货币银行学题目答案

Tutorial 2

Due on 28th, Nov, 2016

Part I: Choose the best answer

1) Financial markets promote economic efficiency by A) channeling funds from investors to savers. B) creating inflation.

C) channeling funds from savers to investors. D) reducing investment.

2) A common stock is a claim on a corporation's A) debt B) liabilities C) expenses

D) earnings and assets

3) Countries that experience very high rates of inflation have A) balanced budgets.

B) rapidly growing money supplies. C) falling money supplies. D) constant money supplies.

4) An important financial institution that assists in the initial sale of securities in the primary market is the A) investment bank. B) commercial bank. C) stock exchange. D) brokerage house.

5) Which of the following can be described as involving indirect finance? A) You make a loan to your neighbor. B) You buy shares in a mutual fund.

C) You buy a U.S. Treasury bill from the U.S. Treasury.

D) A corporation buys a short-term security issued by another corporation in the primary market. 6) Which of the following can be described as direct finance? A) You take out a mortgage from your local bank. B) You borrow $2500 from a friend.

C) You buy shares of common stock in the secondary market. D) You buy shares in a mutual fund.

7) You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is A) 25%. B) 12.5%. C) 10%

D) 5%

8) With ________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets. A) active

B) determined C) indirect D) direct

9) Which of the following statements about the characteristics of debt and equity is false? A) They can both be long-term financial instruments. B) They can both be short-term financial instruments. C) They both involve a claim on the issuer's income

D)They both enable a corporation to raise funds 10)Secondary markets make financial instruments more A) solid. B) vapid. C) liquid. D) risky

11) The higher a security's price in the secondary market the _________ funds a firm can raise by selling securities in the _________ market. A) more; primary B) more; secondary C) less; primary D) less; secondary

12) An important financial institution that assists in the initial sale of securities in the primary market is the A) investment bank. B) commercial bank. C) stock exchange. D) brokerage house

13) Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders. A) debtors B) brokers

C) residual claimants D) underwriters

14) Which of the following statements uses the economists' definition of money? A) I plan to earn a lot of money over the summer. B) Betsy is rich，she has a lot of money.

C) I hope that I have enough money to buy my lunch today.

D) The job with New Company gave me the opportunity to earn more money.

15)When compared to exchange systems that rely on money, disadvantages of the barter system include: A) the requirement of a double coincidence of wants. B) lowering the cost of exchanging goods over time.

C) lowering the cost of exchange to those who would specialize. D) encouraging specialization and the division of labor

16) When money prices are used to facilitate comparisons of value, money is said to function as a A) unit of account.

B) medium of exchange. C) store of value.

D) payments-system ruler

17) Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money has a ________ function. A) medium of exchange B) unit of account C) store of value D) specialization

18) People hold money even during inflationary episodes when other assets prove to be better stores of value. This can be explained by the fact that money is

A) extremely liquid.

B) a unique good for which there are no substitutes. C) the only thing accepted in economic exchange. D) backed by gold

19) In explaining the evolution of money

A) government regulation is the most important factor.

B) commodity money, because it is valued more highly, tends to drive out paper money. C) new forms of money evolve to lower transaction costs.

D) paper money is always backed by gold and therefore more desirable than checks.

20) During the past two decades an important characteristic of the modern payments system has been the rapidly increasing use of ___

A) checks and decreasing use of currency. B) electronic fund transfers. C) commodity monies. D) fiat money

21)Which of the following is not virtual money ? A) Q coin (QQ) B) bitcoin C) Litecoin D)e-cash

22) If an individual moves money from a demand deposit account to a money market deposit account A) M1 decreases and M2 stays the same. B) M1 stays the same and M2 increases.

C) M1 stays the same and M2 stays the same. D) M1 increase and M2 decrease

23)If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? A) percent : B) 10 perc ent C)11 percent D)12 percent

24) Which of the following bonds would you prefer to be buying?

A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 C)A $10,000 face-value security with a 9 percent coupon selling for $11,000 D)A $10,000 face-value security with a 10 percent coupon selling for $10,000

25) A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of A)3 percent. B)20 percent. C)25 percent. D)33.3 percent.

26) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? A)5 percent B)10 percent C)15 percent D)20 percent

27) Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

A)long-term; long-term B)long-term; short-term C)short-term; long-term D)short-term; short-term

28)Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________. A)rises; rises B) rises; falls C)falls; rises D)falls; fall

29)If the price of gold becomes less volatile, then, other things equal, the demand for stocks will ________ and the demand for antiques will ________. A) increase; increase B) increase; decrease C)decrease; decrease D)decrease; increase

30)Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________. A) rises; right B) rises; left C)falls; right D)falls; left

31)When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant. A) demand; demand B) demand; supply C)supply; demand D)supply; supply

32)When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant. A) supply; right B) supply; left C)demand; right D)demand; left

33)In the figure above, the price of bonds would fall from P1 to P2 A) inflation is expected to increase in the future. B) interest rates are expected to fall in the future.

C)the expected return on bonds relative to other assets is expected to increase in the future.

D)the riskiness of bonds falls relative to other assets.

34)During the Great Depression years 1930-1933 there was a very high rate of business failures and defaults, we would expect the risk premium for ________ bonds to be very high. A) U.S. Treasury B) corporate Aaa C)municipal D)corporate Baa

35)If the expected path of 1-year interest rates over the next five years is 2 percent, 4 percent, 1 percent, 4 percent, and 3 percent, the expectations theory predicts that the bond with the lowest interest rate today is the one with a maturity of A) one year. B) two years.C)three years. D)four years.

36)If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, then the 3-year bond rate will be A) 1 percent. B) 2 percent. C)3 percent. D)4 percent.

37) According to expectation theory ,The U-shaped yield curve in the figure indicates that short-term interest rates are expected to

A) rise in the near-term and fall later on.

B) fall sharply in the near-term and rise later on. C)fall moderately in the near-term and rise later on. D)remain unchanged in the near-term and rise later on

38)According to liquidity premium theory ,The inverted U-shaped yield curve in the figure indicates that the inflation rate is expected to A) rise sharply in the near-term and fall later on. B) fall moderately in the near-term and rise later on. C)rise moderately in the near-term and fall later on. D)remain unchanged in the future .

39) If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is A) 5 percent. B) 10 percent. C) 12.5 percent. D) 15 percent.

40)If a consol has a price of $500 and an annual interest payment of $25, the interest rate is A) 2.5 percent. B) 5 percent. C) 7.5 percent. D) 10 percent.

41)The yield on a discount basis of a 180-day $1,000 Treasury bill selling for $900 is A) 10 percent. B) 20 percent. C) 25 percent. D) 40 percent.

42)What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A) 5 percent B) 10 percent

C) -5 percent D) -10 percent

43) If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding?

A) A bond with one year to maturity B) A bond with five years to maturity C) A bond with ten years to maturity D) A bond with twenty years to maturity

44) Which of the following are true concerning the distinction between interest rates and returns? A) The rate of return on a bond will not necessarily equal the interest rate on that bond.

B) The return can be expressed as the difference between the current yield and the rate of capital gains.

C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1.

D)The return can be expressed as the sum of the discount yield and the rate of capital gains.

45)The riskiness of an asset’s return due to changes in interest rate is A)exchange rate risk B)price risk C)asset risk

D) interest rate risk

Part II: Calculation and Analysis

1.Calculate the rate of return

1) For a coupon bond with coupon rate of 10% maturing in 2 years and selling at its face value. If the yield to

maturity is 10% at the beginning of the year, and drop to 5% at the end of the year. What is the annual rate of return of this coupon bond ?

2) Which investment has a higher rate of return ?According to you , which one (consol or coupon bond) is a

better investment ? Can you relate your results to the theory on interest rate risk?

2.Supply and Demand Analysis of Money Market

i

Ms Md Money supply

The chart above shows the money demand and supply. Suppose now the Federal Reserve decides to reduce the Money supply, causing income level to decrease over time. Please drew the new money demand and supply curve accordingly and talk about your opinion on the new equilibrium of interest rate. (whether it goes up or down)

3. Explain why you would be more or less willing to buy gold under the following circumstance a.Gold again becomes acceptable medium of exchange b.Price in gold market become more volatile

c.You expect inflation to rise, and gold price tend to move with the aggregate price level

4. The president of the US announces in a press conference that he will fight the higher inflation rate with a new anti-inflation program . Predict what will happy to interest rate if the public believes him

5. If expectations of future short-term interest rate suddenly fall, what would happy to the slope of the yield curve?

Part III Essay Questions

The following questions are based on the attached article on Money.

(1) Write a summary of the article ( less than 500 words) (2) What is the advantages and disadvantages of Fiat Money ?

(3) Given the definition and functions of Money , discuss whether Bitcoin (比特币) can function as real money?

ANSWER

Part I

1~5 CDBAB 6~10BDDBC 11~15AACCA 16~20ACACB 21~25DABAC 26~30CCDCA 31~35ABADD 36~40DCCBB 41~45AAAAD Part II

1 (1) (100/0.05-100/0.1+100)/(100/0.1)=110% (2) (1.1F/1.05-F+0.1F)/F=14.76%

I prefer coupon bond. When coupon rate of two fall, coupon bond may rise more. 2

i

Ms2 Ms1 Md2 Md2 goes down

3 a I will be willing to buy gold because of the high liquidity. b I will not be willing to buy gold because of the high risk.

c I will be willing to buy gold ,because gold replaces the money store of value.

4 The interest rates will fall. People’s inflation expectations will reduce, and the nominal yield of the bond is fixed. Soit makes the real gains in the bond.

5. The slope of the yield curve become smaller. The expected reduction in future short-term interest rates will reduce the average value of average short-term interest rates. Long-term interest rates reduce.

III.

(1)Money plays an essential role in our daily life nowadays. With money, we don’t need to find a particular person which is difficult to trade with. At this moment, all we need is just a market that is big enough in which to sell our goods or services. There was no doubt that money as a kind of medium provides a great convenience for us.

Money is something that holds its value over time, can be easily translated into prices, and is widely accepted. Many different things have been used as money over the years. However, many things looked as money may change in different ways as time goes by so that they cannot be kept for a long time. But precious metals that are hard to obtain seemed to serve all three needs: a stable unit of account, a durable store of value, and a convenient medium of exchange. What’s more, the precious metals’ durability, limited supply, high replacement cost, and portability made precious metals more attractive as money than other goods. After money occurring, deflation and inflation happens some times because of the amount of money. It is a hard problem to keep the balance between demand and supply of money. Countries that have been down the path of high inflation experienced firsthand how the value of money essentially depends on people believing in it. Money is absolutely not never changed. To some extent, money was depended on people’s relief. Money can be measured by store of value and liquidity.

(2)On the one hand, when the link between the precious metal and the metal was broken, fiat money was born, it is materially worthless and different from the precious metal, but has value simply because a nation collectively agrees to ascribe a value to it and it would be useless only if people don’t accept it anymore. On the other hand, fiat money gives a great convenience to people in daily life. We can use it to trade easily.

(3)①Money is something that can be accepted by most people widely using for buying goods and services or paying off debt in the big world market.

②On the one hand, people are eager to be decentration, bitcoin will fill the gap of the monetary system and better realize the function of transaction as media. These stages happened in the generation and development of traditional monetary. In the future, the virtual world economy is built on the basis of the virtual currency, this is bitcoin’s value. On the other hand, country will not easily give up sovereign credit currency issuance and distribution rights, if bitcoin became the main currency of the world, the global economy will fall into serious deflation, commercial prices will continue to fall, the global economy will be severely weakened into the abyss. Besides, all the virtual currency of the mode of production, transaction mode, storage mode does not have unique.