MGT411 Final Term Golden File

MGT411 – Money & Banking · Golden File · For: Final Term Exam Preparation · Remember us in your prayers · Quality of our File:

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Core principles of Money and Banking include each of the following Except?

1. All people act rationally
2. Time has value
3. Information is the basis for decisions
4. Risk requires compensation

Correct answer: All people act rationally

Which of the following is the final mode of payment?

1. Money
2. ATM
3. Cheque
4. Yet to discover

Correct answer: Money

The one that you get from bank when you open your checking account is

1. Debit card
2. Credit card
3. Store value card
4. Customer card

Correct answer: Debit card

A Financial Intermediary:

1. Is an agency that guarantees a loan
2. Is involved in direct finance
3. Would be used in indirect finance
4. None of the given options

Correct answer: Would be used in indirect finance

Which of the following is NOT a financial instrument?

1. A share of General Motors stock
2. A tuition bill
3. A U.S. Treasury bond
4. A home insurance policy

Correct answer: A tuition bill

Which of the following is true for direct finance?

1. Individuals (or firms) borrow directly from banks
2. Individuals deposit savings directly in banks
3. Firms deposit savings directly in banks
4. Individuals (or firms) borrow directly from the savers

Correct answer: Individuals (or firms) borrow directly from the savers

If an investment will return $1000 ½ of the time and $600 ½ of the time, the expected value of the investment is:

1. $1,600
2. $800
3. $400
4. $900

Correct answer: $800

___________ is the strategy of reducing overall risk by making two investments with opposing risks.

1. Spreading the risk
2. Standard deviation
3. Hedging the risk
4. Variance

Correct answer: Hedging the risk

For a $1000 one year discount bond with a price of $975, the yield to maturity is which of the following?

1. $975/$1000
2. ($1000 – $975)/$975
3. ($1000 – $975)/($1000)
4. $1000/$975

Correct answer: ($1000 – $975)/$975

If YTM is less than the coupon rate the price of the bond is __________.

1. Greater than its face value
2. Lower than its face value
3. Equals to its face value
4. Insufficient information is given

Correct answer: Greater than its face value

Term structure of interest rate can be explained by which one of the following?

1. Tax difference
2. Expectation hypothesis
3. Liquidity premium theory
4. Both by expectation hypothesis and liquidity premium theory

Correct answer: Both by expectation hypothesis and liquidity premium theory

The shape of the yield curve is usually:

1. Upward sloping
2. Downward sloping
3. Upward sloping for shorter maturities and downward sloping for longer maturities
4. Flat

Correct answer: Upward sloping

An index number is a valuable tool because:

1. The number by itself provides all of the useful information needed
2. The index provides a meaningful measurement scale to calculate percentage changes
3. The index is more stable than the data it reflects
4. It does not require any calculations to compute percentage changes

Correct answer: The index provides a meaningful measurement scale to calculate percentage changes

Stock market bubbles can lead to:

1. An inefficient allocation of resources
2. Stock market crashes
3. Patterns of volatile returns from the stock market
4. All of the given options

Correct answer: Stock market crashes

The difference between a bank's reserves and their required reserves is equal to which of the following?

1. Equity
2. Excess reserves
3. Net interest income
4. None of the given options

Correct answer: Excess reserves

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

1. Add a mark-up to the cost of funds for a specific borrower based on the borrower's credit history
2. Charge all borrowers from the same industry an average rate for that industry
3. Avoid making loans to borrowers from a broad spectrum

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