Deck 20: The Firm in a National and a Global Setting

Question 1

Open market operations tries to target

A)the Federal government budget deficit.
B)product prices.
C)stock prices.
D)the federal funds rate.

Answer 1

the federal funds rate.

Question 2

One can invest in a pool of mortgages by buying

A)long term bonds.
B)mortgage backed securities.
C)penny stocks.
D)stocks with a beta of less than one.

Answer 2

mortgage backed securities.

Question 3

Keynesians tend to believe

A)the markets work freely.
B)that free market economics is faulty.
C)that government spending is the source of economic instability.
D)none of these choices.

Answer 3

that free market economics is faulty.

Question 4

Free market economists

A)believe in the fundamental stability of the economy.
B)believe that government policy can create a stable economy.
C)and Keynesians hold the same macroeconomic views.
D)believe that the Federal Reserve is the source of economic stability.

Question 5

Monetary policy attempts to control

A)the money supply and interest rates.
B)the budget deficit and the money supply.
C)the yield curve and interest rates.
D)none of these choices.

Question 6

The financial crisis of 2008

A)had its roots in the internet crisis of 2000.
B)had its roots in the budget policy of the Treasury.
C)had its roots in the real estate market.
D)all of these choices.

Question 7

The amount of money that a bank must keep on hand per dollar of deposits is called

A)the discount rate.
B)the quick ratio.
C)the multiplier.
D)the reserve requirement.

Question 8

Subprime mortgages

A)are loans covered by reserve requirements of commercial banks.
B)are home loans backed by the Treasury.
C)are home loans given to individuals without credit to meet the loan requirements.
D)none of these choices.

Question 9

If the Fed wants to lower the money supply

A)it should lower the discount rate.
B)it should buy bonds.
C)it should lower the reserve requirement.
D)it should sell bonds.

Question 10

The Employment Act of 1946 was built largely out of

A)philosophy of William J.Boyes.
B)free market economic philosophy.
C)the ideas of Milton Friedman.
D)Keynesian philosophy.

Question 11

If the money supply grows faster than the rate of growth in GDP

A)prices fall.
B)interest rates fall.
C)prices rise.
D)none of these choices.

Question 12

Austrian economists

A)supported TARP legislation.
B)believe that no bank is to big to fail.
C)and Keynesian economists have consistent views concerning the role of government.
D)none of these choices.

Question 13

The Treasury finances government spending by

A)selling securities.
B)collecting taxes.
C)by collecting tariffs.
D)all of these choices are possible.

Question 14

The sales of firms can

A)flow with the business cycle.
B)oppose the business cycle.
C)be largely independent of the business cycle.
D)all of these choices.

Question 15

When the Fed buys Treasury securities

A)the budget deficit declines.
B)the money supply decreases.
C)the money supply increases.
D)profits are maximized.

Question 16

The tools of the Federal Reserve include

A)reserve requirements.
B)the discount rate.
C)open market operations.
D)all of these choices.

Question 17

The ebbs and flows of the economy over time is called the

A)yield curve.
B)business cycle.
C)competitive market process.
D)CAPM.

Question 18

The national debt

A)decreases with a budget deficit.
B)increases with increases in government spending.
C)increases with open market purchases by the Federal Reserve.
D)increases with a budget deficit.

Question 19

The mortgage crisis started to come to a head

A)when the Federal Reserve started to raise interest rates.
B)when government deficit started to grow at increasing rates.
C)when the Federal Reserve passed a law aimed at getting every American to own their own home.
D)a.and b.are true

Question 20

The total money supply is largely determined by

A)open market operations.
B)changes in the reserve requirement.
C)the lending behavior of commercial banks.
D)the deficit policy of the Treasury.

Question 21

A fixed exchange rate regime

A)enhances the power of a country's central bank.
B)leads to inflation.
C)means that the price of gold is held constant.
D)makes a country's central bank powerless.

Question 22

A company can protect against exchange rate risk

A)with a forward contract.
B)by not having foreign operations.
C)by hedging the price of its products.
D)All of these choices is true.

Question 23

Open market operations is a tool the Fed uses to effect the federal funds rate.

Question 24

Keynesians tend to not believe in the stability of free markets.

Question 25

The exchange rate

A)is the price of one country's money in terms of another country's money.
B)is largely determined by Treasury budget policy.
C)is not a market-determined price.
D)has little impact on the balance sheet and income statements of businesses with foreign holdings.

Question 26

If it takes more dollars to acquire one unit of a foreign currency,

A)the quantity of U.S.good that the foreign country will by will decrease
B)the foreign currency has depreciated.
C)the dollar has depreciated.
D)the dollar has appreciated.

Question 27

A company can have exchange rate exposure

A)even if it does not have foreign holdings.
B)only if it has foreign holdings.
C)under a fixed exchange rate regime and not under a flexible exchange rate regime.
D)none of these choices.

Question 28

A fixed exchange rate regime enhances the power of a country's central bank.

Question 29

The Federal Reserve conducts monetary policy.

Question 30

Global capital markets have which of the following characteristics

A)ease of entry.
B)many sellers.
C)very competitive.
D)all of these choices characterize this market.

Question 31

The behavior of exchange rates has very little to do with the values used in financial statements.

Question 32

The global capital market is very competitive and efficient.

Question 33

The Treasury also implements monetary policy.

Question 34

In a forward contract

A)the spot price is held constant.
B)you can lock in today's price for the future.
C)you can lock in a future price today.
D)you can lock in a future quantity today.

Question 35

By buying and selling Treasury securities the Federal Reserve affects tax collections by the IRS.

Question 36

A fear in investing in China

A)is based in fears of its declining population.
B)relates to the value of property rights.
C)can be overcome by not have Chinese operations.
D)none of these choices.

Question 37

Deciding which exchange rate should be used in the presentation of financial statements

A)is a rather straight forward decision.
B)is called exchange rate risk.
C)is called market-based exposure.
D)is called balance sheet exposure.

Question 38

A flexible exchange rate regime

A)does not describe the regime follow by the European Central Banks.
B)keeps the exchange rate fixed but lets the price of gold fluctuate
C)allows a currency to float
D)none of these choices.

Question 39

Mortgage backed securities had a role in the 2008 financial crisis.

Question 40

Reserve requirements is the rate the Fed charges when it lends money to banks.