MGT411 Final Term paper solved by vuZs Team with references

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MGT411 FinalTerm 2010 s4 solved by vuZs Team with references (R)

 FINALTERM  EXAMINATION

Spring 2010

MGT411- Money & Banking (Session - 4)

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MGT411 FinalTerm 2010 s4 solved by vuZs Team with references (R)

Thursday, 19 August 2010 19:28 Fuad Hasan

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MGT411 FinalTerm 2010 s4 solved by vuZs Team with references (R)

FINALTERM  EXAMINATION

Spring 2010

MGT411- Money & Banking (Session - 4)

Shared by Dasht-e-Tanhai

Solved By vuZs Team

vuZs...@gmail.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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Time: 90 min

Marks: 69

Question No: 1    ( Marks: 1 )    - Please choose one

 Mr. Ghazanfar has assets which when converted to cash, yield more currency then he needs to pay his debt. Which of the following statement best suites Mr. Ghazanfar?

       ► Mr. Ghazanfar earns good income

       ► Mr. Ghazanfar is a wealthy person

       ► All of the given options

       ► Mr. Ghazanfar has a lot of money at point in time

   

Question No: 2    ( Marks: 1 )    - Please choose one

 Wealth can be held in number of other forms but we use to hold money because of which one of the following reason?

       ► It is the only mode of payment

       ► It is an asset

       ► It is most liquid

       ► It is the only store of value

   

Question No: 3    ( Marks: 1 )    - Please choose one

The financial intermediary that obtains funds largely through premium payments and uses those funds to purchase corporate bonds and mortgages is:

       ► Credit unions

       ► Mutual funds

       ► Life insurance companies

       ► Pension funds

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Question No: 4    ( Marks: 1 )    - Please choose one

 Bonds that are issued by Government are called _________.

       ► Government bonds

       ► Treasury bonds

       ► Corporate bonds

       ► Callable bonds

   

Question No: 5    ( Marks: 1 )    - Please choose one

 Which of the following investment will be profitable?

       ► IRR is less than cost of borrowing

       ► IRR is equal to cost of borrowing

       ► IRR is greater than cost of borrowing

       ► IRR has no connection with cost of borrowing

   

Question No: 6    ( Marks: 1 )    - Please choose one

 What is true relationship between return and risk?

       ► Lower the risk greater the return

       ► Greater the risk greater the return

       ► Greater the risk no change in return

       ► No relationship between them

   

Question No: 7    ( Marks: 1 )    - Please choose one

 A zero coupon bond:

       ► Does not pay any coupon payments because the issuer is in default

       ► Pays coupons only once a year versus the usual twice a year

       ► Promises a single future payment

       ► Pays coupons only if the bond price is below face value

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Question No: 8    ( Marks: 1 )    - Please choose one

 An increase in the expected inflation shifts the bond supply to the _________

       ► Right

       ► Left

       ► No change

       ► None of the given options

    Reference

Question No: 9    ( Marks: 1 )    - Please choose one

 The____________ are an assessment of the creditworthiness of the corporate issuer.

       ► Bond yield

       ► Bond ratings

       ► Bond risk

       ► Bond price

 Reference

Question No: 10    ( Marks: 1 )    - Please choose one

 Mr. Ghazanfar wants to invest Rs.2,000 in a bond. If this bond is expected to receive a return of Rs.100 per month and a tax of Rs.3 will be deducted on this return. Then Mr. Ghazanfar made his decision by considering which of the following fact?

       ► He is attracted by Rs.100 return per month

       ► He considers Rs.100 less deduction for tax i.e.Rs.97

       ► He takes into consideration only the portion of tax which is deducted

       ► His decision will not be affected by any of the given factors

   

Question No: 11    ( Marks: 1 )    - Please choose one

 Other things remaining equal, the liquidity premium theory is based upon the idea that ____________.

       ► Investors prefer long-term bonds

       ► Investors prefer short-term bonds

       ► Investors are indifferent between short-term and long-term bonds

       ► Investors prefer intermediate-term bonds

    Reference

Question No: 12    ( Marks: 1 )    - Please choose one

 What will the yield curve look like if future short-term interest rates are expected to rise sharply?

       ► It will steeply slope upward

       ► It will be horizontal

       ► It will slightly slope upward

       ► It will slope downward

   Reference

Question No: 13    ( Marks: 1 )    - Please choose one

 The theory of efficient market states that prices of financial instruments reflect:

       ► All available information

       ► Some of the information

       ► No information

       ► Imperfect information

   

Question No: 14    ( Marks: 1 )    - Please choose one

 Which of the following is a role of a financial institution acting as a financial intermediary?

       ► Pooling the resources of small savers

       ► Formulating oversight regulations

       ► Sending out free calendars at the holidays

       ► Lobbying legislators

    Reference

Question No: 15    ( Marks: 1 )    - Please choose one

 Which of the following represents correct equation for balance sheet of the bank?

       ► Total banks assets = Total banking liability + Banks Capital

       ► Total banks assets + Banks Capital = Total banking liability

       ► Total banks assets + Banks Capital +Total banking liability = 0

       ► Banks Capital = Total banking liability + Total banks assets

    Reference

Question No: 16    ( Marks: 1 )    - Please choose one

 One of the unique problems that banks face is that:

       ► They hold illiquid assets to meet liquid liabilities

       ► They hold liquid assets to meet illiquid liabilities

       ► They hold liquid assets to meet liquid liabilities

       ► Both banks' assets and liabilities are illiquid.

   Reference

Question No: 17    ( Marks: 1 )    - Please choose one

 Which one of the following is a way for a bank to deal with credit risk?

       ► Add a mark-up to the cost of funds for a specific borrower based on the borrower's credit history

       ► Charge all borrowers from the same industry an average rate for that industry

       ► Avoid making loans to borrowers from a broad spectrum

       ► Limit the number of loans made in any year

   Reference

Question No: 18    ( Marks: 1 )    - Please choose one

 Which of the following is not a function of Investment banks?

       ► Research and advice for investors

       ► Immediate sale of assets

       ► Access to payment system

       ► Access to spectrum of assets allowed diversification

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Question No: 19    ( Marks: 1 )    - Please choose one

 Which of the following is correct?

       ► Monetary base = Currency + Reserves

       ► Monetary base = Currency + Deposits

       ► Monetary base = Loans + Reserves

       ► Monetary base = Required reserves + Deposits

   Reference

Question No: 20    ( Marks: 1 )    - Please choose one

 The Fed could make the market federal funds rate equal the target rate by which of the following?

       ► Mandating that all loans be transacted at the target rate

       ► Entering the federal funds market as a borrower and a lender

       ► Setting the discount rate below the federal funds rate

       ► Raising the required reserve rate

      Reference

Question No: 21    ( Marks: 1 )    - Please choose one

 Aggregate demand is derived from each of the following EXCEPT:

       ► Consumption

       ► Government Purchases

       ► The nominal exchange rate

       ► Net exports

   

Question No: 22    ( Marks: 1 )    - Please choose one

 Which one of the following is NOT true for gap analysis?

       ► It is the difference between the yield on interest sensitive assets and liabilities

       ► It is the difference in the maturity of assets and liabilities

       ► Banks manage credit risk by using gap analysis

       ► It is a formal study of what a business is doing currently and where it wants to go in the future

   

Question No: 23    ( Marks: 1 )    - Please choose one

 Successful monetary policy relies on:

       ► Competent people in responsible positions

       ► The institutional environment

       ► Knowledgeable citizens who know how to react to the policy

       ► Competent people in responsible positions and knowledgeable citizens

   Reference

Question No: 24    ( Marks: 1 )    - Please choose one

 The idea that central banks should be independent of political pressure is an idea that:

       ► Is included in Federal Reserve Act in 1913

       ► Is relatively new

       ► Every central bank was founded upon

       ► Became quite popular in the early 1900's

    Reference

Question No: 25    ( Marks: 1 )    - Please choose one

 The operational components required for truly independent central banks include:

       ► Bank's policies cannot be reversed by anyone outside of the central bank

       ► The ability to have policies reversed

       ► The budget controlled by Goverment

       ► The chairperson of the bank answerable only to the president

   Reference

Question No: 26    ( Marks: 1 )    - Please choose one

 Monetary policy operations for central banks are run through changes in the liability category of:

       ► Reserves

       ► Government's Accounts

       ► Currency

       ► Gold

   Reference

Question No: 27    ( Marks: 1 )    - Please choose one

 Discount lending includes in the Federal's function of _____________.

       ► Open market operations

       ► Lender of last resort

       ► The government bank

       ► Open market operation and the government bank

   

Question No: 28    ( Marks: 1 )    - Please choose one

 Interest rate charged by the central bank on loans to commercial banks is known as:

       ► Discount rate

       ► Inflation rate

       ► Internal rate of return

       ► All of the given options

   

Question No: 29    ( Marks: 1 )    - Please choose one

Required reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled by which of the following?

       ► Central bank

       ► Bank regulators

       ► Commercial banks

       ► Non bank public

Lesson No. 35

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Question No: 30    ( Marks: 1 )    - Please choose one

 Monetary Base is a factor that affects the quantity of money. This factor is controlled by which of the following?

       ► Central bank

       ► Bank regulators

       ► Commercial banks

       ► Non bank public

   

Question No: 31    ( Marks: 1 )    - Please choose one

 What kind of risk will involve when loans will not be repaid?

       ► Interest-rate risk

       ► Credit risk

       ► Trading risk

       ► Inflation risk

   

Question No: 32    ( Marks: 1 )    - Please choose one

 Which of the following technique is necessary for making profit in a bank?

       ► Interest rate on liabilities must be lower

       ► Interest rate on deposits must be higher

       ► Interest rate on deposits must be higher than the interest rate on the liabilities

       ► Interest rate on deposits must be lower than the interest rate on the liabilities

   Reference

Question No: 33    ( Marks: 1 )    - Please choose one

 There are _________ type/s of life insurance.

       ► 1

       ► 2

       ► 3

       ► 4

    Reference

Question No: 34    ( Marks: 1 )    - Please choose one

 In ____________ the investment bank guarantees the price of a new issue and then sells it to investor at higher price.

       ► Underwriting

       ► Investment banks

       ► Insurance companies

       ► Mutual funds

Reference

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Question No: 35    ( Marks: 1 )    - Please choose one

 Which of the following policy is used by the central banks to stabilize economic growth and inflation in a country?

       ► Trade policy

       ► Fiscal policy

       ► Monetary policy

       ► Demand management policy

   

Question No: 36    ( Marks: 1 )    - Please choose one

 During the period of _______the central bank decreases the interest rate in order to boost the economic activities in the country.

       ► Boom

       ► Recovery

       ► Recession or boom

       ► Recession

   

Question No: 37    ( Marks: 1 )    - Please choose one

 The simple deposit expansion multiplier was derived assuming no ________are held and that there is no change in currency holdings by the public.

       ► Excess reserves

       ► Required reserve

       ► Actual reserve

       ► None of the given options

   Reference

Question No: 38    ( Marks: 1 )    - Please choose one

 Among the liability side of the balance sheet of a central bank which of the following item represent the function of central bank as Banker’s bank?

       ► Currency

       ► Reserves

       ► Deposits of the Government

       ► Loan to commercial bank

   

Question No: 39    ( Marks: 1 )    - Please choose one

 

_________ the nominal interest rate, the less money individuals will hold for a given level of transactions, and higher the velocity of money.

       ► Lower

       ► Higher

       ► Stable

       ► Incomplete information

Reference

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Question No: 40    ( Marks: 1 )    - Please choose one

 

Portfolio demand for money goes up as the liquidity of alternatives __________

       ► Falls

       ► Rises

       ► Remain stable

       ► Cannot be determined

   Reference

Question No: 41    ( Marks: 1 )    - Please choose one

 

Among the four components of the aggregate demand which of the following is/are the sensitive to the real interest rate?

       ► Consumption

       ► Investment

       ► Net exports

       ► All of the given options

   

Question No: 42    ( Marks: 1 )    - Please choose one

 There must be some level of the __________at which aggregate demand equals potential output.

       ► Real interest rate

       ► Nominal interest rate

       ► Effective interest rate

       ► None of the given options

   Reference

Question No: 43    ( Marks: 1 )    - Please choose one

 The rate will change if one of the following components of aggregate demand that is not sensitive to the real interest rate goes up (or down) or if potential output changes.

       ► Consumption

       ► Investment

       ► Net exports

       ► Govt. spending

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Question No: 44    ( Marks: 1 )    - Please choose one

 Policymakers set their short-run nominal interest rate targets in response to economic conditions in general and _____________in particular.

       ► Inflation

       ► Deposits

       ► Exports

       ► Imports

    Reference

Question No: 45    ( Marks: 1 )    - Please choose vu zs one

 Which of the following is shown by the aggregate demand curve?

       ► How sensitive current output is to given change in current inflation

       ► Current output is not sensitive to given change in current inflation

       ► Current output and current inflation both move in the same direction

       ► None of the given options

   

Question No: 46    ( Marks: 1 )    - Please choose one

 Rising inflation makes foreign goods cheaper in relation to domestic goods, driving imports ___________ and net exports __________.

       ► Up, down

       ► Down, up

       ► Down, down

       ► Up, up

   Reference

Question No: 47    ( Marks: 1 )    - Please choose one

 Inflation tends to change slowly; when it is low one year it tends to be __________ the next year, and when it is high it tends to _________ next year. This is called inflation persistence.

       ► Low, high

       ► High, low

       ► Low, low

       ► High, high

    Reference

Question No: 48    ( Marks: 1 )    - Please choose one

 What are the assumptions of the real business cycle theory?

       ► Prices are flexible

       ► Wages are flexible

       ► Prices and wages are flexible

       ► Prices and wages are fixed

    Reference

Question No: 49    ( Marks: 3 )

 Write down the relationship of portfolio demand for money with the items given below:

·          Wealth

·          Return relative to alternatives

·          Expected future interest rates                        

·          Expected future interest rates                       

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Question No: 50    ( Marks: 3 )

 "Monetary policy can be used to stabilize economy".Discuss.

   

Question No: 51    ( Marks: 5 )

 Write down the main functions of modern central bank?    

   

Question No: 52    ( Marks: 5 )

 Give brief explanation of the following.

a)What is Target funds rate?

b) How it is controlled?

c)What will be the impact of target federal rate on economy?

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Question No: 53    ( Marks: 5 )

 Discuss the impact of following on aggregate demand:

A.     Increase in government purchases

B.     Increase in net exports

 

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