Question 1

The market value of a particular bond at any given point in time is called the bond's:

Accepted Answer

A) coupon rate. 
B) principal. 
C) term. 
D) price. 
A) coupon rate. 
B) principal. 
C) term. 
D) price.

Question 2

A decrease in the perceived riskiness of Company A stock ________ the risk premium investors require to purchase Company A stock and ________ the price of Company A stock.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 3

In the United States saving is allocated to its most productive use by:

Accepted Answer

A) the Federal Reserve. 
B) the federal, state, and local governments. 
C) regulations and laws designed to improve productivity. 
D) a decentralized, market-oriented financial system. 
A) the Federal Reserve. 
B) the federal, state, and local governments. 
C) regulations and laws designed to improve productivity. 
D) a decentralized, market-oriented financial system.

Question 4

Holding constant risk and the real returns available abroad, higher domestic real interest rates ________ capital inflows, ________ capital outflows, and ________ net capital inflows.

Accepted Answer

A) increase; increase; increase 
B) increase; increase; decrease 
C) increase; decrease; increase 
D) decrease; decrease; decrease 
A) increase; increase; increase 
B) increase; increase; decrease 
C) increase; decrease; increase 
D) decrease; decrease; decrease

Question 5

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually rose to $1,019. The one-year interest rate must be:

Accepted Answer

A) 6 percent. 
B) 5 percent. 
C) 3 percent. 
D) 2 percent. 
A) 6 percent. 
B) 5 percent. 
C) 3 percent. 
D) 2 percent.

Question 6

A bond is a(n):

Accepted Answer

A) regular payment made to owners of a firm. 
B) claim to partial ownership of a firm. 
C) agreement issued by a financial intermediary linking savers and investors. 
D) legal promise to repay a debt. 
A) regular payment made to owners of a firm. 
B) claim to partial ownership of a firm. 
C) agreement issued by a financial intermediary linking savers and investors. 
D) legal promise to repay a debt.

Question 7

An economy with a trade deficit must also have:

Accepted Answer

A) a trade deficit. 
B) a budget surplus. 
C) positive net capital outflows. 
D) positive net capital inflows. 
A) a trade deficit. 
B) a budget surplus. 
C) positive net capital outflows. 
D) positive net capital inflows.

Question 8

In an open economy, if domestic citizens decide to save more, then the domestic real interest rate will ________ and the level of capital investment in the country will ________, holding other factors constant.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 9

A regular payment received by stockholders for each share they own is called a:

Accepted Answer

A) coupon payment. 
B) dividend. 
C) bond. 
D) capital gain. 
A) coupon payment. 
B) dividend. 
C) bond. 
D) capital gain.

Question 10

The specialized information-gathering activities that banks use to evaluate borrowers are an example of the:

Accepted Answer

A) cost-benefit principle. 
B) principle of comparative advantage. 
C) scarcity principle. 
D) principle of increasing opportunity cost. 
A) cost-benefit principle. 
B) principle of comparative advantage. 
C) scarcity principle. 
D) principle of increasing opportunity cost.

Question 11

In an open economy, a decrease in capital inflows ________ the equilibrium domestic real interest rate and ________ the quantity of domestic investment.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 12

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you require a return of 8 percent, what dividend payment must you expect to receive from the stock?

Accepted Answer

A) $4.46 
B) $5.20 
C) $6.00 
D) $9.25 
A) $4.46 
B) $5.20 
C) $6.00 
D) $9.25

Question 13

If the United States has a $300 billion net capital inflow, then there must be a:

Accepted Answer

A) trade surplus of $300 billion. 
B) trade deficit of $300 billion. 
C) trade surplus of $600 billion. 
D) net capital outflow of $300 billion. 
A) trade surplus of $300 billion. 
B) trade deficit of $300 billion. 
C) trade surplus of $600 billion. 
D) net capital outflow of $300 billion.

Question 14

International capital flows are:

Accepted Answer

A) purchases of foreign goods or services. 
B) sales of domestic goods or services to foreigners. 
C) exports plus imports. 
D) purchases or sales of real and financial assets across international borders. 
A) purchases of foreign goods or services. 
B) sales of domestic goods or services to foreigners. 
C) exports plus imports. 
D) purchases or sales of real and financial assets across international borders.

Question 15

When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from the sale to buy transportation services from the U.S., U.S. net exports ________ and the capital inflow to the United States ________.

Accepted Answer

A) are positive; is negative 
B) are negative; is positive 
C) are negative; is negative 
D) are unchanged; is unchanged 
A) are positive; is negative 
B) are negative; is positive 
C) are negative; is negative 
D) are unchanged; is unchanged

Question 16

When the coupon rate on newly issued bonds decreases from 6 percent to 5 percent, the prices of existing bonds:

Accepted Answer

A) increase. 
B) decrease. 
C) remain unchanged. 
D) decrease only if the coupon rate is less than 5 percent. 
A) increase. 
B) decrease. 
C) remain unchanged. 
D) decrease only if the coupon rate is less than 5 percent.

Question 17

When imports exceed exports there is a(n):

Accepted Answer

A) output gap. 
B) trade balance. 
C) trade surplus. 
D) trade deficit. 
A) output gap. 
B) trade balance. 
C) trade surplus. 
D) trade deficit.

Question 18

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $62.73 for one share of the stock today, and you expect a dividend payment of $4, what rate of return do you require?

Accepted Answer

A) 3.6 percent 
B) 6.2 percent 
C) 6.4 percent 
D) 10 percent 
A) 3.6 percent 
B) 6.2 percent 
C) 6.4 percent 
D) 10 percent

Question 19

Financial systems in market economies improve the allocation of saving in each of the following ways EXCEPT by:

Accepted Answer

A) providing information about which potential use of funds will be most productive. 
B) helping savers to share the risk of individual investment projects. 
C) evaluating the potential productivity of alternative capital investments. 
D) allowing potential favoritism to determine which projects are funded. 
A) providing information about which potential use of funds will be most productive. 
B) helping savers to share the risk of individual investment projects. 
C) evaluating the potential productivity of alternative capital investments. 
D) allowing potential favoritism to determine which projects are funded.

Question 20

The ongoing search by savers for high returns leads the bond and stock markets to direct funds to the uses that appear:

Accepted Answer

A) most likely to be productive. 
B) least likely to be productive. 
C) to have the least risk. 
D) to have no risk. 
A) most likely to be productive. 
B) least likely to be productive. 
C) to have the least risk. 
D) to have no risk.

Exam 23: Financial Markets and International Capital Flows

The market value of a particular bond at any given point in time is called the bond's:

A decrease in the perceived riskiness of Company A stock ________ the risk premium investors require to purchase Company A stock and ________ the price of Company A stock.

In the United States saving is allocated to its most productive use by:

Holding constant risk and the real returns available abroad, higher domestic real interest rates ________ capital inflows, ________ capital outflows, and ________ net capital inflows.

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually rose to $1,019. The one-year interest rate must be:

A bond is a(n):

An economy with a trade deficit must also have:

In an open economy, if domestic citizens decide to save more, then the domestic real interest rate will ________ and the level of capital investment in the country will ________, holding other factors constant.

A regular payment received by stockholders for each share they own is called a:

The specialized information-gathering activities that banks use to evaluate borrowers are an example of the:

In an open economy, a decrease in capital inflows ________ the equilibrium domestic real interest rate and ________ the quantity of domestic investment.

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you require a return of 8 percent, what dividend payment must you expect to receive from the stock?

If the United States has a $300 billion net capital inflow, then there must be a:

International capital flows are:

When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from the sale to buy transportation services from the U.S., U.S. net exports ________ and the capital inflow to the United States ________.

When the coupon rate on newly issued bonds decreases from 6 percent to 5 percent, the prices of existing bonds:

When imports exceed exports there is a(n):

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $62.73 for one share of the stock today, and you expect a dividend payment of $4, what rate of return do you require?

Financial systems in market economies improve the allocation of saving in each of the following ways EXCEPT by:

The ongoing search by savers for high returns leads the bond and stock markets to direct funds to the uses that appear:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

A decrease in the perceived riskiness of Company A stock the risk premium investors require to purchase Company A stock and the price of Company A stock.

Holding constant risk and the real returns available abroad, higher domestic real interest rates capital inflows, capital outflows, and net capital inflows.

In an open economy, if domestic citizens decide to save more, then the domestic real interest rate will and the level of capital investment in the country will , holding other factors constant.

In an open economy, a decrease in capital inflows the equilibrium domestic real interest rate and the quantity of domestic investment.

When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from the sale to buy transportation services from the U.S., U.S. net exports and the capital inflow to the United States .