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who is the current chairman of the Fed Reserve board?
Ben Bernanke
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what is ben bernankes middle name?
shalom
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what is the relationship between teh fed reseve board and the FOMC?
the fomc consists of teh board plus the president of the FRBNY plus the presidents of four other federal reserve banks
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how is the chariman of the fomc selected?
the chairman of the board of governors is automatically the chairman of the fomc
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which of the fed reserve bank presidents is automatically chairman of the fomc?
fed reserve bank presidents cant be chairman of the fomc
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how does the open makret desk cause an increase in the fed funds rate?
sells bills, notes, or bonds; or reduces the volume of purchases
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how does the US congress establish the budget for the fed reserve?
the fed reserve is not part of the budget of the fed government
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what year was the fed reserve created?
1913
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what is teh discount rate?
the rate at which banks can borrow reserves from teh federal reserve
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how do open market operations affect the quantity of money?
the fed creates money when it buys bodns and destroys money when it sells bonds
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what is the fed funds rate?
the rate at which banks can borrow reserves from each other
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how does the fed reserve affect the fed funds rate?
open market purchases cause a decrease in the federal funds rate and open market sales cause an increase in the federal funds rate
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when does the secretary of the treasury serve as a member of the federal reserve board?
the secretary of treasury isnt a member of the fed reserve board
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how does the open market desk cause a decrease in the fed funds rate?
buys bill, notes, or bonds
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what is disinflation?
prices are generally rising, but at a slower rate
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what is inflation?
a sustained and continuing rise in the general level of prices
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what is hyperinflation?
prices are rising faster than 50% per month
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what is deflation?
sustained and continuing fall in the general level of prices
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what is the generally accepted definition of hperinlation?
prices rise by more than 50% per month
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in 1924 hjalmar schacht ended the german hyperinflation by introducing a new currency to replace the old. how many 'old' marks were required to obtain one 'new'mark"?
one trillion
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what is disinflation?
prices are rising, but the rate of increase is becoming slower
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what is deflation?
a continuing decline in prices
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suppose you observe that a 6 month treasury bill for $101 when it has a $100 par value. is it even theoretically possible that investrs expect a positive real return?
yes, but only if investors expect deflation, falling prices
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what is the relationship between inflation and real returns?
an unexpected increase in inlation means real returns will be lower than expected
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how will a change in anticipated inflation affect the nominal rate?
the increae in expected inflation will cause the nominal rate to rise and a decrease in expected inflation will cause the nominal rate to fall
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if ex post real returns are less than expected, what can we conclude about inflation?
there was an unexpected increae in inflation
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how will an increase in expected inflation affect bond prices and yields?
bond yields will rise and prices will fall
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assuming the size and quality of the hamburgers are the same, what nominal interest rate is wimpy asking for?
exactly equal to the % change in the price of hamburgers
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assuming the seize and quality of the hamburgers are the same, what real interest rate is wimpy asking for?
exactly zero
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how does an unexpected increase in inflation affect borrowrs and lenders?
benefits borrowrs, but hurts lenders
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how does an unexpected disinflation affect borrowrs and lenders
benefits lenders but hurts borrowers
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how does an unexpected deflation affect borrowers and lenders
benefits lenders but hurts borrowers
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both the coupon and the par value of treasury inflation protected securities are adjusted for inaltion. what are the similarities/differences inthe coupon adjustment and the par adjustment?
the coupon can be adjusted up or down with every change in the CPI but the par can never fall below 100
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a 10 year conventional treasury note has a yield of 6.25%. a 10 year inflation protected treasury note has a yield of 3.25%. the difference can be explined by:
inflation risk
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what is the relationship between the yield on treasury notes and the yield on treasury inflation protect securities (tips)
the yield on notes exceeds the yield on tips by an inflation premium
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how does an expected increase in inflation affect the supply and demand for loanable funds?
the demand for loanable funds increases but the supply decreases
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how does an expected increase in inflation affect the supply and demand for bonds?
the supply of bonds increases but the demand decreases
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what is the realtionship between bond prices and bond yields?
there is always an inverse relationship between bond prices and yields
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you observe that the price of a treasury security moves in the same direction as its yield. what can you conclude?
can never happen
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when is a treasury note reclassified as a treasury bill?
never. a treasury security is a note, bill, or bond when it is issued and the designation never changes
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what is the relationship among the maturities of treasury bills, notes, and bonds?
bonds have longer maturities than notes and notes have longer maturities than bills. ( bills <notes<bonds)
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what is the relationship among coupon rates for treasury bills, notes, and bonds?
bonds and notes have coupons, bills dont
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a new issued tresury security has a maturity of 6 months. how is it classified?
bill
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a new issued treasury security has a maturity of 20 years. how is it classified?
bond
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a new issued treasury security has a maturity of 5 years. how is it classified?
note
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two treasury notes have the same par, the same remaining maturity and the same yield to maturity.l which one sells for the higher price?
the one with the higher coupon will sell for the higher price
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what do you know about a coupon bond if the bond sells for a premium?
the yield to maturity is less than the coupon rate
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what do you know about a coupon bond if the bond sells at a discount?
the yield to maturity exceeds the coupon rate
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what do you know aobut a coupon bond if teh coupon rate is greater than the yield to maturity?
the bond sells for a premium
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what do you know about a coupon bond if teh coupon rate is equal to teh yield to maturity?
the bond sells at par
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what do you know about a coupon bond if the bond sells for par?
the YTM is equal to the coupon rate
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what is teh term for the annual dollar coupon on a bond divided by the bonds current price?
the current yield
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how is commercial paper similar to a treasury bill?
each is a short term instrument that does not pay a coupon
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suppose the discount yield on a treasury bill exceeds the bond equivalent yield. is this possible?
yes, but only if teh bill were to sell for a significant premium
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a US treasury security has an original maturity greater than one year. is it a bill note or bond?
could be a note or a bond. not a bill
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what is the difference between junk and high yield bonds?
theyre the same
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what is the relationship between high yield bonds and fallen angels?
all fallen angels are high yield bonds, but not all high yield bonds are fallen angels
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what is rating or range of ratings for investment grade bonds?
BBB and above
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there is a significant bond rating threshold within the market for junk bonds. where is it?
between B and CCC
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how are BBB and CCC bonds similar or different?
CCC bonds are high yield and BBB bonds are investment grade
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what are debt instruments that do not have coupon payments?
treasury bills and commercial paper
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what is the term for unsecured short term corporate debt?
commercial paper
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what determines whether a financial instrument is classified as a money markket instrumetn or a capital market instrumetn?
capital market insturments have a maturity greater than one year; money market instrumetns have a maturity of not more than one year
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how are treasury notes and bonds similar/different?
bonds always have longer maturities than notes
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what type of US treasury issues fall into the high yield category?
by definition treasury bills, notes, and bonds are not considered high yield securities
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what is the lowest rating for investment grade bonds?
BBB
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a corporate bond has a BBB rating. what does this mean?
it is investment grade bond
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what is the relationship between fallen angels, junk bonds, and high yield bonds?
all junk bonds are high yield, but not all high yield bonds are fallen angels
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when are US treasury notes or bonds classified as high yield?
treasury notes and bonds are not considered high yield securities
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what is the term for rules that are designed to protect bondholders, such limitations on the ability of managers to use additional leverage?
a protective covenant
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what is a protective covenant?
it is a legal restriciton on the actions of managment that is intended to increase the value of the bond
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what is an indenture?
the legal agreement between the bond issuer and bond buyer
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what do you know about a bond that is described as a fallen angel?
the bond had a rating of BBB or higher when issued
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a corporate bond has a AAA rating. what does this mean
it is an investment grade bond
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which bond rating change would represent an improvement from junk to investment grade?
a change from BB to BBB
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which bond rating change would represent an improvement from "junk" to "high yield"?
trick question. junk is another name for high yield
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what is a call feature or call provision?
it is the right of the bond issuer to buy back the bond at a fixed price, such as par
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what is the correct way to spell the professors last name?
karafiath
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what was the contribution of braddock hickman to our understanding of finance?
hickman presented evidence that a well diversified protfolio of junk bonds was underpriced relative to the risk of the portfolio
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