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

On the event of purchase of Rs. one billion T-bill by the central bank, the net effect of balance sheet of central bank will be?

• A) No effect on monetary base
• B) A & B both possible
• C) Its assets and liabilities increase by Rs. 1 billion
• D) Net effect there is zero

The quantity of money people hold for transactions purposes does not depends on?

• A) Expected future interest rate
• B) Their nominal income
• C) The availability of substitutes
• D) The cost of holding money

When a bank has $1,000,000 in deposits and is subject to a required reserve ratio of 0.1, and it has $100,000 in vault cash and reserve deposits at the Fed is said to be:

• A) Holding total reserves of $900,000
• B) Fully loaned up
• C) Holding vault cash of $100,000
• D) Holding excess reserves of $100,000

The State Bank of Pakistan chooses to organize the federal funds rate by manipulating the quantity of reserves by?

• A) Open market operation
• B) Discount lending
• C) None of above
• D) Target Federal fund rate

In the United States, the central bank is responsible for:

• A) Oversee the stock exchanges
• B) The conduct of monetary policy
• C) Both the conduct of monetary policy and help finance government deficits
• D) Help finance government deficits