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| 1.
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You expect a share of RiskyEcon.Com to sell for €56 a year from now and not to pay any dividends. If the current interest rates on government bonds is 4%, but you demand a risk premium of 6% to hold a share of this risky asset, what is the most you should pay for this share today (rounded to the nearest euro)? |
| | A) | €51 |
| | B) | €53 |
| | C) | €54 |
| | D) | €56 |
| | E) | €57 |
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| 2.
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A three-year bond has a principal amount of €3,000 and a 3% coupon rate paid annually. Rounded to the nearest euro what price will the bond sell for if it is one year from maturity
and interest rates are 7%? |
| | A) | €2,804 |
| | B) | €2,888 |
| | C) | €3,000 |
| | D) | €3,090 |
| | E) | €3,150 |
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| 3.
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In a particular country Y = 1,000, C = 700, I = 200 and G = 50. National saving S is: |
| | A) | 50 |
| | B) | 100 |
| | C) | 200 |
| | D) | 250 |
| | E) | 300 |
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| 4.
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If the Eurosystem has a €500 million net capital inflow, then there must be a : |
| | A) | Trade surplus of €500 million. |
| | B) | Trade deficit of €500 million. |
| | C) | No trade surplus or trade deficit. |
| | D) | Net capital outflow of €1,000 million. |
| | E) | Trade surplus of €1,000 million. |
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| 5.
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At each value of the domestic interest rate, a decrease in the riskiness of domestic assets will result in a(n) _____ in capital inflows, a(n) _______ in capital outflows and a(n) _______in net capital inflows. |
| | A) | Increase; increase; increase |
| | B) | Increase; increase; decrease |
| | C) | Increase; decrease; increase |
| | D) | Decrease; decrease; decrease |
| | E) | Decrease; increase; decrease |
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| 6.
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If domestic saving is greater than domestic investment, then a country will have a ______ and ______ net capital inflows. |
| | A) | Trade deficit; negative |
| | B) | Trade deficit; positive |
| | C) | Trade balance; zero |
| | D) | Trade surplus; negative |
| | E) | Trade surplus; positive |
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| 7.
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Financial intermediaries, such as commercial bank small savers by: |
| | A) | Providing information to evaluate potential borrowers. |
| | B) | Offering tax preferred borrowing opportunities. |
| | C) | Eliminating the risk of borrowing. |
| | D) | Providing credit that might otherwise not be available. |
| | E) | Evaluating the riskiness of stocks. |
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| 8.
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Currently all of Joe Smith’s wealth consists of 50 shares in Buy.Com, an Internet trading company. To reduce the risk associated with the variability of Buy.Com share prices, Joe
should: |
| | A) | Buy more shares in Buy.Com. |
| | B) | Sell all of his shares in Buy.Com and use the funds to buy shares of Bargins.Com, a competing Internet trader. |
| | C) | Sell half his shares in Buy.Com and use the proceeds to buy shares in Value Shop, a high street trader. |
| | D) | Sell half his shares Buy.Com and use the proceeds to purchase shares in Bargains.Com. |
| | E) | Sell all of his shares Buy.Com and use the funds to purchase shares in Value Shop. |
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| 9.
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A low-saving, high spending country is likely to import ____ than a high saving country, and have ____ domestic production available for export. |
| | A) | More; more |
| | B) | More; less |
| | C) | More; the same amount of |
| | D) | Less; less |
| | E) | Less; more |
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| 10.
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Bond and stock markets help to allocate savings to its most productive uses by: |
| | A) | Accepting deposits and making loans. |
| | B) | Controlling the economy's money supply and interest rates. |
| | C) | Guaranteeing risk free borrowing and lending. |
| | D) | Providing information about prospective lenders and helping borrowers to share the risk of borrowing. |
| | E) | Providing information about prospective borrowers and helping savers to share the risk of lending. |
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