Exam Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question With an interest rate of 6 percent the present value of 100 next year is approximately 1 1 106 A 100 94 92 2 2 1 000 10 000 100 000 1 000 000 3 3 4 4 A A B C D A B Small denomination time deposits refer to certificates of deposit with a denomination of less than If an individual moves money from currency to a demand deposit account M1 increases and M2 stays the same M1 stays the same and M2 stays the same M1 decreases and M2 stays the same M1 stays the same and M2 increases When compared to exchange systems that rely on money disadvantages of the barter system include lowering the cost of exchange to those who would specialize B C D B C D the requirement of a double coincidence of wants lowering the cost of exchanging goods over time encouraging specialization and the division of labor C D 5 When money prices are used to facilitate comparisons of value money is said to function as a 5 medium of exchange A unit of account C store of value payments system ruler 6 6 A B C D 7 7 asymmetric information A risk sharing adverse hazard C moral selection 8 8 A Residential mortgages An example of economies of scale in the provision of financial services is spreading the cost of borrowed funds over many customers providing depositors with a variety of savings certificates investing in a diversified collection of assets spreading the cost of writing a standardized contract over many borrowers Typically borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project The difference in information is called Which of the following instruments are traded in a money market B D B D B Which of the following instruments are traded in a capital market Commercial paper C State and local government bonds Bank commercial loans 9 9 A U S Government agency securities U S Treasury bills C Repurchase agreements Negotiable bank CDs 10 Financial markets have the basic function of providing a risk free repository of spending power assuring that governments need never resort to printing money assuring that the swings in the business cycle are less pronounced A B C D getting people with funds to lend together with people who want to borrow funds D B D 10 1 2 3 4 5 6 7 8 9 C C B B B D A B A D 10
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