Question

Answer all of these questions with the right question number next to the correct choice (letter).

Q2) When the government incurs budget deficits and there is a tight labor market (inflation):

A)It raises interest rates overall.

B)All the listed choices are correct

C)It becomes a large competitor in the market for loanable funds against corporations seeking the same funds.

D)The higher interest rates tend to choke economic growth.

Q4)Stock prices are said to provide a measure of the value of a corporation because:

A)Stock prices are rarely associated with a company's true value.

B)Markets are efficient and therefore stock prices incorporate all available information known to investors.

C)Stock prices are predetermined by the stock exchange and hence provide the best measure of a company's worth.

D)Stock prices reflect accounting book values and are therefore very accurate.

Q5)The CEO of an American car manufacturing plant buys engine parts from Japan shortly before the yen's value increases. The invoice is denominated in yens. The CEO exposed his company to:

A)Capital gains risk

B)Interest rate risk

C)Reinvestment rate risk

D)Exchange rate risk

Answer 1

Answers-

Q 2)

The correct option is C. It becomes a large competitor in the market for loanable funds against corporations seeking the same funds

The other options A,B and D are incorrect.

it will not raise interest rates as inflation is high

It will not be having high interest rates which will choke eonomic growth.

Q 4)

The correct option is B. Markets are efficient and therefore stock prices incorporate all available information known to investors.

The other options A,C and D are incorrect.

Stock prices are not determined by stock exchanges
Stock prices do not reflect accounting book values.

Q 5)

The correct option is D. Exchange rate risk

As this is related to currency changes. Therefore the correct choice is Exchange rate risk.

The other options A,B and C are inorrect as

capital gains risk is by selling securities

interest rates risk is due to change in interest rates

reinvestment risk is by reinvesting the coupons