1. In general, the more liquid an asset the ______.
A. less it is likely to yield
B. greater its risk of default
C. lower its market price will be
D. more it will add to bank profits

2. The interest rate printed on the face of a bond is called the ______.
A. coupon rate
B. prime rate
C. printed rate
D. nominal rate

3. A rise in interest rates leads to ______.
A. capital gains for bondholders
B. capital losses for bondholders
C. income gains for bondholders
D. income losses for bondholders

4. If the reserve requirement ratio were equal to zero, then ______.
A. the deposit multiplier would be infinitely large
B. required reserves would be equal to zero
C. the banking system would theoretically be able to create an infinitely large amount of demand deposits
D. all of the above

5. Financial intermediaries’ primary function in financial markets is to serve as ______.
A. ultimate borrowers
B. ultimate lenders
C. ultimate savers
D. middlemen

6. Suppose the Fed buys $10 million in government securities from a commercial bank. If the required reserve ratio is 0.25, what is the maximum amount by which checkable deposits in the banking system can change? ______.
A. +$10000000
B. +$25000000
C. +$40000000
D. -$40000000

7. Suppose the annualized yield on a 91-day Treasury bill is 1.25%. If you invested $10 000 in this bill, how much would you have to pay for this security? ______.
A. $11.250
B. $10012.50
C. $9998.75
D. $9968.93

8. Who are the first to bear financial losses incurred by the bank? ______.
A. The depositors
B. The debtors
C. The bank capital shareholders
D. The bank employees

9. A government is faced with a balance of payments deficit. It may take action to deal with this by doing all of the following except ______.
A. devalue the currency
B. reduce interest rates
C. restrict consumer spending
D. restrict imports

10. According to the principle of comparative advantage, countries ______.
A. should specialize in producing goods they have lower opportunity cost for
B. should export goods they can produce at lower input costs
C. will specialize in producing goods which they can produce at lower input costs
D. should specialize in producing goods they have lower absolute costs for