Question 1

When market participants have adaptive expectations

Accepted Answer

A) they use all information available to them. 
B) they only slowly adjust their expectations to news which could affect prices or returns. 
C) they are more likely to make accurate forecasts than if they have rational expectations. 
D) they are able to forecast interest rates more accurately than inflation rates. 
A) they use all information available to them. 
B) they only slowly adjust their expectations to news which could affect prices or returns. 
C) they are more likely to make accurate forecasts than if they have rational expectations. 
D) they are able to forecast interest rates more accurately than inflation rates.

Question 2

"Tips" published in leading commercial or financial publications are unlikely to lead to profitable trades because

Accepted Answer

A) only wealthy individuals can buy stocks in the volume necessary to take advantage of tips. 
B) whatever is gained by trading on the basis of tips will be taxed away by the government. 
C) the news will already be reflected in the market prices of the assets. 
D) the news contained in the tips is usually inaccurate. 
A) only wealthy individuals can buy stocks in the volume necessary to take advantage of tips. 
B) whatever is gained by trading on the basis of tips will be taxed away by the government. 
C) the news will already be reflected in the market prices of the assets. 
D) the news contained in the tips is usually inaccurate.

Question 3

Rational expectations involve the assumption that

Accepted Answer

A) market participants make use only of information on the past performance of an asset in determining what they believe its price should be. 
B) market participants rarely change their minds about the correct price of an asset. 
C) financial markets are good at increasing liquidity, but poor at transmitting information. 
D) market participants makes use of all available information. 
A) market participants make use only of information on the past performance of an asset in determining what they believe its price should be. 
B) market participants rarely change their minds about the correct price of an asset. 
C) financial markets are good at increasing liquidity, but poor at transmitting information. 
D) market participants makes use of all available information.

Question 4

An investor will generally find that hiring an investment firm to actively manage his or her portfolio will

Accepted Answer

A) result in a higher return than would be received from an index mutual fund. 
B) be less expensive than simply placing money in an index mutual fund. 
C) result in a higher return, but will be more expensive than placing money in an index mutual fund. 
D) result in about the same return, but be more expensive than placing money in an index mutual fund. 
A) result in a higher return than would be received from an index mutual fund. 
B) be less expensive than simply placing money in an index mutual fund. 
C) result in a higher return, but will be more expensive than placing money in an index mutual fund. 
D) result in about the same return, but be more expensive than placing money in an index mutual fund.

Question 5

When market participants use all available information

Accepted Answer

A) market prices become signals for financial and economic decisions. 
B) spot prices converge to future prices. 
C) prices of financial assets remain constant over long periods of time. 
D) hedging is no longer necessary. 
A) market prices become signals for financial and economic decisions. 
B) spot prices converge to future prices. 
C) prices of financial assets remain constant over long periods of time. 
D) hedging is no longer necessary.

Question 6

Evidence from the U.S. economy following the stock market crash of 1987 indicates that

Accepted Answer

A) eliminating program trading has greatly decreased the volatility of the market. 
B) the crash had little impact on consumption or investment spending. 
C) specialists should no longer be allowed to control stock trading on the New York Stock Exchange. 
D) futures trading significantly destabilizes the economy. 
A) eliminating program trading has greatly decreased the volatility of the market. 
B) the crash had little impact on consumption or investment spending. 
C) specialists should no longer be allowed to control stock trading on the New York Stock Exchange. 
D) futures trading significantly destabilizes the economy.

Question 7

The gap between the yield on a corporate bond and the yield on a U.S. Treasury bond of the same maturity represents

Accepted Answer

A) the market's evaluation of the likelihood of future inflation. 
B) the market's evaluation of the likelihood of default on the bond. 
C) the market's evaluation of the greater liquidity of the corporate bond. 
D) evidence against the efficient markets hypothesis. 
A) the market's evaluation of the likelihood of future inflation. 
B) the market's evaluation of the likelihood of default on the bond. 
C) the market's evaluation of the greater liquidity of the corporate bond. 
D) evidence against the efficient markets hypothesis.

Question 8

Acme Widget has been sued. It had been expected to lose suit and to be liable for massive payments that would have imperiled the future of the company. If Acme unexpectedly wins the suit,

Accepted Answer

A) the price of its bonds will rise. 
B) the price of its bonds will fall because Acme will now be able to pay higher interest. 
C) the price of its bonds will fall because investors will sell Acme's bonds and buy its stock. 
D) the price of its bonds will be unchanged; once issued prices on bonds do not change. 
A) the price of its bonds will rise. 
B) the price of its bonds will fall because Acme will now be able to pay higher interest. 
C) the price of its bonds will fall because investors will sell Acme's bonds and buy its stock. 
D) the price of its bonds will be unchanged; once issued prices on bonds do not change.

Question 9

Which of the following is NOT a way in which prices communicate information in the markets for bonds, stocks, foreign exchange, and financial instruments?

Accepted Answer

A) Prices of financial assets represent expectations of future value. 
B) Prices of financial assets reflects the preferences of policymakers. 
C) Long-term bond yields provide information about expected future short-term yields. 
D) Differences in interest rates in various countries reveal information about expected changes in exchange rates. 
A) Prices of financial assets represent expectations of future value. 
B) Prices of financial assets reflects the preferences of policymakers. 
C) Long-term bond yields provide information about expected future short-term yields. 
D) Differences in interest rates in various countries reveal information about expected changes in exchange rates.

Question 10

Which of the following expressions gives the present value of future dividends for a company whose current dividend is $5.00 and whose future dividends are expected to grow at rate g?

Accepted Answer

A) [$5.00(1 - g)]/(i - g) 
B) [$5.00(1 + g)]/(i + g) 
C) [$5.00(1 - g)]/(i + g) 
D) [$5.00(1 + g)]/(i - g) 
A) [$5.00(1 - g)]/(i - g) 
B) [$5.00(1 + g)]/(i + g) 
C) [$5.00(1 - g)]/(i + g) 
D) [$5.00(1 + g)]/(i - g)

When market participants have adaptive expectations

"Tips" published in leading commercial or financial publications are unlikely to lead to profitable trades because

Rational expectations involve the assumption that

An investor will generally find that hiring an investment firm to actively manage his or her portfolio will

When market participants use all available information

Evidence from the U.S. economy following the stock market crash of 1987 indicates that

The gap between the yield on a corporate bond and the yield on a U.S. Treasury bond of the same maturity represents

Acme Widget has been sued. It had been expected to lose suit and to be liable for massive payments that would have imperiled the future of the company. If Acme unexpectedly wins the suit,

Which of the following is NOT a way in which prices communicate information in the markets for bonds, stocks, foreign exchange, and financial instruments?

Which of the following expressions gives the present value of future dividends for a company whose current dividend is $5.00 and whose future dividends are expected to grow at rate g?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters

Exam 10: Information and Financial Market Efficiency

When market participants have adaptive expectations

"Tips" published in leading commercial or financial publications are unlikely to lead to profitable trades because

Rational expectations involve the assumption that

An investor will generally find that hiring an investment firm to actively manage his or her portfolio will

When market participants use all available information

Evidence from the U.S. economy following the stock market crash of 1987 indicates that

The gap between the yield on a corporate bond and the yield on a U.S. Treasury bond of the same maturity represents

Acme Widget has been sued. It had been expected to lose suit and to be liable for massive payments that would have imperiled the future of the company. If Acme unexpectedly wins the suit,

Which of the following is NOT a way in which prices communicate information in the markets for bonds, stocks, foreign exchange, and financial instruments?

Which of the following expressions gives the present value of future dividends for a company whose current dividend is $5.00 and whose future dividends are expected to grow at rate g?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters