Financial Markets And Institutions 12th Edition By Jeff Madura – Test Bank

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Financial Markets And Institutions 12th Edition By Jeff Madura – Test Bank

 

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Sample Questions

 

1. ​The Fed can affect the interaction between the demand for money and the supply of money to influence interest rates, the aggregate level of spending, and therefore economic growth.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

2. The Fed can ____ the level of spending as a means of stimulating the economy by ____ the money supply.​

  a. ​increase; decreasing
  b. ​decrease; increasing
  c. ​decrease; decreasing
  d. ​increase; increasing

 

ANSWER:   d
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

3. ​A credit crunch occurs when:

  a. ​interest rates decline.
  b. ​interest rates rise.
  c. ​creditors restrict the amount of loans they are willing to provide.
  d. ​the economy is strong.

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

4. ​According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

5. ​A passive monetary policy adjusts the money supply automatically in response to economic conditions.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

6. If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated substantially from the Fed’s target inflation rate, the Fed could lose credibility.​

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

7. ​In general, there is:

  a. ​a positive relationship between unemployment and inflation.
  b. ​an inverse relationship between unemployment and inflation.
  c. ​an inverse relationship between GDP and inflation.
  d. ​a positive relationship between GDP and unemployment.

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

8. ​A ____-money policy can reduce unemployment, and a ____-money policy can reduce inflation.

  a. ​tight; loose
  b. ​loose; tight
  c. ​tight; tight
  d. ​loose; loose

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

9. ​A loose-money policy tends to ____ economic growth and ____ the inflation rate.

  a. ​stimulate; place downward pressure on
  b. ​stimulate; place upward pressure on
  c. ​dampen; place upward pressure on
  d. ​dampen; place downward pressure on

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

10. ​When both inflation and unemployment are relatively high, there is more disagreement among FOMC members about the proper monetary policy to implement.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

11. ​____ serves as the most direct indicator of economic growth in the United States.

  a. ​Gross domestic product (GDP)
  b. ​National income
  c. ​The unemployment rate
  d. ​The industrial production index

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

12. ​Which of the following is not an indicator of inflation?

  a. ​housing price indexes
  b. ​wage rates
  c. ​oil prices
  d. ​consumer confidence surveys

 

ANSWER:   d
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

13. ​The ____ indicators tend to rise or fall after a business cycle.

  a. ​leading
  b. ​lagging
  c. ​coincident
  d. ​none of the above

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

14. ​The ____ indicators tend to rise or fall at the same time as a business cycle.

  a. ​leading
  b. ​lagging
  c. ​coincident
  d. ​none of the above

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

15. ​The time lag between when an economic problem arises and when it is reported in economic statistics is the

  a. ​recognition lag.
  b. ​implementation lag.
  c. ​impact lag.
  d. ​open-market lag.

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

16. ​The time between when the Fed adjusts the money supply and when the adjustment has an effect on the economy is the

  a. ​recognition lag.
  b. ​implementation lag.
  c. ​impact lag.
  d. ​open-market lag.

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

17. ​If the Fed attempts to reduce inflation, it would likely increase money supply growth.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

18. ​Which of the following best describes the relationship between the Fed and the presidential administration?

  a. ​The Fed must receive approval by the administration before conducting monetary policy.
  b. ​The Fed must implement a monetary policy specifically to the support the administration’s policy.
  c. ​The administration must receive approval from the Fed before implementing fiscal policy.
  d. ​A and C
  e. ​none of the above

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

19. ​A high budget deficit tends to place ____ pressure on interest rates; the Fed’s tightening of the money supply tends to place ____ pressure on interest rates.

  a. ​upward; upward
  b. ​upward; downward
  c. ​downward; downward
  d. ​downward; upward

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

20. ​The Fed is usually more willing to maintain a stimulative monetary policy when inflation is relatively high.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

21. ​Costner National, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed:

  a. ​purchases Treasury securities.
  b. ​maintains a stable money supply.
  c. ​uses a tight-money policy.
  d. ​uses a loose-money policy.

 

ANSWER:   c
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

22. ​The ____ lag is the time from when an economic problem arises until it is recognized.

  a. ​Recognition
  b. ​Adjustment
  c. ​Implementation
  d. ​none of the above

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

23. ​A ____ dollar tends to exert inflationary pressure in the United States.

  a. ​Stable
  b. ​Strong
  c. ​Weak
  d. ​both A and B

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

24. ​There is some evidence that high money supply growth may lead to _______ U.S. inflation over time, which in turn places ____ pressure on U.S. interest rates.

  a. ​higher; upward
  b. ​higher; downward
  c. ​lower; downward
  d. ​lower; upward

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

25. ​If the Fed uses a passive monetary policy during weak economic conditions,

  a. ​it increases the money supply substantially.
  b. ​it reduces the money supply substantially.
  c. ​it allows the economy to fix itself.
  d. ​it purchases commercial paper and mortgage-backed securities.

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

26. ​Which of the following is true about an increase in the U.S. government’s budget deficit?

  a. ​It will lead to global crowding out if U.S. interest rates fall below the level of interest rates in other countries.
  b. ​It will cause outflows of foreign funds from the United States as foreign investors move their funds to other countries.
  c. ​It will cause an inward shift in the aggregate demand for funds curve.
  d. ​None of the above

 

ANSWER:   d
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

27. ​Inflation is commonly the result of a

  a. ​large budget deficit.
  b. ​high level of interest rates.
  c. ​high level of unemployment.
  d. ​high level of aggregate demand.

 

ANSWER:   d
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

28. ​According to the theory of rational expectations, if the Fed uses open market operations to increase the supply of loanable funds, the ultimate effect on interest rates

  a. ​is a reduction in interest rates.
  b. ​is an increase in interest rates.
  c. ​is no effect on interest rates.
  d. ​cannot be determined.

 

ANSWER:   d
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

29. ​The Federal Reserve would be most inclined to use a stimulative monetary policy to cure a recession if oil prices are

  a. ​low and steady
  b. ​low, but rising.
  c. ​very high, but declining slightly.
  d. ​very high and rising.

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

30. ​Global crowding out is described in the text to mean the impact of

  a. ​excessive U.S. population growth on interest rates.
  b. ​excessive global population growth on interest rates.
  c. ​an excessive budget deficit in one country on interest rates of another country.
  d. ​an excessive budget deficit in one country on exchange rates.

 

ANSWER:   c
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

31. ​Which of the following is not an effect of a stimulative monetary policy?

  a. ​The risk-free rate and the credit risk premium increase.
  b. ​A firm’s cost of debt decreases.
  c. ​A firm’s cost of equity decreases.
  d. ​Depository institutions experience an increase in their supply of funds.

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

32. ​When the Fed uses open market operations to sell some of its Treasury securities, there will be

  a. ​an outward shift in the supply schedule of loanable funds.
  b. ​an inward shift in the supply schedule of loanable funds.
  c. ​no shift in the supply schedule of loanable funds.
  d. ​an outward shift in the demand schedule for loanable funds.

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

33. ​Which of the following is not a disadvantage of inflation targeting?

  a. ​If the U.S. inflation rate deviates substantially from the Fed’s target inflation rate, the Fed could lose credibility.
  b. ​The Fed’s focus on inflation could result in a much higher unemployment level.
  c. ​The Fed’s focus on inflation could result in much higher interest rates, which would discourage economic growth.
  d. ​All of the above are disadvantages of inflation targeting.

 

ANSWER:   c
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

34. ​Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolios are ____ affected when the Fed ____ interest rates.

  a. ​unfavorably; decreases
  b. ​unfavorably; increases
  c. ​favorably; increases
  d. ​A and C are correct.

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

35. ​According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

36. ​During the 2008–2015 period, the Fed reduced the federal funds rate to 6 percent in an effort to stimulate the economy.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

37. ​In recent years, the Fed has made an effort to be more transparent in its communications to financial markets about its future policy.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

38. ​The Fed faces a trade-off in monetary policy between reducing unemployment and reducing the federal government’s budget deficit.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

39. ​The relationship between the interest rate on loanable funds and the level of business investment is positive.

  a. ​True
  b. False​

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

40. ​The supply schedule of loanable funds indicates the quantity of funds that would be demanded at various possible interest rates.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

41. ​To correct excessive inflation, the Fed could use open market operations by buying Treasury securities in the secondary market.

  a. True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

42. ​When the Fed wants to encourage businesses to increase their spending on long-term projects, it may use a stimulative policy focused on reducing long-term Treasury yields.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

43. ​Economists who work at the Fed recognize that a stimulative monetary policy will not always reduce a high unemployment rate and could even ignite inflation.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

44. ​An attempt by the Fed to stimulate the economy by reducing short-term interest rates may have a limited effect if long-term interest rates remain unaffected.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

45. ​The Fed needs the approval of the presidential administration to make decisions.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

46. ​The Fed is more likely to use a stimulative policy during a strong-dollar period.

  a. ​True
  b. ​False

 

ANSWER:   a
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

47. ​A purchase of Treasury securities by the Fed leads to a(n) ____ in interest rates and a(n) ____ in the level of business investment.

  a. ​increase; decrease
  b. ​decrease; decrease
  c. ​increase; increase
  d. ​decrease; increase

 

ANSWER:   d
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

48. ​Which of the following is not true with respect to inflation targeting?

  a. ​The Fed could lose credibility if the inflation rate deviates substantially from the Fed’s target inflation rate.
  b. ​A focus on inflation could result in a much higher unemployment rate.
  c. ​Inflation targeting may not only satisfy the inflation goal, but could also achieve the employment stabilization goal in the long run.
  d. ​If unemployment is slightly higher than normal, while inflation is at the peak of the target range, an inflation targeting approach would like advocate a loose monetary policy.

 

ANSWER:   d
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

49. ​A ____ economic indicator tends to rise or fall a few months after business-cycle expansions and contractions.

  a. ​leading
  b. ​coincident
  c. ​lagging
  d. ​none of the above

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

50. ​A weak dollar would stimulate ____, discourage ____, and ____ the U.S. economy.

  a. ​U.S. exports; U.S. imports; weaken
  b. ​U.S. exports; U.S. imports; stimulate
  c. ​U.S. imports; U.S. exports; stimulate
  d. ​none of the above

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

51. ​The interest rate that the Fed targets for its monetary policy is the:

  a. ​commercial paper rate.
  b. ​federal funds rate.
  c. ​Treasury bond coupon rate.
  d. ​one-year certificate of deposit rate.

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

52. ​Which of the following might be monitored as an indicator of inflation?

  a. ​consumer price index
  b. ​gold prices
  c. ​oil prices
  d. ​All of the above may be indicators of inflation.

 

ANSWER:   d
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

53. ​The Fed’s monetary policy is commonly intended to alter the supply of funds in the banking system in order to achieve a specific targeted:

  a. ​discount rate.
  b. ​required reserve requirement.
  c. ​federal funds rate.
  d. ​prime rate.

 

ANSWER:   c
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

54. ​If a firm has a credit risk premium of 3 percent and the Treasury security rate is 4 percent, the firm will be able to borrow at ________. If the Fed implements a monetary policy that raises the Treasury security rate to 6 percent, the cost of borrowing for the firm will be ________.

  a. ​7 percent; 10 percent
  b. ​4 percent;  6 percent
  c. ​7 percent; 9 percent
  d. ​1 percent; 3 percent

 

ANSWER:   c
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

55. ​In the “operation twist” strategy used in 2011 and 2012, the Fed sold _______ Treasury securities and used the proceeds to purchase ________ Treasury securities.

  a. ​long-term; short-term
  b. ​short-term; long-term
  c. ​short-term; long-term
  d. ​long-term; short-term

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

56. ​The intent of the Fed’s operation twist strategy in 2011 and 2012 was to:

  a. ​increase long-term interest rates.
  b. ​require corporations to issue more commercial paper.
  c. ​require bond rating agencies to impose higher standards on their ratings.
  d. ​reduce long-term interest rates.

 

ANSWER:   d
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

57. ​Which of the following is not a reason that a stimulative monetary policy may be ineffective?

  a. ​The effects of a stimulative policy may be disrupted by expectations of inflation.
  b. ​Retirees who rely on interest income may restrict their spending
  c. ​Lending institutions may increase their standards for borrowers, so some potential borrowers may not qualify for loans.
  d. ​Higher interest rates encourage individuals to increase their savings.

 

ANSWER:   d
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

58. ​In 2012, the Fed stated that it would continue to purchase Treasury bonds in the financial markets until GDP growth increased to a target level.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

59. ​Which of the following was not true of the eurozone during the Greek crisis?

  a. ​Fear of a financial crisis throughout Europe discouraged investors and firms from moving funds into Europe.
  b. ​By using a more stimulative monetary policy than it desired, the European Central Bank aroused concerns about potential inflation in the eurozone.
  c. ​There was concern that the austerity conditions could weaken the country’s economy further.
  d. ​Greece, Spain, and Portugal focused their efforts on reducing tax rates in order to stimulate their economies.

 

ANSWER:   d
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

60. ​The Fed’s purchase of Treasury securities is primarily intended to ensure liquidity in the commercial paper market.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI MADU 15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU. 1503
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s Knowledge

 

61. ​The Fed’s main focus in the years 2010–2014 following the credit crisis was on controlling inflation.

  a. ​True
  b. ​False

 

ANSWER:   b
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU 15.05.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.1503
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s Knowledge

 

1. ​Mortgage-backed securities are commonly contained within collateralized debt obligations.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

2. ​Federally insured mortgages guarantee

  a. ​loan repayment to the lending financial institution.
  b. ​that the interest rate will not increase during the life of the mortgage.
  c. ​the lending financial institution a selling price for the mortgage in the secondary market.
  d. ​all of the above

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

3. ​At a given point in time, the interest rate offered on a new fixed-rate mortgage is typically ____ the initial interest rate offered on a new adjustable-rate mortgage.

  a. ​below
  b. ​above
  c. ​equal to
  d. ​all of the above are very common

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

4. ​An institution that originates and holds a fixed-rate mortgage is adversely affected by ____ interest rates; the borrower who was provided the mortgage is adversely affected by ____ interest rates.

  a. ​stable; decreasing
  b. ​increasing; stable
  c. ​increasing; decreasing
  d. ​decreasing; increasing

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

5. ​Rates for adjustable-rate mortgages are commonly tied to the

  a. ​average prime rate over the previous year.
  b. ​Fed’s discount rate over the previous year.
  c. ​average Treasury bill rate over the previous year.
  d. ​average Treasury bond rate over the previous year.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

6. ​Caps on mortgage rate fluctuations with adjustable-rate mortgages (ARMs) are typically

  a. ​2 percent per year and 5 percent for the mortgage lifetime.
  b. ​5 percent per year and 15 percent for the mortgage lifetime.
  c. ​0 percent per year and 10 percent for the mortgage lifetime.
  d. ​3 percent per year and 8 percent for the mortgage lifetime.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

7. ​From the perspective of the lending financial institution, interest rate risk is

  a. ​lower on a 30-year fixed-rate mortgage than on a 15-year fixed-rate mortgage.
  b. ​lower on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage.
  c. ​higher on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage.
  d. ​higher on a 15-year adjustable-rate mortgage than on a 30-year adjustable-rate mortgage.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

8. ​Mortgage companies specialize in

  a. ​purchasing mortgages originated by other financial institutions.
  b. ​investing and maintaining mortgages that they create.
  c. ​originating mortgages and selling those mortgages.
  d. ​borrowing money through the creation of mortgages that is used to invest in real estate.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

9. ​For any given interest rate, the shorter the life of the mortgage, the ____ the monthly payment and the ____ the total payments over the life of the mortgage.

  a. ​greater; greater
  b. ​greater; lower
  c. ​lower; greater
  d. ​lower; lower

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

10. ​A financial institution has a higher degree of interest rate risk on a ____ than a ____.

  a. ​30-year fixed-rate mortgage; 15-year fixed-rate mortgage
  b. ​30-year variable-rate mortgage; 30-year fixed-rate mortgage
  c. ​15-year fixed-rate mortgage; 30-year fixed-rate mortgage
  d. ​15-year variable-rate mortgage; 15-year fixed-rate mortgage

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

11. ​A balloon-payment mortgage requires interest payments for a 10- to 20-year period, at the end of which the borrower must pay the full amount of the principal.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

12. ​Use an amortization schedule. A 15-year $100,000 mortgage has a fixed mortgage rate of 9 percent. In the first month, the total mortgage payment is $____, and $____ of this amount represents payment of interest.

  a. ​1,014; 264
  b. ​1,241; 750
  c. ​1,014; 750
  d. ​none of the above

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

13. ​A mortgage that requires interest payments for a three- to five-year period, then full payment of principal, is a(n)

  a. ​chattel mortgage.
  b. ​balloon-payment mortgage.
  c. ​variable-rate mortgage.
  d. ​open-ended mortgage bond.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

14. ​A mortgage with low initial payments that increase over time without ever leveling off is a

  a. ​graduated payment mortgage.
  b. ​growing-equity mortgage.
  c. ​second mortgage.
  d. ​shared-appreciation mortgage.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

15. ​The interest rate on a second mortgage is ____ on a first mortgage created at the same time, because the second mortgage is ____ the existing first mortgage in priority claim against the property in the event of default.

  a. ​higher than; behind
  b. ​equal to that; equal to
  c. ​lower than; ahead of
  d. ​higher than; ahead of
  e. ​lower than; behind

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

16. ​Which of the following mortgages allows the home purchaser to obtain a mortgage at a below-market interest rate throughout the life of the mortgage?

  a. ​second mortgage
  b. ​growing-equity mortgage
  c. ​graduated-payment mortgage
  d. ​shared-appreciation mortgage

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

17. ​A ____ mortgage allows the borrower to initially make small payments on the mortgage. The payments then increase over the first 5 to 10 years and then level off.

  a. ​graduated-payment mortgage
  b. ​growing-equity mortgage
  c. ​second mortgage
  d. ​shared-appreciation mortgage

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

18. ​Mortgage companies, commercial banks, and savings institutions are the primary originators of mortgages.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

19. ​____ was created in 1968 as a corporation that is wholly owned by the federal government. It guarantees payment on mortgages that meet specific criteria.

  a. ​Freddie Mac
  b. ​Ginnie Mae
  c. ​Fannie Mae
  d. ​None of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

20. ​”Securitization” refers to the private insurance of conventional mortgages.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

21. ​A financial institution may service a mortgage even after selling it.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

22. ​The difference between the 30-year mortgage rate and the 30-year Treasury bond rate is primarily attributable to

  a. ​interest rate risk.
  b. ​reinvestment rate risk.
  c. ​credit risk.
  d. ​insurance risk.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

23. ​Which of the following is not a guarantor of federally insured mortgages?

  a. ​Federal Housing Administration (FHA)
  b. ​Veterans Administration (VA)
  c. ​Federal Deposit Insurance Corporation (FDIC)
  d. ​All of the above are guarantors of federally insured mortgages.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

24. ___ economic growth will probably ____ the risk premium on mortgages and ____ the price of mortgages.

  a. ​Strong; increase; decrease
  b. ​Strong; increase; increase
  c. ​Weak; decrease; increase
  d. ​Weak; increase; increase
  e. ​Weak; decrease; decrease

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

25. ​A ____ mortgage allows borrowers to initially make small payments on the mortgage, which are then increased on a graduated basis over the first five to ten years; payments then level off from there on.

  a. ​balloon-payment
  b. ​graduated-payment
  c. ​shared-appreciation
  d. ​growing-equity
  e. ​none of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

26. ​An adjustable-rate mortgage increases interest rate risk for the ____,  but reduces interest rate risk for the ____.

  a. ​originator; borrower
  b. ​borrower; originator
  c. ​government; originator
  d. ​none of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

27. ​When financial institutions originate residential mortgages, the mortgage contract should not specify

  a. ​whether the mortgage is federally insured.
  b. ​the amount of the loan.
  c. ​whether the interest rate is fixed or adjustable.
  d. ​the maturity.
  e. ​the mortgage contract should specify all of the above

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

28. ​Which of the following is not a common type of mortgage-backed security according to your text?

  a. ​participation certificates (PCs)
  b. ​collateralized mortgage obligations (CMOs)
  c. ​balloon-payment mortgage certificates
  d. ​private-label pass-through securities
  e. ​All of the above are common types of mortgage pass-through securities.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

29. ​____ risk is the risk that a borrower may prepay the mortgage in response to a decline in interest rates.

  a. ​Interest rate
  b. ​Credit
  c. ​Prepayment
  d. ​Reinvestment rate

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

30. ​Mortgage-backed securities are assigned ratings by:

  a. ​rating agencies.
  b. ​the Treasury.
  c. ​the Fed.
  d. ​the mortgage originator.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

31. ​In a collateralized mortgage obligation (CMO), mortgages are segmented into ____ (or classes).

  a. ​balloon payments
  b. ​caps
  c. ​tranches
  d. ​strips

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

32. ​The credit crisis is mostly attributed to the use of:

  a. ​strict criteria applied by mortgage originators.
  b. ​liberal criteria applied by mortgage originators.
  c. ​very tough credit ratings applied to mortgages.
  d. ​fixed-rate mortgages with long terms to maturity.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

33. ​Fannie Mae and Freddie Mac experienced financial problems during the credit crisis because they:

  a. ​were unwilling to finance new mortgages.
  b. ​invested heavily in balloon mortgages.
  c. ​invested only in prime mortgages that offered very low returns.
  d. ​invested heavily in subprime mortgages.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

34. ​____ mortgages enabled more people with relatively lower income, or high existing debt, or a small down payment to purchase homes.

  a. ​Prime
  b. ​Balloon
  c. ​Amortized
  d. ​Subprime

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

35. ​The secondary mortgage market accommodates originators of mortgages who desire to sell their mortgages before maturity.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

36. ​Regardless of what happens to market interest rates, most adjustable-rate mortgages (ARMs) specify a maximum allowable fluctuation in the mortgage rate per year and over the mortgage life.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

37. ​Some adjustable-rate mortgages (ARMs) contain an option clause that allows mortgage holders to switch to a fixed-rate mortgage within a specified period.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

38. ​Mortgage lenders normally charge a higher initial interest rate on adjustable-rate mortgages than on fixed-rate mortgages.

  a. ​True
  b. ​ False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

39. ​A balloon-payment mortgage requires interest payments for a three- to five-year period. At the end of this period, full payment of the principal (the balloon payment) is required.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

40. ​During the early years of a mortgage, most of the monthly payment reflects principal.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

41. ​Mortgages are rarely sold in the secondary market.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

42. ​An increase in either the risk-free rate or the risk premium on a fixed-rate mortgage results in a higher required rate of return when investing in the mortgage and therefore causes the mortgage price to decrease.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

43. ​Strong economic growth tends to reduce the probability that the issuer of a mortgage will default on its debt payments and therefore tends to decrease mortgage prices.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

44. ​The higher the level of equity invested by the borrower, the higher the probability that the loan will default.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

45. ​Borrowers who have a lower level of income relative to the periodic loan payments are more likely to default on their mortgages.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

46. ​Non-U.S. financial institutions never hold mortgages on U.S. property.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

47. ​The ____ market accommodates originators of mortgages that desire to sell their mortgages prior to maturity.

  a. ​primary
  b. ​secondary
  c. ​money
  d. ​none of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.01
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

48. ​Financial institutions that hold fixed-rate mortgages in their asset portfolios are exposed to ____ risk, because they commonly use funds obtained from short-term customer deposits to make long-term mortgage loans.

  a. ​exchange rate
  b. ​prepayment
  c. ​reinvestment rate
  d. ​interest rate
  e. ​exchange rate

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

49. ​From the perspective of the lending financial institution, there is a ____ degree of interest rate risk for ____-maturity mortgages.

  a. ​higher; shorter
  b. ​higher; longer
  c. ​lower; shorter
  d. ​lower; higher
  e. ​Answers B and C are correct

 

ANSWER:   e
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

50. ​In the earlier years of a mortgage,

  a. ​most of the monthly payment reflects principal reduction.
  b. ​most of the monthly payment reflects interest.
  c. ​about half of the monthly payment reflects interest.
  d. ​all of the monthly payment reflects principal reduction.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

51. ​Which of the following will typically require homeowners to ultimately request a new mortgage?

  a. ​graduated-payment mortgage (GPM)
  b. ​growing-equity mortgage
  c. ​balloon-payment mortgage
  d. ​shared-appreciation mortgage

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

52. ​Which of the following is not true with respect to a growing-equity mortgage?

  a. ​It is similar to a graduated-payment mortgage
  b. ​It allows borrowers to initially make small payments on the mortgage.
  c. ​It involves increased payments, on a graduated basis, over the first five to ten years of the mortgage.
  d. ​It involves payments that level off after the first five to ten years of the mortgage.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.02
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

53. ​Which of the following is not a correct description of qualified mortgages?

  a. ​They must comply with regulations issued by the Consumer Financial Protection Bureau.
  b. ​Their term cannot exceed 30 years.
  c. ​They cannot be interest-only mortgages or result in negative amortization.
  d. ​They must be retained by the lending institution that originated the mortgages and cannot be sold.
  e. ​They place limits on the borrower’s debt-to-income ratio.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

54. ​The probability that a borrower will default (credit risk) is influenced by all of the following, except

  a. ​economic conditions.
  b. ​the level of equity invested by the borrower
  c. ​the borrower’s income level.
  d. ​the borrower’s credit history.
  e. ​Credit risk is affected by all of the above.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.03
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

55. ​In a short sale of a home:

  a. ​the lender forecloses and then sells the home for less than what is owed on the mortgage.
  b. ​the lender allows the homeowner to sell the home for less than what is owed on the mortgage.
  c. ​the lender does not recover the full amount of the mortgage.
  d. ​B and C
  e. ​A and C

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

56. ​An investor in interest-only collateralized mortgage obligations (CMOs) would not be concerned that homeowners will prepay the underlying mortgages.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

57. ​

The valuation of mortgage-backed securities is difficult because of limited

transparency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.04
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

58. ​A(n) _________ problem occurs when a person or institution does not have to bear the full consequences of its behavior and therefore assumes more risk than it otherwise would.

  a. ​asymmetric information
  b. ​moral hazard
  c. ​risk adjustment
  d. ​specific hazard

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

59. ​A __________ is a privately negotiated contract that protects investors against the risk of default on particular debt securities such as mortgage-backed securities.

  a. ​default insurance contract
  b. ​default risk swap
  c. ​credit default swap
  d. ​collateralized debt obligation

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

60. ​Speculators sell credit default swaps to benefit from the default of specific subprime mortgages.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

61. ​Financial institutions may purchase credit default swaps on mortgages if they expect defaults on many mortgages.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

62. ​Financial institutions may sell credit default swaps on mortgages if they expect defaults on many mortgages.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

63. ​At a given point in time, the price of a credit default swap contract should be ________ related to the default risk of the securities covered by the contract. For a given set of securities that are covered by a credit default swap, the price of the contract should be _______ related to the default risk as it changes over time.

  a. ​positively; positively
  b. ​positively; inversely
  c. ​Inversely; positively
  d. ​inversely; inversely

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

64. ​Bear Stearns commonly used __________ as collateral when borrowing short-term funds, but its funding was cut off because prospective creditors questioned the quality of the collateral.

  a. ​commercial paper
  b. ​Treasury securities
  c. ​its stock
  d. ​mortgages

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

65. ​Lehman Brothers commonly used _________ as collateral when borrowing short-term funds, but its funding was cut off because prospective creditors questioned the quality of the collateral.

  a. ​commercial paper
  b. ​Treasury securities
  c. ​its stock
  d. ​mortgages

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.09.05
NATIONAL STANDARDS:   United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

 

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