Homework SourseQ 1 Is Money a commodity If so which of the following charac
Q 1. Is Money a commodity? If so which of the following characteristics does it satisfy?
A.Means of Exchange
B. Unit of Account
C. Store of Value
D. Measure of Wealth
E. All of the above
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Q2. In a money- economy people often look for assets that maintain its value. Would you say that an alternative to money, such as Bit coin, or Disney Dollars can eventually replace money, such as Dollars or Euro etc
A. Yes b. No
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Q 3. Fiat money is something that does not have
A. Any validity outside the United States
B. Popularity in the European Union countries
C. The backing of the US Treasury department
D. None of the above
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Q 4. A demand Deposit is not a part of the Money supply (M1 + M2)
A. True b. False
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Q 5. CPI (Consumer Price Index) is a measure of
A. Purchasing power of households
B. the Value of an asset
C. inflation, when we can compare the CPI over time
D. None of the above
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Q 6. The rate of inflation in any economy can be calculated based on the following:
A. CPI today minus CPI for the base year divided by the CPI for the base year multiplied by 100
B. The change in the CPI from year 1 to year 2
C. CPI today minus CPI tomorrow multiplied by 100
D. None of the above
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Q 7. Which one of the following is NOT a role of the Financial Markets?
A. Ensure Liquidity, maintain low transaction costs
B. Share Information
C. Risk Sharing
D. Bring buyers and Sellers together
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Q 8. Do the financial intermediaries reduce transaction costs by specializing in the issuance of standardized securities?
A. Yes b. No
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Q 9. While Present value is the Current value of an Asset, the future Value is what people will pay for the same asset 10 years from now
A.True b. False
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Q 10. Interest Rate is the opportunity cost of holding Money today
A.True B.False
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Q 11.
Suppose there are two assets that you have the Choice over to buy now. Asset One Costs 100,000 dollars, and Asset 2 costs 90,000 now. Both the assets grow at the rate of 6% per year, however, Asset One matures in 5 years and pays the original plus the accumulated sum with interests in arrears for the past five years, and Asset 2 matures in 3 years, and pays the principal plus the accumulated sum with interests in arrears at the time of the maturity.
A. Asset One is the better one
b. Asset 2 is the better choice
Show work
12. Internal Rate of Return: the interest rate that equates the present value of an investment with its cost
a. True b. False
13. The value of a bond varies inversely with the interest rate used to calculate the present value of the promised payment . Explain Why?
14. Nominal Interest Rates (i) refers to the interest rate expressed in current-dollar terms. However, the real Interest Rates (r) represents the inflation adjusted interest rate.
EXPLAIN UNDER WHAT CONDITION THEY ARE SAME.
15. The fisher equation state the nominal interest rate you agree on (i) must be based onexpected inflation (pe) over the term of the loan plus the real interest rate you agree on (r).
i = r + pe
Based on this equation where would you expect nominal interest to be higher? Brazil Or USA?
Why?
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16. Risk is measured in terms of
a. What you get today versus what you can make at a future date
b. The probabilities of winning or losing
c. Expected Value and the standard deviation
d. None of the above
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17. A risk free asset is one which guarantees
a. A risk- free return
b. A return much above the market rate
c. A fixed return of 5%
d. A return similar to Long-term US treasury bill return
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18. An Investment that has a high Expected value of return and a high standard deviation is always better than an Investment that has a low Expected Value and High standard deviation
a. True
b. False
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19. Hedging is the strategy of reducing idiosyncratic risk by making two investments with opposing risks.
A. True B. False
NOW GIVE YOUR OWN EXAMPLES OF HEDGING
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20. Jamie and Sue are close friends. Jamie likes to play high-stakes Poker and enjoy the excitement while Sue likes to watch Jamie and enjoy the excitement in Jamie. This is an example of Risk Averse on Jamie’s part and Risk taking on Sue’s part.
A. True
B. False
Solution
1. The correct answer is E.
2. The correct answer is B.
3. The correct answer is D.
4. This is False.
5. The correct answer is C.
6. The correct answer is A.
7. The correct answer is C.
8. No.
9. This is True.
10. This is True.
13. This is due to Walras Law. This shows the negative relation between bond prices and interest rates.
15. Nominal interest rates would be higher in Brazil where inflation rates are higher.
