BA&A

FINANCE

1) The primary objective of the International Monetary Fund is to ________.

A) encourage euro adoption
B) promote exchange rate stability
C) establish a unilateral system of payments
D) foster the power of the foreign exchange market

2) The Bretton Woods Agreement established a system of fixed exchange rates under which each
IMF member country set a ________.
A) quota
B) par value
C) gold standard
D) nominal interest rate

3) Which of the following best describes the special drawing right?

A) an international reserve asset created to supplement members' existing reserve assets
B) the official currency for international trade established by the World Bank
C) a substitute for the fixed value of gold as determined by currency rates
D) a contribution made by countries to join the IMF

4) What role has the IMF played in the Greek financial crisis of 2010-2011?
A) setting the value of the drachma
B) releasing funds for debt payments
C) demanding the sale of state-owned assets
D) lowering interest rates for international investors

5) The primary result of the Jamaica Agreement was to ________.

A) allow greater exchange-rate flexibility
B) set austerity measures for debt control
C) establish a system based on par values
D) implement fixed exchange rates

6) Which type of exchange rate arrangement is based on supply and demand?

A) soft peg
B) hard peg
C) crawling
D) floating
7) If inflation in the United States is relatively higher than inflation in Japan, and the Japanese
government wants to keep the exchange rate fixed between the yen and the dollar, it should most
likely ________.
A) allow its currency to rise against the dollar
B) allow its currency to fall against the dollar
C) increase the supply of yen in the market
D) decrease the supply of yen in the market

8) Given the daily volume of foreign-exchange transactions, it is most accurate to say which of
the following?
A) It is impossible for a government's interventions in the foreign-exchange market to affect
market psychology.
B) A government's intervention in the foreign-exchange market can reverse a currency's slide for
the long term.
C) A government's intervention cannot force the foreign-exchange market to move in a
direction it doesn't want to go.
D) A government should focus more on intervening in foreign-exchange markets than on
correcting economic fundamentals.

9) The purchasing power parity theory claims that a change in relative ________ between two
countries must cause a change in ________ in order to keep the prices of goods in two countries
fairly similar.
A) exchange rates; inflation
B) inflation; exchange rates
C) interest rates; inflation
D) interest rates; exchange rates

10) According to purchasing power parity theory, if Brazilian inflation was 6 percent and
inflation in Argentina was 12 percent, the Brazilian real would be expected to ________.
A) rise by the difference in inflation rates
B) fall by the difference in inflation rates
C) rise by 4.5 percent
D) stay the same

11) Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan.
Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in
each country. Which of the following questions is most relevant to Tanya?
A) What is the cyclical situation in terms of employment and inflation?
B) Are the government's intervention practices sustainable?
C) What level of credibility does the government have?
D) What is the possibility of a national crisis?

13) According to the text, which currency is expected to experience the most change in the
upcoming years?
A) yen
B) yuan
C) euro
D) U.S. dollar

14. Financial markets and institutions

(a) involve the movement of huge quantities of money.

(b) affect the profits of businesses.

(c) affect the types of goods and services produced in an economy.

(d) do all of the above.

15.Financial market activities affect

(a) personal wealth.

(b) spending decisions by individuals and business firms.

(c) the economy’s location in the business cycle.

(d) all of the above.

16. Markets in which funds are transferred from those who have excess funds available to those who
have a shortage of available funds are called

(a) commodity markets.

(b) funds markets.

(c) derivative exchange markets.

(d) financial markets.

17. The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of
$100 per year) is commonly referred to as the
(a) inflation rate.

(b) exchange rate.

(c) interest rate.

(d) aggregate price level.

18. The bond markets are important because

(a) they are easily the most widely followed financial markets in the United States.

(b) they are the markets where interest rates are determined.

(c) they are the markets where foreign exchange rates are determined.

(d) all of the above.

19. Interest rates are important to financial institutions since an interest rate increase _________ the
cost of acquiring funds and _________ the income from assets.

(a) decreases; decreases

(b) increases; increases

(c) decreases; increases

(d) increases; decreases

20. Typically, increasing interest rates

(a) discourage individuals from saving.

(b) discourage corporate investments.

(c) encourage corporate expansion.

(d) encourage corporate borrowing.

21. Compared to interest rates on long-term U.S. government bonds, interest rates on _________
fluctuate more and are lower on average.

(a) medium-quality corporate bonds

(b) low-quality corporate bonds

(c) high-quality corporate bonds

(d) three-month Treasury bills

22. The nominal interest rate minus the expected rate of inflation

(a) defines the real interest rate.

(b) is a better measure of the incentives to borrow and lend than is the nominal interest rate.

(c) is a more accurate indicator of the tightness of credit market conditions than is the nominal interest
rate.

(d) all of the above.

23. The nominal interest rate minus the expected rate of inflation

(a) defines the real interest rate.

(b) is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.

(c) is a less accurate indicator of the tightness of credit market conditions than is the nominal interest
rate.

(d) defines the discount rate.

24. In which of the following situations would you prefer to be making a loan?

(a) The interest rate is 9 percent and the expected inflation rate is 7 percent.

(b) The interest rate is 4 percent and the expected inflation rate is 1 percent.

(c) The interest rate is 13 percent and the expected inflation rate is 15 percent.

(d) The interest rate is 25 percent and the expected inflation rate is 50 percent.

25. In which of the following situations would you prefer to be borrowing?

(a) The interest rate is 9 percent and the expected inflation rate is 7 percent.

(b) The interest rate is 4 percent and the expected inflation rate is 1 percent.

(c) The interest rate is 13 percent and the expected inflation rate is 15 percent.

(d) The interest rate is 25 percent and the expected inflation rate is 50 percent.

26. What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 one
year later?

(a) 5 percent

(b) 10 percent

(c) –5 percent
 (d) 25 percent

27.What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 one
year later?

(a) 5 percent

(b) 10 percent

(c) –5 percent

(d) –10 percent

28. The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,100 one year
later is

(a) 5 percent.

(b) 10 percent.

(c) 14 percent.

(d) 15 percent.

29.When comparing the loanable funds and liquidity preference frameworks of interest rate
determination, which of the following is true?

(a) The liquidity preference framework is easier to use when analyzing the effects of changes in
expected inflation.

(b) The loanable funds framework provides a simpler analysis of the effects of changes in income, the
price level, and the supply of money.

(c) In most instances, the two approaches to interest rate determination yield the same predictions.

(d) All of the above are true.

30. A higher level of income causes the demand for money to _________ and the interest rate to
_________

(a) decrease; decrease.

(b) decrease; increase.

(c) increase; decrease.

(d) increase; increase.

31. A lower level of income causes the demand for money to _________ and the interest rate to
_________

(a) decrease; decrease.

(b) decrease; increase.

(c) increase; decrease.

(d) increase; increase.

32. A rise in the price level causes the demand for money to _________ and the demand curve to shift
to the _________

(a) decrease; right.

(b) decrease; left.

(c) increase; right.

(d) increase; left.

33. A decline in the price level causes the demand for money to _________ and the demand curve to
shift to the _________

(a) decrease; right.

(b) decrease; left.

(c) increase; right.

(d) increase; left.

34. A decline in the expected inflation rate causes the demand for money to _________ and the demand
curve to shift to the _________

(a) decrease; right.

(b) decrease; left.

(c) increase; right.

(d) increase; left.

35. Of the four effects on interest rates from an increase in the money supply, the initial effect is,
generally, the
(a) income effect.

(b) liquidity effect.

(c) price level effect.

(d) expected inflation effect.

36. If the liquidity effect is smaller than the other effects, and the adjustment of expected inflation is
slow, then the

(a) interest rate will fall.

(b) interest rate will rise.

(c) interest rate will initially fall but eventually climb above the initial level in response to an increase
in money growth.

(d) interest rate will initially rise but eventually fall below the initial level in response to an increase in
money growth.

37. When the growth rate of the money supply increases, interest rates end up being permanently lower
if

(a) the liquidity effect is larger than the other effects.

(b) there is fast adjustment of expected inflation.

(c) there is slow adjustment of expected inflation.

(d) the expected inflation effect is larger than the liquidity effect.

38.When the growth rate of the money supply decreases, interest rates end up being permanently

lower if

(a)the liquidity effect is larger than the other effects.

(b)there is fast adjustment of expected inflation.

(c)there is slow adjustment of expected inflation.

(d)the expected inflation effect is larger than the liquidity effect.

39.When yield curves are steeply upward-sloping,

(a)long-term interest rates are above short-term interest rates.

(b) short-term interest rates are above long-term interest rates. (NOT SURE)
(c) short-term interest rates are about the same as long-term interest rates.

(d)medium-term interest rates are above both short-term and long-term interest rates.

(e)medium-term interest rates are below both short-term and long-term interest rates.

40.Economists’ attempts to explain the term structure of interest rates

(a)illustrate how economists modify theories to improve them when they are inconsistent with the
empirical evidence.

(b)illustrate how economists continue to accept theories that fail to explain observed behavior of
interest rate movements.

(c)prove that the real world is a special case that tends to get short shrift in theoretical models.

(d)have proved entirely unsatisfactory to date.

41. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ capital is needed for product development and initial marketing.

(a) seed capital (b) Startup capital (c) first round financing (d) None of these.

42. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐ provided at a stage when product has been launched in the market but has not earned
enough profits to meet future capital needs.

(a) first round financing (b) Second round financing (c) Startup capital (d) None of these.

43. ‐‐‐‐‐‐‐‐‐‐‐‐‐ capital is provided for early manufacturing and marketing expense.

(a) Startup capital (b) seed capital (c) first round financing (d) Second round financing

44. The additional finance provided by VCFs to overcome fledging stage is called ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Second round financing (b) ) first round financing (c) seed capital (d) None of these.

45. ‐‐‐‐‐‐‐‐‐ is known as Mezzanine capital.

(a) Development financing (b) Expansion financing (c) Replacement finance (d) none of these.

46. ‐‐‐‐‐‐‐ stage is called fledging stage.

(a) ) first round financing (b) Second round financing (c) Startup capital (d) None of these.

47. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ stage of financing includes financing development, expansion, buyout etc.

(a) Early stage financing (b) Later stage financing (c) first round financing (d) None of these.

48. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐ is known as bridge finance.

(a) Development financing (b) Expansion financing (c) Replacement finance (d) none of these.

49. ‐‐‐‐‐‐‐‐‐ refers to transfer of management control.

(a)Bridging (b) Buyout (c) Buyin (d) None of these.

50. ‐‐‐‐‐‐‐‐‐‐‐‐‐ refer to the process of acquiring an existing product line by the current operating
management.

(a) MBDs (b) MBIs (c)CVCF (d) None of these (RIGHT ANSWER – MBOs)

51. Find out odd one‐ Authorization criteria of merchant bankers.

(a) All business performed (b) professional competence

(c)Capital adequacy (d) Past experience.

52.Financial intermediaries provide services on the basis of non‐fund activities, also called
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Participating activity (b) Fee based activity

(c) Commission based activity (d) Salary based activity.

53. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ covers the entire range of services provided by a merchant banker.

(a) Project counseling (b) Corporate counseling (d) Credit syndication (d) Market makers.

54. Functions of financial services exclude ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Mobilization of savings (b) Allocation of fund (c) Specialized services (d) Collection of tax.

55. Financial service companies exclude ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Commercial banks (b) Insurance companies (c) Sole proprietorship (d) Crepitating
agencies.

56. Specialized financial institution, are also known as ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a)Leasing companies (b) U T I (c) N B F C s (d) Development bank.

57. Financial services offered financing risk project e.g. Risk capital scheme of I F C I venture capital
fund of I D F I etc. to provide ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Seed capital (b) Venture capital (c) Primary fund (d) secondary fund.

58. Identify odd one.

(a)C R I S I L (b) I C R A (c) C A R E (d) I C I C I.

59. In hire purchase system, each installment is treated as ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ till the last installment is
paid.

(a) Interest (b) Hire charge (c) payment (d) Credit .

60. Fee based activity includes ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Credit rating (b) Stock broking (c) Portfolio management services (d) lease finance.
61. Hedging of risks by using ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Swaps and derivatives (b) Swaps only (c) Derivatives (d) None of these

62.Asset based service also called ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Fee based (b) Interest based (c) Capital based (d) fund based.

63. Non fund based activities also called ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐.

(a) Fund capital based (b) Interest based (c) fee based (d) managing the capital issue.

64. Modern activities exclude.

(a) Personal advisory services (b) Managing the capital issue

(c) Assisting mergers and acquisitions (d) Capital restructuring.

65. ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ includes all asset based financing plans offered to individuals to help them
acquire durable consumer goods.

(a) Trade credit (b) cash credit (c) Hire purchase (d) Consumer credit.