FMT tutorial 2

Which of these is not a function of money in an economy?

• Unit of account

• Source of income

• Store of value

• Medium of exchange

Which of the following is not part of M1?

• traveler's checks

• savings accounts

• checking accounts

• currency

If Mary deposits $100 of her currency in her checking account, then:

• M2 will fall by $100.

• M1 will increase by $100.

• M1 and M2 will not change.

• M2 will increase by $100.

If Mary moves $100 from her savings account to her checking account, then:

• M2 will not change.

• M2 will fall by $100.

• M1 will not change.

• M1 will fall by $100

Inefficiencies that are created when using checks as money include:

• Checks can transfer funds slowly and require paper shuffling.

• Checks can be written for any amount.

• Checkbooks can be stolen.

• There are too many bad checks written

The liquidity of an asset is:

• the amount of an asset sold at discount or premium.

• the ability of an asset to earn interest income.

• the relative ease with which an asset can be converted into a medium of exchange.

• the relative ease with which an asset can be converted into a common stock.

As bond prices increase:

• yields to maturity decrease.

• yields to maturity increase.

• yields to maturity can rise, fall, or not change.

• yields to maturity do not change.

If a bond sells at a premium, where price exceeds face value, then we would expect to see:

•   market interest rates could be the same, higher, or lower than the coupon rate.

• market interest rate the same as the coupon rate.

• market interest rates below the coupon rate.

• market interest rates above the coupon rate.

For a $1000 one-year discount bond with a price of $975, the yield to maturity is

• ($1000 – $975)/($1000)

• $975/$1000

•   ($1000 – $975)/$975

• $1000/$975

Interest rate risk is:

• the risk the coupon rate on the bond will fall.

•   the risk the government or firm will not make interest payments.

• the risk associated with change in return with changes in interest rates.

•   the risk the coupon payment will rise.