Question 1

Treasury securities that may be bought and sold through the customary market channels are called Treasury bills.

Accepted Answer

A) True 
 B)False  False

Question 2

A "shock" may be defined as an unanticipated change that will cause the demand for, or supply of loanable funds to change.

Accepted Answer

A) True 
 B)False  True

Question 3

A decrease in the supply for loanable funds accompanied by an increase in demand will cause interest rates to:

Accepted Answer

A)  increase 
B)  decrease 
C)  stay the same 
D)  not enough information to tell 
A)  increase 
B)  decrease 
C)  stay the same 
D)  not enough information to tell A

Question 4

The risk of changes in the price or value of fixed-rate debt instruments resulting from changes in market interest rates.

Accepted Answer

A)  Maturity risk premium 
B)  Default risk premium 
C)  Interest rate risk 
D)  Inflation premium 
A)  Maturity risk premium 
B)  Default risk premium 
C)  Interest rate risk 
D)  Inflation premium

Question 5

Interest rates will move from one equilibrium level to another if an anticipated change occurs that causes the demand for loanable funds to change.

Accepted Answer

A) True 
 B)False

Question 6

Federal obligations usually issued for maturities of two to ten years are called:

Accepted Answer

A)  Treasury bonds 
B)  Treasury notes 
C)  Treasury bills 
D)  Agency issues 
A)  Treasury bonds 
B)  Treasury notes 
C)  Treasury bills 
D)  Agency issues

Question 7

Treasure notes are issued in 1-year, 2-year, 5-year, 10-year, and 15-year notes.

Accepted Answer

A) True 
 B)False

Question 8

The most important holders of Treasury bills are corporations and individuals.

Accepted Answer

A) True 
 B)False

Question 9

An increase in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to:

Accepted Answer

A)  increase 
B)  decrease 
C)  stay the same 
D)  not enough information to tell 
A)  increase 
B)  decrease 
C)  stay the same 
D)  not enough information to tell

Question 10

The interest rate observed in the marketplace for a debt instrument.

Accepted Answer

A)  Observed interest rate 
B)  Inflation-free interest rate 
C)  Risk-free rate of interest 
D)  Real rate of interest 
A)  Observed interest rate 
B)  Inflation-free interest rate 
C)  Risk-free rate of interest 
D)  Real rate of interest

Question 11

The interest rate is the basic price that equates the demand for supply of loanable funds in the financial markets.

Accepted Answer

A) True 
 B)False

Question 12

When investors expect __________ inflation rates they will require __________ nominal interest rates so that a real rate of return will remain after the inflation.

Accepted Answer

A)  higher, higher 
B)  higher, lower 
C)  lower, higher 
D)  level, higher 
A)  higher, higher 
B)  higher, lower 
C)  lower, higher 
D)  level, higher

Question 13

There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is false?

Accepted Answer

A)  A major determinant in the long run of the volume of savings is the level of taxes. 
B)  The money market involves obtaining and trading of credit and debt instruments with maturity of one year or less. 
C)  Bond risk premiums follow changes in investor optimism/pessimism about expected economic activity. 
D)  A high interest rate level but downward sloping yield curve is generally perceived as being conductive to future economic expansion. 
A)  A major determinant in the long run of the volume of savings is the level of taxes. 
B)  The money market involves obtaining and trading of credit and debt instruments with maturity of one year or less. 
C)  Bond risk premiums follow changes in investor optimism/pessimism about expected economic activity. 
D)  A high interest rate level but downward sloping yield curve is generally perceived as being conductive to future economic expansion.

Question 15

The interest on all federal obligations is exempt from federal income taxes.

Accepted Answer

A) True 
 B)False

Question 16

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is most correct?

Accepted Answer

A)  Advance refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B)  Reverse refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
C)  Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
D)  Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
A)  Advance refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B)  Reverse refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
C)  Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
D)  Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity.

Question 18

An increase in the demand for loanable funds, holding supply constant, will cause interest rates to:

Accepted Answer

A)  increase 
B)  decrease 
C)  stay the same 
D)  increase rapidly then decrease rapidly 
A)  increase 
B)  decrease 
C)  stay the same 
D)  increase rapidly then decrease rapidly

Question 19

An additional expected return to compensate for the possibility a borrower will fail to pay interest and/or principal when due maturity.

Accepted Answer

A)  Maturity risk premium 
B)  Default risk premium 
C)  Interest rate risk 
D)  Inflation premium 
A)  Maturity risk premium 
B)  Default risk premium 
C)  Interest rate risk 
D)  Inflation premium

Question 20

Sources of loanable funds do not include:

Accepted Answer

A)  current savings 
B)  the expansion of deposits by depository institutions 
C)  federal deficits 
D)  unissued treasury bonds 
A)  current savings 
B)  the expansion of deposits by depository institutions 
C)  federal deficits 
D)  unissued treasury bonds

Treasury securities that may be bought and sold through the customary market channels are called Treasury bills.

A "shock" may be defined as an unanticipated change that will cause the demand for, or supply of loanable funds to change.

A decrease in the supply for loanable funds accompanied by an increase in demand will cause interest rates to:

The risk of changes in the price or value of fixed-rate debt instruments resulting from changes in market interest rates.

Interest rates will move from one equilibrium level to another if an anticipated change occurs that causes the demand for loanable funds to change.

Federal obligations usually issued for maturities of two to ten years are called:

Treasure notes are issued in 1-year, 2-year, 5-year, 10-year, and 15-year notes.

The most important holders of Treasury bills are corporations and individuals.

An increase in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to:

The interest rate observed in the marketplace for a debt instrument.

The interest rate is the basic price that equates the demand for supply of loanable funds in the financial markets.

When investors expect inflation rates they will require nominal interest rates so that a real rate of return will remain after the inflation.

There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace.

Which of the following statements is false?

The interest on all federal obligations is exempt from federal income taxes.

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Which of the following statements is most correct?

An increase in the demand for loanable funds, holding supply constant, will cause interest rates to:

An additional expected return to compensate for the possibility a borrower will fail to pay interest and/or principal when due maturity.

Sources of loanable funds do not include:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 8: Interest Rates

Treasury securities that may be bought and sold through the customary market channels are called Treasury bills.

A "shock" may be defined as an unanticipated change that will cause the demand for, or supply of loanable funds to change.

A decrease in the supply for loanable funds accompanied by an increase in demand will cause interest rates to:

The risk of changes in the price or value of fixed-rate debt instruments resulting from changes in market interest rates.

Interest rates will move from one equilibrium level to another if an anticipated change occurs that causes the demand for loanable funds to change.

Federal obligations usually issued for maturities of two to ten years are called:

Treasure notes are issued in 1-year, 2-year, 5-year, 10-year, and 15-year notes.

The most important holders of Treasury bills are corporations and individuals.

An increase in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to:

The interest rate observed in the marketplace for a debt instrument.

The interest rate is the basic price that equates the demand for supply of loanable funds in the financial markets.

When investors expect __________ inflation rates they will require __________ nominal interest rates so that a real rate of return will remain after the inflation.

There is an inverse relation between debt instrument prices and nominal interest rates in the marketplace.

Which of the following statements is false?

The interest on all federal obligations is exempt from federal income taxes.

Inflation is an increase in the price of goods or services that is not offset by an increase in quality.

Which of the following statements is most correct?

An increase in the demand for loanable funds, holding supply constant, will cause interest rates to:

An additional expected return to compensate for the possibility a borrower will fail to pay interest and/or principal when due maturity.

Sources of loanable funds do not include:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

When investors expect inflation rates they will require nominal interest rates so that a real rate of return will remain after the inflation.