Problem 1: When the Fed tightens monetary policy during business expansions, the ________ loanable funds shifts to the ______.
A) demand for, right
B) demand for, left
C) supply of, left
D) supply of, right
Problem 2: Interest rates have fallen since the early 1980s because the
A) federal deficit has declined
B) federal deficit has increased
C) inflation rate has declined
D) inflation rate has increased
Problem 3: If the yield on long-term securities is greater than the yield on comparable short-term securities, the yield curve will be
A) negatively sloped
B) positively sloped
C) in the negative quadrant
D) undefined
Problem 4: If the yield on short-term securities is greater than the yield on comparable long-term securities, the yield curve will have a
A) positive slope
B) negative slope
C) constant slope
D) zero slope
Problem 5: The supply-demand approach to explaining the term structure of interest rates assumes that
A) bond prices and yields are positively related
B) the yield curve is horizontal
C) the yield curve is upward sloping
D) each maturity class is independent
Problem 6: Ignoring the interrelationship between similar securities is a serious weakness of the
A) expectations approach to term structure
B) supply and demand approach to term structure
C) equilibrium approach to term structure
D) liquidity approach to term structure
Problem 7: Using the pure expectations theory of term structure, a positively sloped yield curve indicates that investors expect
A) short term interest rates to be lower next year
B) short term interest rates to be higher next year
C) falling long-term interest rates
D) rising long term interest rates
Problem 8: Because long-term securities have a greater risk of capital loss than do short-term securities investors usually
A) require a higher yield on long-term securities
B) require a lower yield on long-term securities
C) pay a higher price for long-term securities
D) avoid long-term securities
Problem 9: When interest rates are high relative to what they have been, investors generally expect these rates to _______ and thus investors prefer to hold __________ securities.
A) fall, long-term
B) fall, short-term
C) rise, long-term
D) rise, short-term
Problem 10: In return for their services in the primary securities market, investment banks earn a fee called a(n)
A) underwriting spread
B) bid-asked spread
C) dealer's spread
D) broker's spread