Question 1

Which of the following is a capital market asset?

Accepted Answer

A) Commercial paper 
B) Treasury bills 
C) Corporate bonds 
D) Eurodollars 
A) Commercial paper 
B) Treasury bills 
C) Corporate bonds 
D) Eurodollars

Question 2

A car loan that a bank grants to you is

Accepted Answer

A) a source of funds to you, but a use of funds to the bank. 
B) a use of funds to you, but a source of funds to the bank. 
C) a source of funds to both you and the bank. 
D) a use of funds to both you and the bank. 
A) a source of funds to you, but a use of funds to the bank. 
B) a use of funds to you, but a source of funds to the bank. 
C) a source of funds to both you and the bank. 
D) a use of funds to both you and the bank.

Question 3

Which of the following is an example of a short-term debt instrument?

Accepted Answer

A) A six-month U.S. Treasury bill 
B) A ten-year U.S. Treasury note 
C) A thirty-year U.S. Treasury bond 
D) A thirty-year corporate bond 
A) A six-month U.S. Treasury bill 
B) A ten-year U.S. Treasury note 
C) A thirty-year U.S. Treasury bond 
D) A thirty-year corporate bond

Question 4

If a business fails to make a profit

Accepted Answer

A) it must still pay a dividend. 
B) you would probably be better off holding a bond issued by the business than holding stock issued by the business. 
C) you would probably be better off holding stock issued by the business than holding a bond issued by the business. 
D) its shareholders may end up being liable for much more than they have invested in the business. 
A) it must still pay a dividend. 
B) you would probably be better off holding a bond issued by the business than holding stock issued by the business. 
C) you would probably be better off holding stock issued by the business than holding a bond issued by the business. 
D) its shareholders may end up being liable for much more than they have invested in the business.

Question 5

The purpose of diversification is to

Accepted Answer

A) increase the liquidity of a financial portfolio. 
B) reduce the brokerage fees involved in managing a financial portfolio. 
C) reduce risk. 
D) reduce tax liability. 
A) increase the liquidity of a financial portfolio. 
B) reduce the brokerage fees involved in managing a financial portfolio. 
C) reduce risk. 
D) reduce tax liability.

Question 6

If you purchase a Treasury bond, the Treasury bond is

Accepted Answer

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

Question 7

Trading in money markets involves

Accepted Answer

A) debt instruments with maturities of more than one year. 
B) equities. 
C) debt instruments with maturities of less than one year. 
D) debt instruments with maturities of more than one year, but less than ten years. 
A) debt instruments with maturities of more than one year. 
B) equities. 
C) debt instruments with maturities of less than one year. 
D) debt instruments with maturities of more than one year, but less than ten years.

Question 8

Savings institutions, such as savings-and-loan associations,

Accepted Answer

A) have traditionally made most of their loans in the form of long-term mortgages. 
B) were greatly helped by the increase in market interest rates during the 1970s and 1980s. 
C) were spared the difficulties encountered by commercial banks during the 1980s. 
D) were not included in the deregulation of the financial system during the 1970s and 1980s. 
A) have traditionally made most of their loans in the form of long-term mortgages. 
B) were greatly helped by the increase in market interest rates during the 1970s and 1980s. 
C) were spared the difficulties encountered by commercial banks during the 1980s. 
D) were not included in the deregulation of the financial system during the 1970s and 1980s.

Question 9

Financial markets provide arrangements for

Accepted Answer

A) direct finance. 
B) indirect finance. 
C) financial intermediation. 
D) direct finance, indirect finance, and financial intermediation. 
A) direct finance. 
B) indirect finance. 
C) financial intermediation. 
D) direct finance, indirect finance, and financial intermediation.

Question 10

Which of the following is a money market asset?

Accepted Answer

A) commercial paper 
B) stocks 
C) Treasury bonds 
D) savings bonds 
A) commercial paper 
B) stocks 
C) Treasury bonds 
D) savings bonds

Question 11

When economists refer to default risk on a debt instrument, they are referring to

Accepted Answer

A) the interest rate on the instrument minus the tax liability on that interest. 
B) the risk that borrowers will not repay all or part of their obligations. 
C) the risk that lenders will insist that borrowers repay the obligation before the maturity date. 
D) the risk that lenders will insist that borrowers pay more than the agreed upon interest rate. 
A) the interest rate on the instrument minus the tax liability on that interest. 
B) the risk that borrowers will not repay all or part of their obligations. 
C) the risk that lenders will insist that borrowers repay the obligation before the maturity date. 
D) the risk that lenders will insist that borrowers pay more than the agreed upon interest rate.

Question 12

Increased liquidity during the past two decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)?

Accepted Answer

A) U.S. government bonds 
B) Bonds issued by large corporations 
C) Business loans 
D) Bonds issued by state governments 
A) U.S. government bonds 
B) Bonds issued by large corporations 
C) Business loans 
D) Bonds issued by state governments

Question 13

Economists believe that the major reason that financial intermediaries move a greater volume of funds between borrowers and lenders than do financial markets is

Accepted Answer

A) the advantage that financial intermediaries have in reducing information costs. 
B) the tax advantages that financial intermediaries receive from the government. 
C) the higher interest rates that financial intermediaries are able to offer to lenders. 
D) the lower interest rates that financial intermediaries are able to offer to borrowers. 
A) the advantage that financial intermediaries have in reducing information costs. 
B) the tax advantages that financial intermediaries receive from the government. 
C) the higher interest rates that financial intermediaries are able to offer to lenders. 
D) the lower interest rates that financial intermediaries are able to offer to borrowers.

Question 14

Suppose you start up an Internet company and, although you are currently not profitable, you are very confident that you will be quite profitable in the near future. Assuming that you are able to issue either debt or equity to raise the funds necessary to expand your business, which would you prefer to issue?

Accepted Answer

In these circumstances, all el

Question 15

Thirty years ago, banks

Accepted Answer

A) could make mortgage loans, but could not make loans to businesses. 
B) could make loans to businesses, but could not make mortgage loans. 
C) sold most loans to investors. 
D) held most loans until they were paid off. 
A) could make mortgage loans, but could not make loans to businesses. 
B) could make loans to businesses, but could not make mortgage loans. 
C) sold most loans to investors. 
D) held most loans until they were paid off.

Question 16

In a well-functioning financial market, the prices of a company's stocks and bonds will rise

Accepted Answer

A) only after it's reported profits rise. 
B) if an event boosts its expected future profit. 
C) only in the presence of asymmetric information. 
D) when its asset become less liquid. 
A) only after it's reported profits rise. 
B) if an event boosts its expected future profit. 
C) only in the presence of asymmetric information. 
D) when its asset become less liquid.

Question 17

Secondary markets for financial instruments are important because, among other things,

Accepted Answer

A) they are where companies and governments raise new funds. 
B) taxes on trading in these markets are an important source of revenue for governments. 
C) they make it easier for investors to hold a diversified portfolio of assets. 
D) they provide a place where people interested in financial matters can meet. 
A) they are where companies and governments raise new funds. 
B) taxes on trading in these markets are an important source of revenue for governments. 
C) they make it easier for investors to hold a diversified portfolio of assets. 
D) they provide a place where people interested in financial matters can meet.

Question 18

Which of the following money market instruments had the largest amount outstanding in 2006?

Accepted Answer

A) U.S. Treasury bills 
B) Commercial paper 
C) Negotiable CDs 
D) Federal funds 
A) U.S. Treasury bills 
B) Commercial paper 
C) Negotiable CDs 
D) Federal funds

Question 19

Which of the following assets is the least liquid?

Accepted Answer

A) Money market mutual fund 
B) Stock 
C) Treasury bond 
D) House 
A) Money market mutual fund 
B) Stock 
C) Treasury bond 
D) House

Question 20

Financial markets

Accepted Answer

A) generally deal only with the purchase and sale of government securities. 
B) directly issue claims on individual borrowers to savers. 
C) act as intermediaries between borrowers and savers. 
D) have largely eliminated the risk to savers from holding the bonds of large corporations. 
A) generally deal only with the purchase and sale of government securities. 
B) directly issue claims on individual borrowers to savers. 
C) act as intermediaries between borrowers and savers. 
D) have largely eliminated the risk to savers from holding the bonds of large corporations.

Exam 3: Overview of the Financial System

Which of the following is a capital market asset?

A car loan that a bank grants to you is

Which of the following is an example of a short-term debt instrument?

If a business fails to make a profit

The purpose of diversification is to

If you purchase a Treasury bond, the Treasury bond is

Trading in money markets involves

Savings institutions, such as savings-and-loan associations,

Financial markets provide arrangements for

Which of the following is a money market asset?

When economists refer to default risk on a debt instrument, they are referring to

Increased liquidity during the past two decades has reduced interest rates on which of the following assets (holding constant all other things that affect interest rates)?

Economists believe that the major reason that financial intermediaries move a greater volume of funds between borrowers and lenders than do financial markets is

Thirty years ago, banks

In a well-functioning financial market, the prices of a company's stocks and bonds will rise

Secondary markets for financial instruments are important because, among other things,

Which of the following money market instruments had the largest amount outstanding in 2006?

Which of the following assets is the least liquid?

Financial markets

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

Filters