Credit risk is:
a. The chance of a change in the market value of a security due to changes in macroeconomic variables, such as interest rates or exchange rates.
b. The risk that credit cannot be expanded by the banking system due to central bank regulations.
c. The chance that you will not be able to get a credit card when you really need it.
d. The chance that borrowers will be unable or unwilling to repay their debts.
e. The chance that a company will not be able to get a loan (i.e., credit) when it needs funding.
Question 2 - Assume that the central bank increases the reserve requirement. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and current international transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and current international transactions become more negative (or less positive).
b. The real risk-free interest rate rises, and current international transactions become more negative (or less positive).
c. The real risk-free interest rate and current international transactions remain the same.
d. The real risk-free interest rate rises, and current international transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 3 - The primary market is where:
a. Debt and equity instruments are bought and sold after they are first issued.
b. Primary real assets are linked with primary financial assets.
c. Central banks and governments perform their pump-priming activities.
d. Debt and equity instruments are bought and sold when they are first issued.
e. None of the above.
Question 4 - Assume that the central bank increases the reserve requirement. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls, and reserve-related (central bank) transactions become more negative (or less positive).
b. The real risk-free interest rate rises, and reserve-related (central bank) transactions become more negative (or less positive).
c. The real risk-free interest rate and reserve-related (central bank) transactions remain the same.
d. The real risk-free interest rate rises, and reserve-related (central bank) transactions remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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