(101-200) Monetary Economics and Banking MCQs

If the required reserve ratio is 10% and the Fed conducts an open market purchase of $100 million, what is the maximum possible expansion of the money supply?

• $10 million

• $100 million

• $1 billion

• $10 billion

A commercial bank has total assets of $500 million and bank capital of $40 million. If the bank is forced to write off $50 million in bad loans, what is the state of the bank?

• The bank is still profitable.

• The bank's capital is reduced but it is still solvent.

• The bank is insolvent because its liabilities now exceed its assets.

• The bank's assets increase.

A bottle of French wine costs €20. If the exchange rate is $1.20 per euro (€), what is the price of the wine in U.S. dollars?

• $16.67

• $20.00

• $24.00

• $21.20

A laptop costs $1,000 in the United States and ¥110,000 in Japan. According to the theory of Purchasing Power Parity, what should the nominal exchange rate (¥/$) be?

• 100 ¥/$

• 110 ¥/$

• 120 ¥/$

• 90 ¥/$

An economy is experiencing a severe recession with high unemployment and low inflation. What type of monetary policy would the central bank most likely implement?

• Sell government bonds on the open market.

• Increase the required reserve ratio.

• Increase the discount rate.

• Purchase government bonds on the open market.

A bank has a Return on Assets (ROA) of 0.8% and an Equity Multiplier (Assets/Equity) of 15. What is its Return on Equity (ROE)?

• 1.2%

• 15.8%

• 18.75%

• 12.0%

A U.S. company plans to buy machinery from Germany for €5 million in three months. If the company fears the dollar will depreciate against the euro, what action could it take to hedge this risk?

• Sell euros in the forward market.

• Buy euros in the forward market for delivery in three months.

• Do nothing, as depreciation would be favorable.

• Borrow U.S. dollars.

If the Fed buys $5 million in bonds from the public, and the public holds all of this as currency, what is the immediate effect on the monetary base and the M1 money supply?

• Both increase by $5 million.

• The monetary base increases by $5 million, but M1 is unchanged.

• M1 increases by $5 million, but the monetary base is unchanged.

• Neither changes until the money is deposited in a bank.

A bank has risk-weighted assets of $800 million. To comply with a Basel III capital adequacy requirement of 8%, what is the minimum amount of total capital the bank must hold?

• $8 million

• $100 million

• $64 million

• $80 million

Interest rates are 4% in the U.S. and 2% in the Eurozone. According to the interest parity condition, what do markets expect to happen to the value of the euro relative to the dollar over the next year?

• The euro is expected to appreciate by approximately 2%.

• The euro is expected to depreciate by approximately 2%.

• The euro is expected to appreciate by approximately 6%.

• The euro's value is expected to remain constant.