Which of the following allows financial institutions to take deposits and make loans to foreign individuals and businesses.

• A) All of the above
• B) Exchange rate (ER)
• C) International monetary fund (IMF)
• D) International banking facility (IBF)

The process of financial intermediation:

• A) Is always used when a borrower needs to obtain funds
• B) Is used primarily in underdeveloped countries
• C) Increases the economy's ability to produce
• D) Creates a net cost to an economy but is unavoidable

You want to deposit your money in the bank and bank lends it to the other person who need it. It is example of

• A) Direct finance
• B) Equity finance
• C) Indirect finance
• D) All of above

The reason for the government to get involved in the financial system is to:

• A) Protect bank customers from monopolistic exploitation
• B) Protect investors
• C) Ensure the stability of the financial system
• D) All of the given options

Banks borrow from the central bank this loan is called ___________.

• A) Collateralized loan
• B) Personal loan
• C) Discount loan
• D) Corporate loan

Interest rate risk arises as a result of which one of the following situation?

• A) It arises when loan is not repaid
• B) It arises when two sides of the balance sheet do not match up
• C) It arises because of sudden demands of funds
• D) It arises when banks make additional profit by using derivatives

You start with a $1000 portfolio; it loses 40% over the next year, the following year it gains 50% in value; At the end of two years the worth of your portfolio will be:

• A) $1100
• B) $900
• C) $1000
• D) $600

Adverse selection occurs ------ and Moral hazard occurs ---------

• A) After a transaction, Before a transaction
• B) In financial market, In real market
• C) Before a transaction, After a transaction
• D) In real market, In financial market

An index number is a valuable tool because:

• A) The index is more stable than the data it reflects
• B) The number by itself provides all of the useful information needed
• C) The index provides a meaningful measurement scale to calculate percentage changes
• D) It does not require any calculations to compute percentage changes

Customers' accounts are included in which of the following category in a bank’s balance sheet.

• A) Liabilities
• B) Assets
• C) Capital
• D) Reserves

Requiring a large deductible on the part of an insured is one way insurers treat the problem of:

• A) Moral hazard
• B) Adverse selection
• C) Free-riding
• D) The Lemons market

In "gap analysis," the gap is the difference between a banks’s:

• A) Long-term securities and short-term securities
• B) Deposits and loans
• C) Rate-sensitive assets and rate-sensitive liabilities
• D) Assets and liabilities

If a bank is holding its liabilities on floating rate and assets on fixed rate of interest, as a result ---------------------- risk may arise.

• A) Credit
• B) Liquidity
• C) Default
• D) Interest rate

Which are not the assets of central bank?

• A) Currency
• B) Foreign exchange reserves
• C) Loans
• D) All of the given

The monetary liabilities of the Federal Reserve include:

• A) Currency in circulation and reserves
• B) Government securities and discount loans
• C) Government securities and reserves
• D) Currency in circulation and reserves

When inflation rate high in economy, central bank often adopt the?

• A) Expansionary monetary policy
• B) Contraction monetary policy
• C) Fiscal policy
• D) None of above

Which is the factor does not affect portfolio demand for money?

• A) Expected future interest rates
• B) Wealth
• C) Availability of alternative means of payment
• D) Return relative to alternatives

If the required reserve ratio is 20%, the simple deposit multiplier is:

• A) 5.0
• B) 4.0
• C) 10.0
• D) 2.5

Everything else equal, if the growth rate of a country exceeds its sustainable rate:

• A) The central bank is likely to raise interest rates to slow the rate of growth
• B) The central bank will keep interest rates low to keep the momentum
• C) The central bank is likely to lower the interest rate thinking a slowdown is coming to offset this boom.
• D) The central banks will now identify this new rate as the sustainable rate and try to maintain it.

-------- is considered primary job of the central bank?

• A) Stable exchange rate
• B) Stable growth rate
• C) Price stability
• D) Financial system stability