity bonds are completely separate.
1. According to the liquidity premium theory of the term structure, when the yield
curve has its usual slope, the market expects:
a. Short-term interest rates to rise sharply.

b. Short-term interest rates to stay near their current levels.
c. Short-term interest rates to drop sharply.
d. None of the above.
2. When the yield curve slopes down,
a. The expectations theory suggests that short-term interest rates are

expected to fall.
b. The segmented markets theory suggests that short-term interest rates are
expected to rise.
c. The expectations theory suggests that short-term interest rates are expected to
rise.
d. The liquidity premium theory suggests that short-term interest rates are expected
to rise.
3. Which of the following patterns of term structure occur most frequently?

a. Ascending yield curve
b. Descending yield curve
c. Flat yield curve
d. Humped yield curve
4. Common stocks (or corporate stocks):

a. Represent an IOU on the part of the issuing firm
b. Entitle the holder to contractual payments
c. Were a poor investment over the period 1982-1996
d. Allows the holder to share in the earnings of the firm
5. Financial intermediaries:
a. Channel funds from savers to borrowers

b. Greatly enhance economic efficiency
c. Have been an source of many financial innovations
d. Have done all of the above
6. Which of the following cannot be described as indirect finance?

a. You take out a mortgage from your bank.
b. An insurance company lends money to General Motors Corporation.
a. You borrow $1000 from your best friend.
c. You buy shares in a mutual fund.
7. Which of the following is a depository institution?
a. Life insurance Company

b. Credit union
c. Pension fund
d. Finance company
8. Which of the following is traded in a money market?
a. U.S. Treasury bonds

b. Mortgages
c. Common stocks
d. Federal funds
9. The primary liabilities of a savings and loan association are:

a. Bonds.
b. Mortgages.
c. Deposits.
d. Commercial paper.
10. Financial intermediaries promote efficiency and thereby increase people’s

wealth:
a. By reducing the transaction cost of linking together lender and borrowers.

b. To the extent that they help solve problems created by adverse selection and
moral hazard.
c. By providing additional jobs.
d. Because of only (a) and (b) of the above.
11. When an investment bank purchases a new issue of securities in the hopes of
making a profits, it is said to ________ the issue.
a. Pawn
b. Back stock
c. Syndicate
d. Underwrite
12. Which of the following is a use for commercial bank funds?
a. Loans
b. Securities
c. Reserves
d. All of the above
13. On the commercial bank balance sheet, which of the following is an asset?
a. Capital accounts
b. Deposits with Federal Reserve
c. transactions deposits
d. All of the above
14. If a bank has total assets of $100 million and capital accounts of $8 million,
then:
a. Its total liabilities are $92 million
b. Its total liabilities are $108 million
c. It has an equity multiplier of 10
d. None of the above are true
15. A bank can increase its leverage by increasing its ratio of:
a. Earnings/total assets
b. Total assets/equity capital
c. Earnings/equity capital
d. Equity capital/total assets
16. When you deposit a $100 check in your bank account at the First National
Bank of Chicago and you withdraw $50 in cash, then:
a. The liabilities of First National Bank rise by $100.

b. The reserves of First National Bank rise by $100.
c. The assets of the First National Bank rise by $100.
d. The liabilities of the First National Bank rise by $50.
17. Commercial banks obtain funds by:

a. Issuing demand deposits
b. Borrowing from other banks
c. Issuing ownership claims (equity)
d. All of the above
18. A bank failure is more likely to occur when:
a. A bank holds more U.S. government securities

b. A bank suffers large deposit outflows.
c. A bank holds more excess reserves.
d. A bank has more bank capital.
19. ---------------measures how efficiently a bank uses its assets:
a. Return on assets
b. Return on equity
c. Bank capital
d. Bank Profitability
20. -----------refers to the risk assessment and loss reimbursement guarantee by

the individual risk experts of the relevant field:
a. Underwriting process
b. Research process
c. Insurance process
d. None of the given options
21. The euro is the name for:
a. A currency deposited outside its country of origin.
b. A bond sold internationally outside of the country in whose currency the bond is
denominated.
c. A common European currency.
d. A type of sandwich.
22. Banks can operate in other countries by:
a. Offering same services as in home country

b. Opening a foreign branch
c. Creating an international Banking Facility
23. The theory of efficient markets:
a. Allows for higher than average returns if the investor takes higher than
average risk
b. Says insider information makes markets less efficient
c. Rules out high returns due to chance
d. Assumes people have equal luck
24. If information in a financial market is asymmetric, this means:
a. Borrowers and lenders have perfect information

b. Borrowers would have more information than lenders
c. Borrowers and lenders have the same information
d. Lenders lack any information
25. Khushali Bank is:
a. A Finance company
b. A Securities firm
c. A Government sponsored enterprise
d. An insurance company
1. Currency includes the following forms of assets:
a. Paper money and coins.

b. Paper money, coins, and checks.
c. Paper money and checks.
d. Paper money and savings deposits.
2. The conversion of a barter economy to one that uses money increases

efficiency by reducing:
a. The need to exchange goods.

b. The need to specialize.
c. The need to employ team production.
d. Transaction costs.
3. Of money's three functions, the one that distinguishes money (as measured by
M1) from other assets is its function as a:
a. Store of value.
b. Unit of account.
c. Standard of deferred payment.
d. Medium of exchange.
4. The narrowest definition of money that the Federal Reserve System reports is:
a. M0.
b. M1.
c. M2.
d. M3.
5. Higher the risk,
a. Higher will be the compensation,

b. Lower the compensation,
c. There will be no compensation,
6. the financial system makes it easier to trade,

a. Facilitate payments,
b. Channel funds from savers to borrowers,
c. Enable risk sharing,
7. Given the price level Pt, the inflation rate is calculated as:
a. (Pt – Pt-1)/Pt
b. Pt – Pt-1
c. (Pt – Pt-1)/Pt-1
d. Pt/Pt-1
8. The GDP deflator is calculated as:
a. Real GDP – Nominal GDP

b. Nominal GDP/Real GDP
c. Nominal GDP – Real GDP
d. Real GDP/Nominal GDP
9. Present value is equal to:

a. 1/FV
b. FV/ i
c. FV/ (1+i) n
10. Financial institutions play an important role to,
a. Reduce transaction,
b. Reduce information,
c. Curb information,
1. Which of the following correctly states the relationship regarding banks'

balance sheets?
a. Total Bank Liabilities = Total Bank capital + Total Bank Assets.

b. Total Bank Assets = Total Bank Liabilities + Total Bank Capital.
c. Total Bank Assets = Total Bank Liabilities – Total Bank Capital.
d. Total Bank Assets = Total Bank Capital – Total Bank Liabilities.
2. A bank's reserves do not include:
a. U.S. Treasury bills.

b. Currency in the bank.
c. The bank's deposits at the Federal Reserve.
d. Currency in ATM machines.
3. Eurodollars are:
a. Dollar-denominated deposits in foreign banks.

b. Euro denominated deposits in U.S. Banks
c. The currency of the European Economic Union.
d. Dollars that are specially printed for use in the European Union countries to
minimize counterfeiting.
4. One of the unique problems that banks face is:
a. They hold illiquid assets to meet liquid liabilities.

b. They hold liquid assets to meet illiquid liabilities.
c. They hold liquid assets to meet liquid liabilities.
d. Both banks' assets and liabilities are illiquid.
5. Central banks perform each of the following EXCEPT:
a. Issue currency.
b. Operate a payments system.
c. Controls the availability of money and credit.
d. Manages fiscal policy.
6. The specific goals of central banks include each of the following EXCEPT:
a. High and stable real growth.

b. Low and stable inflation.
c. High levels of imports.
d. Low and stable unemployment rates.
7. Small and medium enterprise (SME) Bank is:
a. A Finance company
b. A Securities firm
c. A Government sponsored enterprise
d. An insurance company
8. ---------------is classified as a liability for a commercial bank:
a. Reserves
b. Commercial loans
c. Demand deposits
d. Deposits with the Federal Reserve
9. ------------------is a primary policy tool of the Central Bank:
a. Inflation rate
b. Open market operations
c. interest rate
d. money supply
10. -----------is a component of the liability side of the commercial bank’s balance
sheet:
a. Deposits
b. Loans
c. Securities
d. All of the given options
MONEY & BANKING (MGT411)

SPRING SEMESTER 2007
SOLUTION
QUIZ # 01
MARKS 10
1- A lender 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 accept what amount
today?
A. $100.00
B. $108.20
C. $92.59
D. $96.40
2- The higher the Future Value (FV) of the payment, the higher will be the:
A. Discount rate
B. Present value
C. Liquidity
D. Cost of borrowing
3- The procedure of finding out the Present Value (PV) is known as:
A. Discounting
B. Compounding
C. Time value of money
D. Bond pricing
4 ---------------- tells us after how much time period the amount of money will become
double.
A. Real interest rate

B. Nominal interest rate
C. Rule of 72
D. Time value of money
5- The interest rate used in the present value calculation is often referred to as:
A. Discount rate
B. Inflation rate
C. Nominal rate
D. None of the given option
6- The procedure of finding out the Future Value (FV) is known as:
A. Discounting
B. Compounding

D. Bond pricing
7- The price of a bond is the ---------------- of its payments.
A. Present Value
B. Future Value
C. Coupon rate
D. Principal amount
8- The ---------------is defined as the probability weighted average of the squared deviations
of the possible outcomes from their expected value.
A. Standard deviation
B. Variance
C. Mean
D. Median
9- The difference between real and nominal interest rate is
A. The cost of borrowing

B. The effect of inflation
C. The price of bonds
10- The Future Value (FV) of $1000 in 5 years at 5% interest rate will be:
A. $1000.00
B. $1276.28
C. $999.99
D. $1500.52
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(BEST OF LUCK)
SOLUTION: QUIZ # 02
MARKS: 10
1. A decrease in the expected future interest rate makes bonds -------------------
A. Less attractive
B. More attractive
C. Less expensive
D. More expensive
2. As interest rate falls in recession, the bond prices are likely to ------------------
A. Decrease
B. Increase
C. Be stable
D. Fluctuate
3. There is no guarantee that a bond issuer will make the promised payments is known
as the:
A. Default risk
B. Inflation risk
C. Interest rate risk
D. Systematic risk
4. The greater the inflation risk, the ------------ will be the compensation for it.
A. Smaller
B. Larger
C. Zero
5. --------------risk arises from the fact that investors don’t know the holding period
yield of a long term bond.
A. Default risk
B. Inflation risk
C. Interest rate risk
D. Systematic risk
6. The ---------------are an assessment of the creditworthiness of the corporate issuer.
A. Bond yield
B. Bond ratings
C. Bond risk
D. Bond rate
7. The lower a bond’s rating, the------------will be its price.
A. Higher
B. Lower
C. Equal to
D. No change
8. A plot of the term structure with YTM on Y-axis and time to maturity on X-axis is
called
A. Demand curve
B. Supply curve
C. Yield curve
D. Leffer curve
9. Yields on short term bonds are -------------- than the yield on long term bonds.
A. Less volatile
B. Higher
C. Lower
D. More volatile
10. The KSE 100 Index contains a representative sample of common stock that trade on
the
A. Lahore Stock Exchange

B. Karachi Stock Exchange
C. Islamabad Stock Exchange
D. New York Stock Exchange

QUIZ # 03
MARKS: 10
1- Which of the following appears as a liability in the balance sheet of the central
bank?
A. Currency
B. The government’s deposit account
C. The deposit accounts of the commercial banks
2- The transaction in which central bank buys or sells foreign currency reserves
is known as:
A. Foreign exchange intervention

B. Open market operation
C. Discount loans
D. Reserve requirement
3- Which of the following equations depicts equation of exchange?
A. MV= VY
B. MV=PY
C. MP=VY
D. V=PY
4- ---------------is determined by the central bank and the behavior of the banking
system:
A. Money demand
B. Money supply
C. Aggregate demand
D. Aggregate supply
5- If the alternative assets become more risky then the demand for money:
A. Goes up
B. Goes down
C. Remains unchanged
6- The interest rate at which aggregate demand equals potential output is known
as:
A. Discount rate
B. Short run real interest rate
C. Long run real interest rate
D. Inflation rate
7- An increase in the long run real interest rate shifts the monetary policy reaction
curve to the:
A. Right
B. Left
C. No change
8- An increase in oil prices causes the short run aggregate supply curve to shift:
A. Upward
B. Downward
C. No change
9- An increase in potential output shifts the long run aggregate supply curve to
the:
A. Left
B. Right
C. No change
10- --------------policy works slowly and almost impossible to implement effectively:
A. Monetary policy
B. Fiscal policy
C. Trade policy
D. Foreign exchange policy
1. A lender 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 accept what amount today?
a) $100.00
b) $108.20
c) $92.59
d) $96.40
2. Which one of the following is the procedure of finding out the Present Value (PV)?
a) Discounting
b) Compounding
c) Time value of money
d) Bond pricing
3. The interest rate used in the present value calculation is often referred to as:
a) Discount rate
b) Inflation rate
c) Nominal rate
d) None of the given option
4. What will the result of the difference of real and nominal interest rate?
a) The cost of borrowing

b) The effect of inflation
c) The price of bonds
d) None of the given option
5. What will be the Future Value (FV) of $1000 in 5 years at 5% interest rate?
a) $1000.00
b) $1276.28
c) $999.99
d) $1500.52
6. If there is a decrease in the expected future interest rate, what will be its affect on bond?
a) Bond will Less attractive

b) Bond will More attractive
c) Bond will Less expensive
d) Bond will More expensive
7. There is no guarantee that a bond issuer will make the promised payments is known as:
a) Default risk
b) Inflation risk
c) Interest rate risk
d) Systematic risk
8. A plot of the term structure with YTM on Y-axis and time to maturity on
X-axis is called:
a) Demand curve
b) Supply curve
c) Yield curve
d) Leffer curve
9. If bond’s rating is lower, what will be its price?
a) Higher
b) Lower
c) Equal to
d) No change
10. Bond A is for 1 Year and Bond B is for 5 years maturity period which one of the statements
is true for Bond A and Bond B.
a) Yields on A is Less volatile than the yield on B

b) Yields on A is Higher than the yield on B
c) Yields on A is Lower than the yield on B
d) Yields on A is More volatile than the yield on B
Which of the following ratings denote the lowest expectations of credit risk?
• A
• AA
• AAA
• BBB
Which of the following patterns of term structure occur most frequently?

• Ascending yield curve
• Descending yield curve
• Flat yield curve
• Humped yield curve
Common stocks (or corporate stocks):

• Represent an IOU on the part of the issuing firm
• 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
Financial intermediaries:
• Channel funds from savers to borrowers

• Greatly enhance economic efficiency
• Have been an source of many financial innovations
• Have done all of the above
Which statement shows the major difference between stocks and bonds?
• Bonds pay their owners dividends while stocks pay interest

• Bonds pay their owners interest while stocks pay dividends
• The interest on a bond depends on the earnings of the corporation and is not
guaranteed while dividends on stock are legally required
• Bonds represent ownership while stock represents debt
----------------------agencies assess the default risk of different issuers:

• Insurance
• Bond issuing
• Credit rating
• None of the given options
The ---------------are an assessment of the creditworthiness of the corporate issuer.
• Bond yield
• Bond ratings
• Bond risk
• Bond rate
The KSE 100 Index contains a representative sample of common stock that trade on the
• Lahore Stock Exchange

• Karachi Stock Exchange
• Islamabad Stock Exchange
• New York Stock Exchange
According to the liquidity premium theory of the term structure, when the yield curve has
its usual slope, the market expects:
• Short-term interest rates to rise sharply.

• Short-term interest rates to stay near their current levels.
• Short-term interest rates to drop sharply.
• None of the above
When the yield curve slopes down,
• The expectations theory suggests that short-term interest rates are expected to fall.
• The segmented markets theory suggests that short-term interest rates are expected to rise.
• The expectations theory suggests that short-term interest rates are expected to rise.
• The liquidity premium theory suggests that short-term interest rates are expected to rise.
1. Which of the following correctly states the relationship regarding banks' balance sheets?
A. Total Bank Liabilities = Total Bank capital + Total Bank Assets.

B. Total Bank Assets = Total Bank Liabilities + Total Bank Capital.
C. Total Bank Assets = Total Bank Liabilities – Total Bank Capital.
D. Total Bank Assets = Total Bank Capital – Total Bank Liabilities.
2. A bank's reserves do not include:
A. U.S. Treasury bills.

B. Currency in the bank.
C. The bank's deposits at the Federal Reserve.
D. Currency in ATM machines.
3. Eurodollars are:
A. Dollar-denominated deposits in foreign banks.

B. Euro denominated deposits in U.S. Banks
C. The currency of the European Economic Union.
D. Dollars that are specially printed for use in the European Union countries to minimize
counterfeiting.
4. One of the unique problems that banks face is:
A. They hold illiquid assets to meet liquid liabilities.

B. They hold liquid assets to meet illiquid liabilities.
C. They hold liquid assets to meet liquid liabilities.
D. Both banks' assets and liabilities are illiquid.
5. Central banks perform each of the following EXCEPT:

A. Issue currency.
B. Operate a payments system.
C. Controls the availability of money and credit.
D. Manages fiscal policy.
6. The specific goals of central banks include each of the following EXCEPT:
A. High and stable real growth.

B. Low and stable inflation.
C. High levels of imports.
D. Low and stable unemployment rates.
7. Small and medium enterprise (SME) Bank is:
A. A Finance company
B. A Securities firm
C. A Government sponsored enterprise
D. An insurance company
8. ---------------is classified as a liability for a commercial bank:
A. Reserves
B. Commercial loans
C. Demand deposits
D. Deposits with the Federal Reserve
9. ------------------is a primary policy tool of the Central Bank:
A. Inflation rate
B. Open market operations
C. interest rate
D. money supply
10. -----------is a component of the liability side of the commercial bank’s balance sheet:
A. Deposits
B. Loans
C. Securities
1- A lender 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 accept
what amount
today?
A. $100.00
B. $108.20
C. $92.59
D. $96.40
2- The higher the Future Value (FV) of the payment, the higher will be the:
A. Discount rate
B. Present value
C. Liquidity
D. Cost of borrowing
3- The procedure of finding out the Present Value (PV) is known as:
A. Discounting
B. Compounding
D. Bond pricing
4 ---------------- tells us after how much time period the amount of money will
become
double.
A. Real interest rate
B. Nominal interest rate
C. Rule of 72
D. Time value of money
5- The interest rate used in the present value calculation is often referred to
as:
A. Discount rate
B. Inflation rate
C. Nominal rate
6- The procedure of finding out the Future Value (FV) is known as:
A. Discounting
B. Compounding
D. Bond pricing
7- The price of a bond is the ---------------- of its payments.
A. Present Value
B. Future Value
C. Coupon rate
D. Principal amount
8- The ---------------is defined as the probability weighted average of the
squared
deviations of the possible outcomes from their expected value.
A. Standard deviation
B. Variance
C. Mean
D. Median
9- The difference between real and nominal interest rate is
A. The cost of borrowing
B. The effect of inflation
C. The price of bonds
10- The Future Value (FV) of $1000 in 5 years at 5% interest rate will be:
A. $1000.00
B. $1276.28
C. $999.99
D. $1500.52
11- Stock exchange is an example of:
A. Financial instrument
B. Financial institution
C. Financial market
D. Bank
12- Which of the following is NOT an example of financial institutions?
A. Banks
B. Securities firms
C. Stock exchanges
D. Insurance companies
13. Which of the following are used to monitor and stabilize the economy?
A. Governments
B. Commercial Banks
C. Central Banks
D. Financial institutions
14. Financial instruments are evolved just as much as _____________.
A. Currency
B. Stocks
C. Bonds
D. Commodity
15. Previously financial markets are located in which of the following?
A. Coffee houses or Taverns
B. Stock exchanges
C. Bazaar
D. Coffee houses and Stock exchanges
16. We need __________ to carry out day to day transactions
A. Money
B. Bonds
C. Stocks
D. Loans
17- Among the following which one is less liquid asset?
A. Checking account
B. Car
C. Share
D. Debit card
18- Which of the following is the final mode of payment?
A. Money
B. ATM
C. Cheque
D. Yet to discover
19- Debit card works in the same way as which one of the following?
A. Cheque
B. Credit card
C. Store value card
D. Pay order
20- Banks use to handle transactions among themselves, through which one
of the
following?
A. Debit card
B. Electronic transfers
C. Credit card
D. Store value card

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Money & Banking (MGT411)

3- When the yearly coupon payments rises then

4- Bond prices are

6- Riskier investment must have

8- The internal rate of return is the interest rate that equates

9- The central bank of Pakistan is the

Money & Banking (MGT411)

2. According to which principle, people and companies concentrate on such

A. Principle of absolute advantage

3. The problem of “asymmetric information” arises because:

A. Lender knows more than the borrower

5. Which of the following is true?

A. Total bank assets = Total bank liabilities + Bank capital

7. Cash has a high opportunity cost because:

8. The net worth of banks is known as the:

9. ____________ is a measure of how efficiently a particular bank uses its assets:

Money & Banking (MGT411)

2) Every country with high inflation has ____________ money growth:

3) Which of the following statement is true?

B. Nominal GDP > PY

4) According to Milton Friedman, Central Banks should set money

5) ____________ is one of the financial instruments that we can hold in our

6) Increases in price level will ____________ the purchasing power of money:

7) At long run real interest rate:

8) __________ curve is downward sloping because higher inflation reduces real

A. Aggregate Demand Curve

9) Increases in government purchases will ________ the aggregate demand:

A. Aggregate Demand Curve

1. Future value is equal to:

2. In compounding we calculate the future value for:

a. Less than 1 year.

3. ___________ is used in the calculation of present value:

5. As bond prices increase:

a. Yields to maturity increase.

7. For a coupon bond, the current yield is calculated as:

8. For a coupon bond, the yield to maturity is the:

a. Difference between the bond's price and its face value.

9. The real interest rate is:

a. The nominal rate plus the expected inflation rate.

a. An increase in the risk level of bond J.

b. An increase in the interest rate on bond K.

11. At a bond price above the equilibrium,

a. There is an excess supply and the price will tend to rise.

12. Using money demand and money supply:

14. Riskier investment must have:

a. Lower expected returns

15. _____________ risks affect everyone.

16. Zero- Coupon bonds are sold at a price:

a. Equal t their face value

c. Above their face value.

a. They have less risk.

19. Yield curves show:

a. The relationship between liquidity and bond interest rates (yields).

20. The expectations theory of the term structure assumes:

a. Buyers of bonds prefer bonds with longer maturities.

a. Short-term interest rates to rise sharply.

2. When the yield curve slopes down,

a. The expectations theory suggests that short-term interest rates are

3. Which of the following patterns of term structure occur most frequently?

4. Common stocks (or corporate stocks):

a. Channel funds from savers to borrowers