Final Exam Part 3

Yield curves usually slope upwards

The yield curve shows the difference in default risk between securities

The yield curve shows the relationship among bonds with the same risk characteristics but different maturities

The yield curve can be flat or downward sloping depending on market conditions

Indicate the yield curve is downward sloping

Indicate the yield curve is flat since the risk premium needs to be added for longer maturities

Indicate the yield curve is upward sloping

Indicate that people expect inflation to decrease in the future

The yield curve should usually be downward sloping

The yield curve should usually be upward sloping

The slope of the yield curve reflects the risk premium associated with longer-term bonds

The slope of the yield curve depends on the expectations for future short-term rate

The future one-year rate to be 4%

The future one-year rate to be 8%

The future one-year rate to be 6%

The future one-year rate to be 5%

When short-term interest rates are expected to rise in the future, the long-term interest rates are equal to current short-term interest rates

When short-term rates are expected to remain constant in the future, the long-term interest rates are higher than current short-term interest rates

Short-term bonds are perfect substitutes for long-term bonds

Expectations of future short-term rates equal estimates of current short-term rates

Why yields on securities of different maturities move together

Why short-term yields are more volatile than long term yields

Why yield curves usually slope upward

Why yield curves usually slope downward

Investors expect future short-term interest rates to fall

Investors expect future short-term interest rates to rise

This is a trick question, the yield curve always slopes upward

Investors expect future short-term interest rates to remain constant

Upward sloping and very steep

Upward sloping and relatively flat

Inverted

Vertical

Interest rates are expected to rise in the future

Investors expect an economic slowdown

Investors are indifferent between bonds with different time horizons

The term spread has increased

More than 4% but less than 5%

5%

4%

More than 5%

Become more upward sloping

Become flatter

Become inverted

Be vertical

Vary directly with economic growth

Show no variation over the business cycle

Vary inversely with economic growth

Breakdown with economic growth

The yield curve usually is inverted so it reflects a growing economy

The yield curve seldom is inverted and can signal an economic slowdown

Investors are expecting higher short-term rates in the future, and this usually signals an economic slowdown

Inverted yield curves signal better economic times are expected

Have no impact on the slope of the yield curve since the tax laws impact all maturities the same

Cause the slope of the yield curve to become negative

Increase the slope of the yield curve since it increases the risk premium of longer maturities

Flatten the yield curve

0.870 euros/$

1.15 euros/$

115euros/$

1euro/1.15$

The nominal exchange rate

The real exchange rate

Whether the nominal exchange rate is > or < than 1

You cannot determine the answer until you travel to the foreign country and convert $ to the foreign currency

22,727 yen

$20,000

$25,000

$22,727

Makes U.S. exports more expensive to foreigners

Makes U.S. exports less expensive to foreigners

Means a basket of U.S. goods would exchange for fewer foreign goods

Benefits all U.S. residents

Technical differences

Lack of information regarding prices

Tariffs

High transportation costs

Differences in inflation rates between countries should have no impact on the exchange rate between those countries

Differences in inflation rates between countries will create changes in exchange rates

The changes in exchange rates move independently from inflation

For inflation to change the exchange rate, the rate of inflation has to be the same between countries

The dollar to appreciate relative to the euro

The euro dollar exchange rate to stay relatively fixed

The dollar to depreciate relative to the euro

No effect; there isn't a link between inflation and exchange rates over the long run

To purchase goods and services produced abroad

To get a lower return paid on foreign currencies that is not subject to the risk associated with exchange-rate fluctuations

To invest in U.S. assets

To take advantage of higher inflation rates in other countries

We would expect the supply curve of dollars to slope downward

Foreign goods become relatively less expensive than American goods

Foreign assets become relatively more expensive than American assets

American goods become relatively less expensive than foreign goods

The demand for dollars will decrease

The supply of dollars will increase

The dollar will depreciate relative to foreign currencies

The demand for dollars will increase

The supply of dollars to increase

The demand for dollars to increase

The demand for dollars to decrease

The dollar to depreciate now relative to other currencies