# Insurance and Risk Management 11

Objective Questions and Answers of MBA: Insurance and Risk Management 11

Subject: Objective Questions and Answers of MBA: Insurance and Risk Management 11

Part 11: Objective questions and answers of Insurance and Risk Management

Q1. If market interest rates are 6%, the market price of a 7% 3-month CD for \$100,000 with 60 days to maturity is:

a) \$101,750

b) \$100,757

c) \$100,505

d) \$100,254

e) \$100,596

Q2. If people are willing to lend at 7% when inflation is 2% and continue to lend the same amounts when inflation is 4% and interest rates have risen to 8%, they are assumed to be subject to:

a) Myopic expectations

b) Money illusion

c) Risk aversion

d) Extrapolative expectations

e) Asymmetric information

Q3. If the current one-year rate is 5.5% while the current two-year rate is 6%, this suggests that the one year rate next year will be:

a) 6.75%

b) 5.75%

c) 6.5%

d) 6.25%

e) 5.25%

Q4. If the discount rate on 3-month commercial paper is 4.9% while the yield on 3-month cds is 5%, the real difference between them in basis points is:

a) 1

b) 39

c) 10

d) 100

e) 3.9

Q5. If the risk-free rate of interest is 5 per cent p.a. While the return on a whole market portfolio is 17 per cent, the rate of return required on a share with an â-coefficient of 1.15 will be:

a) 13.8%

b) 19.55%

c) 18.8%

d) 24.55%

e) 15%

Q6. Imagine that a bank grants new lending facilities to its customers of £200m. Customers borrow £150m which they use to make payments to creditors. The creditors decide to hold those payments as £100m additional bank deposits and £50m notes and coin. The effect on the money supply is:

a) +£100m

b) +£200m

c) +£150m

d) No change

e) +£50m

Q7. In Italy in recent years there has been:

a) A loss of competitiveness in the banking system

b) A reduction in the number of banks

c) An increase in the number of small, more specialists, banks

d) An increase in the role of the government in the banking system

Q8. In the course of 1923, German prices rose by approximately:

a) 20,000 times

b) 20bn times

c) 2m times

d) 2bn times

e) 200 times

Q9. In the flow of funds analysis of money supply determination an increase in government borrowing not financed by the sale of bonds is likely to lead to:

a) An increase in notes and coin

b) Less bank lending to the general public

c) Higher interest rates

d) A fall in banks' reserve ratio

e) An increase in bank deposits

Q10. In the flow of funds approach to money supply determination a rise in the central bank's official dealing rate will most likely:

a) Reduce the demand for deposits

b) Lead to a smaller multiplier

c) Reduce the public's cash ratio

d) Reduce the demand for bank loans

e) Increase banks' reserve ratios

Q11. Interest is usually paid on money market instruments:

a) Monthly

b) Twice a year

c) Annually

d) At maturity

e) On request

Q12. Investment trusts often expose investors to higher capital risk than unit trusts because:

a) Investment trusts have higher operating costs

b) Unit trusts hold more bonds

c) Investment trusts are less diversified

d) Investment trusts invest in overseas shares

e) Investment trusts can be 'geared'

Q13. It is suggested in the text that the demand for money is not of great importance from the point of view of monetary policy because:

a) Money has largely been replaced in the economy by credit and debit cards.

b) The supply of money is endogenous.

c) The supply of money is exogenous.

d) The demand for money function is unstable.

Q14. Monetary authorities might be able to reduce inflation without causing a recession if their policies are:

a) Unexpected

b) Thought credible by market agents

c) Supported by the opposition

d) Believed by the voters

e) Time inconsistent

f) Consistent

Q15. My spending is a regular £2000 per month. However, I keep an average of £3000 per month in by bank account. This suggests that I am using bank deposits as both:

a) Means of payment and store of wealth

b) Savings and precautionary balances

c) Idle balances

d) Means of payment and medium of exchange

e) Active balances and medium of exchange

Q16. Other things being equal, a rise in the price of a company's shares:

a) Reduces the cost of equity capital

b) Increases its costs of capital

c) Means that fewer shares will be demanded

d) Reduces the price of its bonds

e) Makes it a takeover target

Q17. Other things being equal, according to the base multiplier analysis of money supply determination, an increase in the public's cash ratio will lead to:

a) Less spending

b) A larger multiplier and increase in the money supply

c) An increase in demand for deposits

d) A smaller multiplier and reduction in money supply

e) A smaller multiplier and increase in the money supply

Q18. Shares in ABC plc. Have an â-coefficient of 0.9. The risk free rate of interest is 4 per cent p.a. While the return on a whole market portfolio is 15 per cent. The last dividend paid by the firm was 10p per share and earnings have grown steadily in recent years at 9 per cent p.a. The share price (to the nearest whole p) will be:

a) 222p

b) 242p

c) 168p

d) 204p

e) 154p

Q19. Suppose that the Bank of England cuts interest rates by 0.5 per cent. Other things being equal, the change in the price of shares in Q.7 will be:

a) -95p

b) -3p

c) 11p

d) 165p

e) 70p

Q20. Suppose that three year interest rates rise from 5 per cent to 6 per cent while one year rates remain at 3 per cent. This suggests:

a) Three year bonds have become less liquid

b) Short term interest rates are likely to rise in future

c) Three year bonds have become more risky

d) Investors have become more risk averse

e) The central bank has raised three year rates

Part 11: Objective questions and answers of Insurance and Risk Management