Question 1

In 2006, the total value of debt instruments was

Accepted Answer

A) roughly equal to the total value of equities. 
B) roughly half as much as the total value of equities. 
C) roughly twice as much as the total value of equities. 
D) roughly one-tenth the total value of equities. 
A) roughly equal to the total value of equities. 
B) roughly half as much as the total value of equities. 
C) roughly twice as much as the total value of equities. 
D) roughly one-tenth the total value of equities. C

Question 2

Financial intermediaries

Accepted Answer

A) channel funds directly between borrowers and lenders. 
B) issue claims on individual borrowers directly to savers. 
C) act as go-betweens by holding a portfolio of assets and issuing claims based on that portfolio to savers. 
D) generally provide lenders with higher returns than do financial markets. 
A) channel funds directly between borrowers and lenders. 
B) issue claims on individual borrowers directly to savers. 
C) act as go-betweens by holding a portfolio of assets and issuing claims based on that portfolio to savers. 
D) generally provide lenders with higher returns than do financial markets. C

Question 3

Why do savers supply funds?

Accepted Answer

A) They are promised to be repaid even more funds in the future. 
B) They expect to earn higher income in the future. 
C) They want to accumulate more financial liabilities. 
D) It's a way to increase current consumption. 
A) They are promised to be repaid even more funds in the future. 
B) They expect to earn higher income in the future. 
C) They want to accumulate more financial liabilities. 
D) It's a way to increase current consumption. A

Question 4

The leading federal regulatory body for financial markets in the United States is the

Accepted Answer

A) Federal Bureau of Investigation. 
B) Securities and Exchange Commission. 
C) Federal Financial Market Bureau. 
D) Investors Protection Agency. 
A) Federal Bureau of Investigation. 
B) Securities and Exchange Commission. 
C) Federal Financial Market Bureau. 
D) Investors Protection Agency.

Question 5

Financial intermediaries

Accepted Answer

A) include banks and other depository institutions. 
B) include the New York and American Stock exchanges. 
C) directly issue claims on individual borrowers to savers. 
D) are owned and operated by the federal government. 
A) include banks and other depository institutions. 
B) include the New York and American Stock exchanges. 
C) directly issue claims on individual borrowers to savers. 
D) are owned and operated by the federal government.

Question 6

Derivative markets exist in order to

Accepted Answer

A) allow for the direct cash sale of common stock. 
B) allow for the direct cash sale of bonds. 
C) reduce the risk of exposure to price fluctuations in cash markets. 
D) overcome some of the information problems involved in trades on the over-the-counter market. 
A) allow for the direct cash sale of common stock. 
B) allow for the direct cash sale of bonds. 
C) reduce the risk of exposure to price fluctuations in cash markets. 
D) overcome some of the information problems involved in trades on the over-the-counter market.

Question 7

Which of the following is an example of an equity?

Accepted Answer

A) A thirty-year U.S. government bond 
B) A thirty-year corporate bond 
C) A checking account in a commercial bank 
D) A share of common stock in General Motors 
A) A thirty-year U.S. government bond 
B) A thirty-year corporate bond 
C) A checking account in a commercial bank 
D) A share of common stock in General Motors

Question 8

The distinguishing feature of a well-functioning financial market is the

Accepted Answer

A) continual increase in the liquidity of most assets. 
B) continual reduction in the riskiness of most assets. 
C) increased ease of converting common stocks into bonds. 
D) incorporation of available information into asset prices. 
A) continual increase in the liquidity of most assets. 
B) continual reduction in the riskiness of most assets. 
C) increased ease of converting common stocks into bonds. 
D) incorporation of available information into asset prices.

Question 9

Savers view the liquidity of financial assets as a benefit because

Accepted Answer

A) they want to be able to easily exchange their assets for something else. 
B) the more liquid an asset is, the higher its rate of return, all else being constant. 
C) liquid assets incur fewer tax liabilities than do illiquid assets. 
D) liquid assets are a good means of saving for retirement. 
A) they want to be able to easily exchange their assets for something else. 
B) the more liquid an asset is, the higher its rate of return, all else being constant. 
C) liquid assets incur fewer tax liabilities than do illiquid assets. 
D) liquid assets are a good means of saving for retirement.

Question 10

The managers of a firm seek to obtain a loan from a local bank. They tell the bank's loan officer that the loan is intended to finance an expansion in the company, but in reality they intend to use the funds to finance next month's payroll. This incident is an example of

Accepted Answer

A) the problem of asymmetric information. 
B) the problem of the illiquidity of bank loans. 
C) banks' failing to charge high enough interest rates on business loans. 
D) a situation in which direct finance, rather than indirect finance, should have been employed. 
A) the problem of asymmetric information. 
B) the problem of the illiquidity of bank loans. 
C) banks' failing to charge high enough interest rates on business loans. 
D) a situation in which direct finance, rather than indirect finance, should have been employed.

Question 11

Financial markets

Accepted Answer

A) channel funds indirectly between borrowers and lenders. 
B) issue claims on individual borrowers directly to savers. 
C) act as go-betweens by holding a portfolio of assets and issuing claims based on that portfolio to savers. 
D) generally provide lenders with lower returns than do financial intermediaries. 
A) channel funds indirectly between borrowers and lenders. 
B) issue claims on individual borrowers directly to savers. 
C) act as go-betweens by holding a portfolio of assets and issuing claims based on that portfolio to savers. 
D) generally provide lenders with lower returns than do financial intermediaries.

Question 12

Diversification reduces the riskiness of a financial portfolio provided

Accepted Answer

A) the portfolio does not contain too many different assets. 
B) the returns on the assets in the portfolio do not vary in the same way. 
C) interest rates are stable. 
D) at least some tax-free assets are included. 
A) the portfolio does not contain too many different assets. 
B) the returns on the assets in the portfolio do not vary in the same way. 
C) interest rates are stable. 
D) at least some tax-free assets are included.

Question 13

The financial system allows some savers and borrowers to transfer risk to other savers and borrowers. Why do savers and borrowers differ in their willingness to bear risk?

Accepted Answer

Some savers and borrowers are more willi

Question 14

Which of the following is NOT true of stock markets?

Accepted Answer

A) Most of the trading takes place in already issued stock. 
B) Every time a share of a company's stock changes hands, that company receives a payment. 
C) The dollar volume of trading is less than the dollar volume of trading on bond markets. 
D) They help carry out direct finance. 
A) Most of the trading takes place in already issued stock. 
B) Every time a share of a company's stock changes hands, that company receives a payment. 
C) The dollar volume of trading is less than the dollar volume of trading on bond markets. 
D) They help carry out direct finance.

Question 15

You tell the bank loan officer that you would like to borrow money to purchase a car. In reality you intend to use the money to pay off your losing bets on the Super Bowl. This is an example of

Accepted Answer

A) the problem of a double coincidence of wants. 
B) the problem of asymmetric information. 
C) high transactions costs. 
D) the use of financial markets for illicit purposes. 
A) the problem of a double coincidence of wants. 
B) the problem of asymmetric information. 
C) high transactions costs. 
D) the use of financial markets for illicit purposes.

Question 16

Which of the following is NOT an important reason why governments around the world regulate financial markets?

Accepted Answer

A) To ensure that all participants in the financial system have access to information 
B) To reduce the cost to governments of borrowing funds 
C) To maintain financial stability 
D) To advance economic policy by interacting with the financial system 
A) To ensure that all participants in the financial system have access to information 
B) To reduce the cost to governments of borrowing funds 
C) To maintain financial stability 
D) To advance economic policy by interacting with the financial system

Question 17

Which of the following statements concerning the Sarbanes-Oxley Act of 2002 is true?

Accepted Answer

A) It strengthened the SEC's ability to prosecute companies that presented misleading accounting data to the public. 
B) It cracked down on insider trading. 
C) It established rules for IPOs so average investors would not be at a disadvantage. 
D) It strengthened the standards for companies which plan to go public. 
A) It strengthened the SEC's ability to prosecute companies that presented misleading accounting data to the public. 
B) It cracked down on insider trading. 
C) It established rules for IPOs so average investors would not be at a disadvantage. 
D) It strengthened the standards for companies which plan to go public.

Question 18

According to the text: "many economists link the severity of the Great Depression of the 1930s to the breakdown in the banking system's ability to provide financial services." The beginning of the Great Depression also coincided with a stock market crash. Why might the problems of the banking system have been more damaging to the economy than the problems on the stock market?

Accepted Answer

Many businesses are unable to make use o

Question 19

If a bank grants you a mortgage, the mortgage is

Accepted Answer

A) an asset to you as well as an asset to the bank. 
B) an asset to you, but a liability to the bank. 
C) a liability to you, but an asset to the bank. 
D) a liability to you as well as a liability to the bank. 
A) an asset to you as well as an asset to the bank. 
B) an asset to you, but a liability to the bank. 
C) a liability to you, but an asset to the bank. 
D) a liability to you as well as a liability to the bank.

Question 20

Borrowers promise to repay borrowed funds

Accepted Answer

A) by borrowing additional funds in the future. 
B) based on their expectation of having higher incomes in the future. 
C) by reducing their costs relative to their revenues. 
D) by selling other assets. 
A) by borrowing additional funds in the future. 
B) based on their expectation of having higher incomes in the future. 
C) by reducing their costs relative to their revenues. 
D) by selling other assets.

Exam 3: Overview of the Financial System

In 2006, the total value of debt instruments was

Financial intermediaries

Why do savers supply funds?

The leading federal regulatory body for financial markets in the United States is the

Financial intermediaries

Derivative markets exist in order to

Which of the following is an example of an equity?

The distinguishing feature of a well-functioning financial market is the

Savers view the liquidity of financial assets as a benefit because

The managers of a firm seek to obtain a loan from a local bank. They tell the bank's loan officer that the loan is intended to finance an expansion in the company, but in reality they intend to use the funds to finance next month's payroll. This incident is an example of

Financial markets

Diversification reduces the riskiness of a financial portfolio provided

The financial system allows some savers and borrowers to transfer risk to other savers and borrowers. Why do savers and borrowers differ in their willingness to bear risk?

Which of the following is NOT true of stock markets?

You tell the bank loan officer that you would like to borrow money to purchase a car. In reality you intend to use the money to pay off your losing bets on the Super Bowl. This is an example of

Which of the following is NOT an important reason why governments around the world regulate financial markets?

Which of the following statements concerning the Sarbanes-Oxley Act of 2002 is true?

If a bank grants you a mortgage, the mortgage is

Borrowers promise to repay borrowed funds

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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