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policy, interest, yield, expectation theory, fees

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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

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

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

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

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

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

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

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

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

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

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Solution Preview

When the Fed tightens monetary policy during business expansions, the ________ loanable funds shifts to the ______.
C) supply of, left

Interest rates have fallen since the early 1980s because the
C) inflation rate has declined

If the yield on long-term securities is greater than the yield on comparable short-term securities, the yield curve will be
B) ...

Solution Summary

This solution identifies the correct answer to the money and banking MC questions that touch on concepts such as policy, interest, yield, expectation theory, and fees.

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See Also This Related BrainMass Solution

Valuing Debt & Debt Policy

THEME 1

1. Explain how changes in debt-equity ratio impact the beta of the firm's equity. Provide a mathematical example to support your analysis.

2. What are the ramifications of a firm having a "less than optimal" or "wrong" capital structure?

THEME 2

1. In describing an optimal investment portfolio for someone who is 22 years of age, what would you recommend to them with respect to their distribution of stocks and bonds? Would your recommendation change if the person were 45 years old? Would it change if they were 85 years old?

2. If you were going to assess the riskiness of bonds, what types of characteristics (variables) would you consider? For example, "time" would be a variable (long vs. short-term bonds). Which of the variables that you have listed would be the most important? How would you rank order your considerations?

3. Using the Internet, find an example of how bonds' returns demonstrate the "term structure of interest rates."

4. Why do bonds of different maturities have different yields in terms of the expectations, liquidity, and segmentation hypotheses? Describe how these hypotheses relate to two different situations: 1) when the yield curve is upward sloping; 2) when the yield curve is downward sloping

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