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Thursday, January 13, 2011

MGT411- Money & Banking

FINALTERM  EXAMINATION
Spring 2009
MGT411- Money & Banking (Session - 2)
Ref No:
Time: 120 min
Marks: 81

Question No: 1    ( Marks: 1 )    - Please choose one
 Investing was an activity reserved for only __________ in the past.
       Business men
       Traders
       Wealthy people
       Stock brokers
   
Question No: 2    ( Marks: 1 )    - Please choose one
 Financial instruments are evolved just as ___________.
       Currency
       Stock
       Bond
       Commodity
   
Question No: 3    ( Marks: 1 )    - Please choose one
 Which of the following market allowed networks of dealers that are connected electronically?
       New York Stock Exchange
       NASDAQ
       Large exchanges in London
       Large exchanges in Tokyo
   
Question No: 4    ( Marks: 1 )    - Please choose one
 If at 5% interest rate, $100 payment has a PV of $90.70. Then what will be the PV value of $200 payment? (Without applying formula).
       $45.35
       $272.1
       $181.4
       $362.8
  
Question No: 5    ( Marks: 1 )    - Please choose one
 _________ measures the probability of worst outcome in any investment project.
       Variance
       Standard deviation
       Value at risk
       Hedging
   
Question No: 6    ( Marks: 1 )    - Please choose one
 If the annual interest rate is 6% (.06); the price of a one year Treasury bill would be:
       $94.00
       $94.33
       $95.25
       $96.10
   
Question No: 7    ( Marks: 1 )    - Please choose one
 Which of the following best describes default risk?
       The chance the issuer will be unable to make interest payments or repay principal
       The chance the issuer will retire the debt early
       The chance the issuing firm will be sold to another firm
       The chance the issuer will sell more debt
   
Question No: 8    ( 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: 9    ( Marks: 1 )    - Please choose one
 Calculate tax implication on Bond yields. Consider a one year bond face value Rs.100 (issued by Government) with coupon rate of 6%.What is the income of bond that is received at maturity? (Tax rate is 30%).
       Rs.6
       Rs.1.80
       Rs.4.20
       Rs.7.80
   
Question No: 10    ( Marks: 1 )    - Please choose one
 Which of the following statement is true for the given sentence, "that tax affects the bond return"?
       Because only interest income they receive from bond is taxable
       Because principal amount and interest income they receive from bond is taxable
       Because bond holders are taxpayers
       Because all bond is sold with a condition that tax will be deducted from its return
   
Question No: 11    ( Marks: 1 )    - Please choose one
 The fact that common stockholders are residual claimants means:
       The stockholders receive their dividends before any other residuals are paid
       The stockholders receive the remains after everyone else is paid
       The stockholders are paid any past due dividends before other claims are paid
       The common stockholders are responsible for all corporate debts
 
Question No: 12    ( Marks: 1 )    - Please choose one
 If a bank sells off all of its assets and pays all of its liabilities the remaining amount would be __________.

       Net profit
       Net worth
       Reserves
       Excess reserves
   
Question No: 13    ( Marks: 1 )    - Please choose one
 __________ measures how efficiently a bank uses its assets.

       Return on Assets
       Return on Equity
       Bank Capital
       Bank Profitability
   
Question No: 14    ( Marks: 1 )    - Please choose one
 The procedure that estimates the interest rate sensitivity of a bank's assets and liabilities is called ___________.
       Managing credit risk
       Gap analysis
       Trading risk minimization
       Managing liquidity risk
   
Question No: 15    ( Marks: 1 )    - Please choose one
 An insurance company provides liability insurance to a bakery protecting the owner against claims from customers. One area of coverage is protection against food poisoning claims. The insurance company may periodically send an employee into the bakery to observe food preparation and food storage processes. The insurance company is trying to avoid which of the following?
       Paying claims
       Adverse selection
       Moral hazard
       Transaction cost
   
Question No: 16    ( 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
 
Question No: 17    ( Marks: 1 )    - Please choose one
 Funds of depository institution are primarily used in which of the following?

       Corporate bonds, Government bonds, Stocks, Mortgage
       Cash, Loan, Securities
       Stocks, Government bonds, corporate bonds, commercial papers
       Commercial papers, Bonds
   
Question No: 18    ( Marks: 1 )    - Please choose one
 All of the following are the primary sources of funds for depository institutions EXCEPT?

       Checkable deposits
       Savings and time deposits
       Short term loans
       Borrowings from other banks
   
Question No: 19    ( Marks: 1 )    - Please choose one
 Which one of the following refers to the risk assessment and loss reimbursement guarantee by the individual risk experts of the relevant field?
       Underwriting process
       Insurance process
       Research process
       None of the given options
   
Question No: 20    ( Marks: 1 )    - Please choose one
 The "trade off" which can impact bank's likelihood of faliure is described as:
       The larger the bank in asset size the more likely it will fail
       The more competitive the banking environment, the more likely the bank will fail
       The more profitable the bank, the less liquid the bank will be and the more likely it will fail
       The greater the regulation from government the more likely the bank will fail
   
Question No: 21    ( Marks: 1 )    - Please choose one
 On which of the following success of monetary policy depends upon?
       It may be on the chance or by luck
       The institutional environment
       Competent people in responsible positions
       Both the institutional environment and Competent people in responsible positions
   
Question No: 22    ( Marks: 1 )    - Please choose one
 A central bank's balance sheet would categorize each of the following as liabilities EXCEPT:
       Currency
       Gold
       Reserves
       Accounts of the commercial banks

Question No: 23    ( Marks: 1 )    - Please choose one
 If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $2 million open market purchase by the Fed will result in deposit creation of:
       $20 million
       $18 million
       $2 million
       $1,800,000
   
Question No: 24    ( Marks: 1 )    - Please choose one
 If required reserves are expressed by RR ; the required reserve rate by rD and deposits by D; the simple deposit expansion multiplier is expressed as:

       rDD
       (1/rD) D
       1/rD
       rD times 10
   
Question No: 25    ( Marks: 1 )    - Please choose one
 The _____________ shows how the quantity of money is related to the monetary base:
       Money multiplier
       Deposit expansion multiplier
       Fiscal multiplier
       Tax multiplier
   
Question No: 26    ( Marks: 1 )    - Please choose one
 Central banks today place most of their focus on which of the following?

       The unemployment rate
       The quantity of M2
       Interest rates
       Controlling the size of the money multiplier
   
Question No: 27    ( Marks: 1 )    - Please choose one
 Which of the following statement is true regarding monetary policy tools?

       The Fed currently uses a quantity tool for monetary policy
       The required reserve rate is the most easily observable tool
       The federal funds rate is not the best tool because it fails the controllable test of a good monetary policy tool.
       The central banks cannot set a quantity and a price tool simultaneously
   
Question No: 28    ( Marks: 1 )    - Please choose one
 Inflation can be thought of as which of the following?

       A decrease in the price of money
       An increase in the price of money
       No change in the price of money, just in the supply of money
       No change in the price of money, just in the demand for money

Question No: 29    ( Marks: 1 )    - Please choose one
 If a central bank sets an explicit inflation target it would require which one of the following?

       More emphasis on the interest rate target and less on a money target
       To shift their focus entirely to a nominal interest rate target
       Willingness to live with more volatility in the interest rate
       To give up control of targeting the monetary base
   
Question No: 30    ( 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: 31    ( Marks: 1 )    - Please choose one
 Liquidity is the risk that is arises as a result of which one of the following consequences?
       It arises because of sudden demands of funds
       It arises when two sides of the balance sheet do not match up
       It arises when banks make additional profit by using derivatives
       It arises when loan is not repaid
   
Question No: 32    ( Marks: 1 )    - Please choose one
 For securities issued across international borders, changes in the legal and governmental environment can make it difficult for the investor to collect. Such a risk would be termed as:
       Credit risk
       Sovereign risk
       Insolvency risk
       Interest rate risk
   
Question No: 33    ( Marks: 1 )    - Please choose one
 In general, if the financial institution's balance sheet displays assets and liabilities that are "mis-matched" to a significant degree, the institution faces:
       Operational risk
       Sovereign risk
       Interest rate risk
       Liquidity risk
   
Question No: 34    ( 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

Question No: 35    ( Marks: 1 )    - Please choose one
 One thing that is true about economic policy in the U.S. is that:
       Monetary and Fiscal policy often times conflict
       Fiscal and monetary policy never conflict
       Monetary policy ultimately controls fiscal policy
       Fiscal policy ultimately controls monetary policy
   
Question No: 36    ( Marks: 1 )    - Please choose one
 Which of the following is the component of monetary base?
       Currency in the hands of the public
       Reserves of the banking system
       Vault cash plus deposits at the central bank
       All of the given options
   
Question No: 37    ( Marks: 1 )    - Please choose one
 In the long run, if we ignore changes in velocity then which of the following statement is true?
       Inflation will equal money growth less the growth in potential output
       Inflation will equal the rate of money growth
       Inflation will be zero
       Inflation will equal money growth plus the growth in potential output
   
Question No: 38    ( 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: 39    ( Marks: 1 )    - Please choose one
 An increase in the money supply will do all the following except: 
       Increase real GDP in the short-run
       Increase Price level in the long-run
       Increase  Price level in the short-run
       Increase real GDP in the long-run
   
Question No: 40    ( Marks: 1 )    - Please choose one
 An increase in capital stock, which shifts long-run supply out, will:
       Lower prices and will not change output
       Increase prices and will not change output
       Lower prices and will increase output
       Increase prices as well as output
   
Question No: 41    ( Marks: 1 )    - Please choose one
 Components of M1 DO NOT include which one of the following?
       Currency in the hands of public
       Demand deposits
       Small denominations time deposit
       Checkable deposits

Question No: 42    ( Marks: 1 )    - Please choose one
 Which one of the following is the unique problem that banks face?
       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
   
Question No: 43    ( Marks: 3 )
 Write down the categories of assets in the balance sheet of commercial banks.
   
Question No: 44    ( Marks: 3 )
 How Central banks link tools to meet their objectives?
   
Question No: 45    ( Marks: 3 )
 Name the factors that affect the transaction demand for money.

   
Question No: 46    ( Marks: 5 )
 "Principal function of Commercial banks is to receive demand deposits and to make short-term loans".Discuss
   
Question No: 47    ( Marks: 5 )
 Give brief explanation of the following.
What is reserve requiremnet?
How is it controlled?
What is its impact on economy?

Question No: 48    ( Marks: 10 )
 a) If people suddenly lost faith in the banking system, what would happen to the demand for money?  What impact would their loss of confidence have on inflation?

b) Why is inflation higher than money growth in high inflation countries and lower than money growth in low inflation countries?  

   
Question No: 49    ( Marks: 10 )
 Discuss the force of real interest rate on:
I.  Monetary policy
II.                       Aggregate demand


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