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Economics Test Questions

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Economics Test Questions
1. Identify the real and/or financial assets that are involved in the following activities.
(a) Toyota takes out a bank loan to finance the construction of a new factory; A: The bank loan is financial and the new factory is real.
(b) Toyota pays of its loan; A: The loan is financial.
(c) Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts. 
A: Cash is financial and auto parts are real. Note that cash is generally considered to be a financial asset. Like stocks, bonds, and certificates, currency has no intrinsic value beyond the way its value by society.
2. What features of money market securities distinguish them from other fixed-income securities? 
A: They are short term, very safe, and highly liquid. Also, their unit value almost never
…show more content…
What is meant by LIBOR rate? The Federal funds rate? 
A: The fed funds rate is simply the rate of interest on very short-term loans among financial institutions. The London Interbank Offer Rate (LIBOR) is the rate at which large banks in London are willing to lend money among themselves.

4. A dollar denominated deposit at a London bank is called _____. 
A. eurodollars 
B. LIBOR
C. fed funds
D. banker’s acceptance
5. Money market securities are sometimes referred to as "cash equivalent" because _____. 
A. they are safe and marketable 
B. they are not liquid
C. they are high risk
D. they are low denomination
6. __________ is not a money market instrument. A. A certificate of deposit
B. A treasury bill
C. A treasury bond 
D. Commercial paper
7. Which one of the following provides the best example of securitization? A. convertible bond
B. call option
C. mortgage pass-through security 
D. preferred stock
8. Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your tax bracket is (Note that this is NOT a multiple choice. You need to calculate the after-tax yield in
each

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