FINAL TERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 4)
Time: 90 min
Marks: 69
Question No: 26 ( Marks: 1 ) - Please choose one
Inflation in the long run would be determined by which one of the following?
► The exchange rate
► Aggregate demand
► The rate of money growth
► Aggregate supply
Question No: 27 ( Marks: 1 ) - Please choose one
Which one of the following is vertical at the point where current output equals potential output?
► Short run aggregate supply curve
► Aggregate demand curve
► Long run aggregate supply curve
► Monetary policy reaction curve
Question No: 28 ( Marks: 1 ) - Please choose one
Interest rate risk arises as a result of which one of the following consequences?
► It arises when banks make additional profit by using derivatives
► It arises when loan is not repaid
► It arises because of sudden demands of funds
► It arises when two sides of the balance sheet do not match up
Question No: 29 ( Marks: 1 ) - Please choose one
Excess 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
Question No: 30 ( Marks: 1 ) - Please choose one
The Fed was reluctant to make discount loans beacause of which one of the following reason?
► Beacause it was a destabilizing force for financial markets
► Beacause it resulted in banks in poor financial standing
► Beacause it pushed the discount rate above the target federal funds rate
► Beacause it proved to be a very stabilizing force for financial markets
Question No: 31 ( 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: 32 ( Marks: 1 ) - Please choose one
Inflation in the long run would be determined by which one of the following?
► The exchange rate
► Aggregate demand
► The rate of money growth
► Aggregate supply
Question No: 33 ( Marks: 1 ) - Please choose one
Complete crowding-out will occur if:
► The money supply rises when Government purchases increases
► An increase in Government purchases does not change Consumption
► Taxes rise when Government purchases increases
► An increase in Government purchases causes an equal fall in Consumption, Investment, and Net Exports
Question No: 34 ( Marks: 1 ) - Please choose one
Bank can borrow by using a ___________ or repo which is a short term collateralized loan.
► Letter of credit
► Discounted loan
► Repurchase agreement
► Federal funds
Question No: 35 ( Marks: 1 ) - Please choose one
What happens when a bank does not meet customer’s request for immediate funds?
► There will be risk of failure even with positive net worth
► Liquidity will drive it out of business
► There will be risk of failure with negative net worth
► None of the given options
Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following are the primary uses of funds of Finance Company?
► Cash, loans, securities
► Corporate bonds, government bonds
► Commercial paper, bonds, mortgages
► Bonds, bank loans, commercial paper
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following are not under the control of a central bank?
► Govt. budget
► Fiscal policy
► Securities market
► All of the given options
Question No: 38 ( Marks: 1 ) - Please choose one
The ______________ framework is made up of the objectives of central banks and requirements that central bank be independent, accountable and good communicator.
► Monetary policy
► Fiscal policy
► Insurance policy
► Trade policy
Question No: 39 ( Marks: 1 ) - Please choose one
“Pooling the knowledge of a number of people yields better decisions than decision making by an individual” represent which of the following principle of central bank design?
► Independence
► Decision making by committee
► Accountability and transparency
► Policy framework
Question No: 40 ( Marks: 1 ) - Please choose one
If the cost of the currency is the interest it would earn on deposits then what would be its benefit?
► Higher risk and lower liquidity
► Higher risk and higher liquidity
► Lower risk and lower liquidity
► Lower risk and higher liquidity
Question No: 41 ( Marks: 1 ) - Please choose one
The quantity of money people hold for transaction purposes does NOT depends upon:
► Nominal income
► Cost of holding money
► Availability of substitutes
► Real income
Question No: 42 ( Marks: 1 ) - Please choose one
Portfolio demand for money goes up as the riskiness of the alternative __________
► Falls
► Rises
► Remain stable
► Cannot be determined
Question No: 43 ( 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
Question No: 44 ( Marks: 1 ) - Please choose one
The higher real interest rate reduces consumption, investment, and net exports causing aggregate demand (output) to ________.
► Fall
► Rise
► Remain constant
► Incomplete information
Question No: 45 ( Marks: 1 ) - Please choose one
In which of the following situation part of the economy’s capacity is idle, and firms tend to raise their prices and wages less than they did when current output equaled potential output?
► When current output is below potential output
► When current output is exceeds potential output
► When current output equals potential output
► None of the given options
Question No: 46 ( Marks: 1 ) - Please choose one
In which of the following situation firms increase their prices and wages more than they would if they were operating at normal levels?
► When current output is below potential output
► When current output exceeds potential output
► When current output equals potential output
► None of the given options
Question No: 47 ( Marks: 1 ) - Please choose one
Which of the following is determined by the intersection of the aggregate demand curve with the short-run aggregate supply curve?
► Short-run equilibrium
► Long-run equilibrium
► Both short-run and long-run equilibrium
► None of the given options
Question No: 48 ( Marks: 1 ) - Please choose one
An increase in aggregate demand causes a temporary increase in which of the following?
► Out put
► Inflation
► Both output and inflation
► Incomplete information
Question No: 49 ( Marks: 3 )
Discuss velocity both in long and short run.
Question No: 50 ( Marks: 3 )
What is the effect of an increase in potential output on inflation and output?
Question No: 51 ( Marks: 5 )
If banks offers Mr. A a choice, that whether he leaves his entire monthly salary in his account or shifting funds back and forth between checking account and bond fund. What should be Mr. A's frequency of shifting the funds between the bond fund and checking account?
(Note: Bond fund pays interest but adds a service charge of Rs.20 for each withdrawal)
Question No: 52 ( Marks: 5 )
Briefly explain the reasons that why the government gets involved in the financial system.
Question No: 53 ( Marks: 5 )
A well-designed policy framework helps policymakers establish credibility. Discuss the principles of central bank design.
