PAID VU LMS HANDLING by Mam Mehwish

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Past Papers for Mids./Finals are also Available

1. If the required reserve ratio is 20%, the simple deposit multiplier is:

- a) 5.0

- b) 10.0

- c) 2.5

- d) 4.0

- **Correct Option:** a) 5.0

2. Everything else equal, if the growth rate of a country exceeds its sustainable rate:

- a) The central bank is likely to lower the interest rate thinking a slowdown is coming to offset this
boom.

- b) The central bank will keep interest rates low to keep the momentum.

- c) The central bank is likely to raise interest rates to slow the rate of growth.

- d) The central banks will now identify this new rate as the sustainable rate and try to maintain it.

- **Correct Option:** c) The central bank is likely to raise interest rates to slow the rate of growth.

3. One thing that is true about economic policy in the U.S. is:

- a) Monetary policy ultimately controls fiscal policy since the Fed controls the money supply.

- b) Fiscal and monetary policy never conflict.

- c) Monetary and Fiscal policy often times conflict.

- d) Fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget.

- **Correct Option:** c) Monetary and Fiscal policy often times conflict.

4. Which of the following are the primary uses of funds of Insurance Company?

- a) Corporate bonds, Government bonds

- c) Cash, loans, securities

- d) Commercial paper, Bonds, Mortgages

- **Correct Options:** a) Corporate bonds, Government bonds; b) Mortgages, Consumer loans,

5. Excess reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled
by which of the following?

- a) Non bank public

- b) Central bank

- c) Bank regulators

- d) Commercial banks

- **Correct Option:** d) Commercial banks.

6. If the required reserve ratio is equal to 10%, a single bank can increase its loans up to a maximum
amount equal to:

- a) 10% of its excess reserves

- b) Its total reserves

- c) 10 times its excess reserves

- d) Its excess reserves

- **Correct Option:** c) 10 times its excess reserves.

7. Which of the following allows financial institutions to take deposits and make loans to foreign
individuals and businesses.

- a) All of the above

- b) International monetary fund (IMF)

- c) Exchange rate (ER)

- d) International banking facility (IBF)

- **Correct Option:** d) International banking facility (IBF).

- a) All of the above

- b) The target federal funds rate

- c) The discount rate

- d) The reserve requirement

- **Correct Option:** b) The target federal funds rate.

9. The risk of "insolvency" is basically the risk of:

- a) Not being able to find a buyer for an asset

- b) Borrowers not paying off lenders in a timely fashion

- c) Machinery breakdowns

- d) Asset value falling below liability value

- **Correct Option:** d) Asset value falling below liability value.

10. In "gap analysis," the gap is the difference between a bank's:

- a) Deposits and loans

- b) Assets and liabilities

- c) Rate-sensitive assets and rate-sensitive liabilities

- d) Long-term securities and short-term securities

- **Correct Option:** c) Rate-sensitive assets and rate-sensitive liabilities.

1. Which is not a principle of central bank design?

A) Independence

B) Accountability and transparency

C) Fiscal policy by competent persons

D) Decision making by committee

Correct Answer: C) Fiscal policy by competent persons

2. Which one of the following is NOT a non-depository institution?

A) Credit unions
 B) Finance Companies

C) Securities Firms

D) Insurance Companies

Correct Answer: C) Securities Firms

3. Excess reserve-to-deposit ratio is a factor that affects the quantity of money. This factor is controlled
by which of the following?

A) Non-bank public

B) Bank regulators

C) Central bank

D) Commercial banks

Correct Answer: C) Central bank

4. Which of the following practices is NOT used to manage foreign exchange risk?

A) Attract deposits and make loans in the same currency

B) Do business only in a particular country

C) Use foreign exchange swaps

D) Use foreign exchange futures

Correct Answer: B) Do business only in a particular country

5. The idea that central banks should be independent of political pressure is an idea that:

A) Became quite popular in the early 1900s

B) The Federal Reserve Act included in 1913

C) Every central bank was founded upon

D) Is relatively new

Correct Answer: A) Became quite popular in the early 1900s

6. On the event of the purchase of Rs. one billion T-bill by the central bank, the net effect on the balance
sheet of the central bank will be?
 A) No effect on monetary base

B) Its assets and liabilities increase by Rs. 1 billion

C) A & B both possible

D) Net effect there is zero

Correct Answer: C) A & B both possible

7. Which are not the assets of a central bank?

A) Loans

B) Currency

C) Foreign exchange reserves

D) All of the given

Correct Answer: D) All of the given

8. Cash withdrawal by the general public may affect:

A) None of the given options

B) Composition of the balance sheet

C) Size of the balance sheet of SBP

D) Size of the monetary base

Correct Answer: D) Size of the monetary base

9. Cash becomes less desirable when ______________.

A) Riskiness of alternative holdings rises

B) Interest rates rise

C) Liquidity falls

D) None of the given options

Correct Answer: B) Interest rates rise

10. If the State Bank purchases some U.S. Treasury bonds, then we shall consider such bonds as being
free of:
A) Credit risk

B) Reinvestment risk

C) Interest rate risk

D) All of the given options

Correct Answer: A) Credit risk

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