171. A treasury bill which matures in 62 days for £250,000 is currently trading at 248,000. The rate of discount on this bill is:
4.74%
8%
0.806%
0.8%
4.7%
Correct answer: (E) 4.7%
172. A unit trust fund is established with assets of £200m divided into 150m units. The value of the underlying assets rises to £250m. The value of each unit is:
£1.66
£0.80
£1.25
£1.33
£0.60
Correct answer: (A) £1.66
173. According to the Fisher hypothesis, the nominal rate of interest consists of:
A stable real rate plus a variable liquidity premium
A stable real rate plus a variable inflation premium
A stable real rate plus a variable risk premium
An inflation premium plus a liquidity premium
A real rate plus a liquidity premium plus a risk premium
Correct answer: (B) A stable real rate plus a variable inflation premium
174. According to the liquidity preference theory of interest, an increase in uncertainty, other things being equal, will:
Reduce the demand for money
Decrease output and employment
Raise interest rates
Reduce the supply of money
Increase risk aversion
Correct answer: (C) Raise interest rates
175. According to the policy irrelevance theorem, why is policy irrelevant?
Because no one is interested in it
Because it has no effect at all
Because it can't influence real variables
Because governments seldom know what is going to happen next
Because it can't influence inflation
Correct answer: (C) Because it can't influence real variables
176. According to the rational expectations hypothesis:
People do not make mistakes in forecasting inflation
People make only small mistakes in forecasting inflation
People do not make random mistakes in forecasting inflation
People do not make avoidable mistakes in forecasting inflation
Some people do not make mistakes in forecasting inflation
Correct answer: (D) People do not make avoidable mistakes in forecasting inflation
177. All demand for money functions that are tested are macroeconomic relationships between the aggregate demand for money and other economic variables because:
Microeconomic relationships are less interesting
The purpose of studying the demand for money is to help in understanding the effect of monetary policy
Microeconomic relationships are unpredictable
Macroeconomic relationships are always more stable than microeconomic relationships
Correct answer: (B) The purpose of studying the demand for money is to help in understanding the effect of monetary policy
178. An 'open-end' investment fund is one which:
Allows anyone to invest in it
Publishes its asset portfolio regularly
Can invest in any type of asset that it chooses
Allows investors to withdraw funds on demand
Varies in size with inflows and outflows of funds
Correct answer: (E) Varies in size with inflows and outflows of funds
179. An 'overdraft' economy is one in which:
All firms have an overdraft
Financial markets play no role in borrowing and lending
Firms rely on internal funds
Borrowing and lending take place largely through intermediaries
Correct answer: (D) Borrowing and lending take place largely through intermediaries
180. An airline expands its fleet of planes just before a serious accident reduces the demand for its flights. This is an example of: