The money market is distinguished from the capital market, because
a. The money market is where foreign exchange is traded, and the capital market is where long-term and short-term funds are borrowed and lent.
b. The money market is where foreign exchange is traded, and the capital market is where long-term funds (i.e., maturities more than one year) are borrowed and lent.
c. The money market is where foreign exchange is traded, and the capital market is where short-term funds (i.e., maturities equal to or less than one year) are borrowed and lent.
d. The money market is where short-term funds (i.e., maturities equal to or less than one year) are borrowed and lent, and the capital market is where long-term funds (i.e., maturities greater than one year) are borrowed and lent.
e. None of the above.
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 net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. The real risk-free interest rate falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
c. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
d. The real risk-free interest rate and net nonreserve-related international borrowing/lending remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
Question 3 - Direct financing is distinguished from indirect financing because:
a. Direct financing is when a business borrows directly from pooled funds at a financial institution, and indirect financing is when it borrows in the bond or stock market.
b. Direct financing is when a company borrows in the fixed-rate market, and indirect financing is when it borrows in the floating-rate market.
c. Direct financing is when a business borrows in the bond or stock market, and indirect financing is when it borrows from pooled funds at a financial institution.
d. 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 the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and nominal value of the domestic currency falls.
b. The real risk-free interest rate falls, and nominal value of the domestic currency falls.
c. The real risk-free interest rate rises, and nominal value of the domestic currency remains the same.
d. The real risk-free interest rate rises, and nominal value of the domestic currency rises.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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