TCH303 – MONEY AND BANKING

MOCK EXAM
Duration: 60 minutes
The exam consists of two (02) parts and lasts 60 minutes. DO NOT OPEN the exams until you are
told to do so and STOP writing when you are told that the exam is over. Failure to comply will
result in a 10% loss in the grade. This is a CLOSED BOOK exam.

SECTION A (Short Questions): 6 points

A1. Short questions (3 points)

Answer three (03) questions in this section. Each question in this section is worth 1 point.

1. Why have some economists described money during a hyperinflation as a “hot potato” that is
quickly passed from one person to another?
2. How can asymmetric information lead to a bank panic?
3. Why might inflation targeting increase support for the independence of the central bank to
conduct monetary policy?
4. Risk premiums on corporate bonds are usually anticyclical; that is, they decrease during
business cycle expansions and increase during recessions. Why is this so?
5. Suppose, one morning, the Open Market Trading Desk drastically underestimates the demand
for reserves when deciding the quantity of reserves to supply to the market. Based on analysis
of the market for bank reserves, explain why the market federal funds rate will not exceed the
discount rate regardless of how large the gap between estimated and actual reserve demand.

A2. Challenging questions (3 points)

Answer two (02) question only in this section. Each question in this section is worth 1.5 point.

1. ‘Because the public can see whether a central bank hits its monetary targets almost
immediately, whereas it takes time before the public can see whether an inflation target is
achieved, monetary targeting makes central banks more accountable than inflation targeting
does.’ Is this statement true, false, or uncertain? Explain your answer.
2. Many economists argue that the rescue of a financial institution should protect the institution’s
creditors from losses but not protect its owners: they should lose their equity. Supporters of this
idea say it reduces the moral hazard created by rescues. Explain how this approach reduces
moral hazard compared to a rescue that protects both creditors and equity holders.
3. In Vietnam, interest rates decisions are taken by The State Bank of Vietnam. One of the official
interest rates is the Refinancing Rate. Explain the movement of the Refinancing Rate since
2008.
SECTION B (Multiple Choice Questions): 4 points

There are 20 questions in this section. Answer ALL questions in this section. Each question is worth
0.2 points. Give ONE answer only for each question.

END OF THE MOCK EXAM