Interest Rates Quiz

As interest rates change, the present value of fixed future cash flows changes:

• Directly.

• There is no connection between interest rates and present values.

• Inversely.

• Upward.

The theories of the term structure of interest rates attempt to describe the relationship of interest rates to:

• The maturity of securities.

• The risk of securities.

• The issuer of securities.

• The market for securities.

The liquidity preference hypothesis of the term structure of interest rates argues that long-term rates must be ________ than short term rates due to __________.

• lower; default risk.

• higher; interest rate risk.

• lower; expected inflation.

• higher; market segmentation.

The hedging or segmentation hypothesis of the term structure of interest rates assumes that:

• Investors select the maturities of their investments to hedge their liabilities.

• All maturities of bonds have the same yield.

• Companies that hedge their risks issue short-term bonds.

• Investment markets are segmented by geography.

For a Canadian resident, the number of Canadian dollars required to purchase one unit of foreign currency is called a:

• Nominal rate.

• Real rate.

• Direct rate.

If the price of a U.S. dollar is 110.00 Japanese yen and also 1.05 euros, what is the yen/euro cross rate?

• 0.00955 yen/euro.

• $104.76.

• 104.76 yen/euro.

• 115.50 yen/euro.

The interest rates listed daily in The Wall Street Journal are considered ________ interest rates.

As interest rates change, the present value of fixed future cash flows changes:

• Directly.

• There is no connection between interest rates and present values.

• Inversely.

• Upward.

The theories of the term structure of interest rates attempt to describe the relationship of interest rates to:

• The maturity of securities.

• The risk of securities

• The issuer of securities.

• The market for securities.

The liquidity preference hypothesis of the term structure of interest rates argues that long-term rates must be ______ than short term rates due to _______.

• lower; default risk.

• higher; interest rate risk.

• lower; expected inflation.

• higher; market segmentation.