MGT 411 Money & Banking - 1
Money & Banking
Questions and Answers
- 1.
A lender is promised a $100 payment (including interest) one year from today. If thelender has an 8% opportunity cost of money, he should be willing to accept what amounttoday?
- A.
$100.00
- B.
$108.20
- C.
$92.59
- D.
$96.40
Correct Answer
C. $92.59Explanation
The lender should be willing to accept $92.59 today because of the concept of the time value of money. The lender's opportunity cost of money is 8%, meaning that if they were to invest the $92.59 today, they would expect to have $100 one year from now. This takes into account the interest that could be earned on the investment, and therefore the lender should be willing to accept this amount today in order to achieve the promised $100 payment in the future.Rate this question:
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- 2.
The higher the Future Value (FV) of the payment, the higher will be the:
- A.
Discount rate
- B.
Present value
- C.
Liquidity
- D.
Cost of borrowing
Correct Answer
B. Present valueExplanation
The present value is the current value of a future payment, and it is inversely related to the future value. This means that as the future value increases, the present value decreases. Therefore, the higher the future value of the payment, the higher will be the present value.Rate this question:
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- 3.
The procedure of finding out the Present Value (PV) is known as
- A.
Discounting
- B.
Compounding
- C.
Time value of money
- D.
Bond pricing
Correct Answer
A. DiscountingExplanation
The procedure of finding out the Present Value (PV) is known as discounting. Discounting is a financial concept that involves calculating the current value of future cash flows by applying a discount rate. It takes into account the time value of money, which means that a dollar received in the future is worth less than a dollar received today. By discounting future cash flows, we can determine their present value, which is useful for making investment decisions or valuing financial instruments.Rate this question:
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- 4.
Money appears to have a major influence on
- A.
Inflation.
- B.
Interest rates.
- C.
The business cycle.
- D.
Each of the above
Correct Answer
D. Each of the aboveExplanation
Money appears to have a major influence on inflation, interest rates, and the business cycle. This is because the amount of money in circulation affects the overall level of prices in the economy, which is reflected in inflation. Additionally, the central bank uses interest rates as a tool to control inflation and stimulate or slow down economic growth, thus influencing the business cycle. Therefore, money plays a significant role in all three factors mentioned above.Rate this question:
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- 5.
Budget deficits are important to study in a money and banking class because
- A.
. budget deficits cause banks to fail
- B.
Without budget deficits banks would not exist.
- C.
Budget deficits may influence the conduct of monetary policy.
- D.
Of each of the above.
Correct Answer
C. Budget deficits may influence the conduct of monetary policy.Explanation
Budget deficits may influence the conduct of monetary policy. This is because when a government runs a budget deficit, it needs to borrow money to cover the shortfall. This increased borrowing can lead to higher interest rates, which in turn can affect the overall economy and monetary policy. Additionally, budget deficits can also impact inflation rates and the value of the currency, both of which are important considerations for monetary policy decisions. Therefore, studying budget deficits in a money and banking class is important to understand their potential impact on monetary policy.Rate this question:
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