Question 1

Financial integration refers to

Accepted Answer

A) the ability of persons of different races and religions to obtain access to financial services. 
B) the way in which financial markets are tied together geographically. 
C) the ability to easily convert investments in common stock into investments in corporate bonds. 
D) the difference between interest rates offered by commercial banks and those offered by savings and loan associations. 
A) the ability of persons of different races and religions to obtain access to financial services. 
B) the way in which financial markets are tied together geographically. 
C) the ability to easily convert investments in common stock into investments in corporate bonds. 
D) the difference between interest rates offered by commercial banks and those offered by savings and loan associations.

Question 2

Which of the following represents the most diversification for someone who currently owns share of stock in Intel?

Accepted Answer

A) Buying shares in Dell 
B) Buying shares in Microsoft 
C) Buying shares in Advanced Micro Devices 
D) Buying shares in Disney 
A) Buying shares in Dell 
B) Buying shares in Microsoft 
C) Buying shares in Advanced Micro Devices 
D) Buying shares in Disney

Question 3

Borrowers generally demand funds through the financial system in order to

Accepted Answer

A) purchase consumer durables, houses, or business plant and equipment. 
B) pay taxes or other obligations to the government. 
C) purchase food, clothing, or other nondurables. 
D) meet business payrolls or other short-term business obligations. 
A) purchase consumer durables, houses, or business plant and equipment. 
B) pay taxes or other obligations to the government. 
C) purchase food, clothing, or other nondurables. 
D) meet business payrolls or other short-term business obligations.

Question 4

When a borrower issues a debt instrument to a lender,

Accepted Answer

A) the lender may receive less than the amount promised, but will not receive more. 
B) the lender may receive more than the amount promised, but will not receive less. 
C) the lender will always receive exactly the amount promised. 
D) the lender may receive more than the amount promised or may receive less than the amount promised. 
A) the lender may receive less than the amount promised, but will not receive more. 
B) the lender may receive more than the amount promised, but will not receive less. 
C) the lender will always receive exactly the amount promised. 
D) the lender may receive more than the amount promised or may receive less than the amount promised.

Question 5

The Securities and Exchange Commission was founded in

Accepted Answer

A) 1805. 
B) 1933. 
C) 1965. 
D) 1995. 
A) 1805. 
B) 1933. 
C) 1965. 
D) 1995.

Question 6

When assessing the effects of regulation of the financial system, we can say that regulation

Accepted Answer

A) sometimes reduces the ability of the financial system to provide risk-sharing, liquidity, and information services. 
B) has always had the main goal of increasing the ability of the financial system to provide risk-sharing, liquidity, and information services. 
C) has always been directed toward the maintenance of financial stability. 
D) has largely been discontinued since 1980. 
A) sometimes reduces the ability of the financial system to provide risk-sharing, liquidity, and information services. 
B) has always had the main goal of increasing the ability of the financial system to provide risk-sharing, liquidity, and information services. 
C) has always been directed toward the maintenance of financial stability. 
D) has largely been discontinued since 1980.

Question 7

In the early nineteenth century in the United States,

Accepted Answer

A) financial markets were actually more integrated than they are today. 
B) substantial differences existed in the interest rates charged to borrowers in different parts of the country. 
C) high-quality investment projects were much easier to finance. 
D) federal law prohibited the payment of interest on loans. 
A) financial markets were actually more integrated than they are today. 
B) substantial differences existed in the interest rates charged to borrowers in different parts of the country. 
C) high-quality investment projects were much easier to finance. 
D) federal law prohibited the payment of interest on loans.

Question 8

Savers who take advantage of the service of transfer risk offered by the financial system

Accepted Answer

A) often end up paying higher taxes. 
B) do so by engaging in diversification. 
C) will incur the cost of a lower return than if they had not taken advantage of the service. 
D) do so exclusively through the banking system. 
A) often end up paying higher taxes. 
B) do so by engaging in diversification. 
C) will incur the cost of a lower return than if they had not taken advantage of the service. 
D) do so exclusively through the banking system.

Question 9

Money markets

Accepted Answer

A) involve trading in debt instruments with maturities of more than one year. 
B) are used by large corporations to finance inventories. 
C) involve trading in equities. 
D) are used by large corporations to finance long-term investments in plant and equipment. 
A) involve trading in debt instruments with maturities of more than one year. 
B) are used by large corporations to finance inventories. 
C) involve trading in equities. 
D) are used by large corporations to finance long-term investments in plant and equipment.

Question 10

Which of the following is NOT true of over-the-counter markets?

Accepted Answer

A) Prices are set by competitive bidding by a large number of traders. 
B) Trading does not take place in one physical location. 
C) Traders are willing to buy and sell stocks and bonds at a posted price. 
D) Traders are linked by computer. 
A) Prices are set by competitive bidding by a large number of traders. 
B) Trading does not take place in one physical location. 
C) Traders are willing to buy and sell stocks and bonds at a posted price. 
D) Traders are linked by computer.

Question 11

The periodic payments received by owners of equity are referred to as

Accepted Answer

A) interest. 
B) dividends. 
C) maturity. 
D) coupons. 
A) interest. 
B) dividends. 
C) maturity. 
D) coupons.

Question 12

The amount that a borrower borrows is referred to as the

Accepted Answer

A) principal. 
B) equity. 
C) maturity. 
D) lump sum. 
A) principal. 
B) equity. 
C) maturity. 
D) lump sum.

Question 13

The financial system performs the role of communicating information by

Accepted Answer

A) constantly increasing the liquidity of most assets. 
B) constantly reducing the riskiness of most assets. 
C) incorporating all available information into the prices of financial assets. 
D) providing to investors for a nominal charge all government reports available about a particular company. 
A) constantly increasing the liquidity of most assets. 
B) constantly reducing the riskiness of most assets. 
C) incorporating all available information into the prices of financial assets. 
D) providing to investors for a nominal charge all government reports available about a particular company.

Question 14

The financial system provides risk sharing by allowing

Accepted Answer

A) borrowers to obtain funds either directly or indirectly. 
B) savers to earn interest tax-free. 
C) borrowers to convert liabilities into assets. 
D) savers to hold many assets. 
A) borrowers to obtain funds either directly or indirectly. 
B) savers to earn interest tax-free. 
C) borrowers to convert liabilities into assets. 
D) savers to hold many assets.

Question 15

In comparing money market and capital market instruments, money market instruments are typically

Accepted Answer

A) riskier than capital market instruments. 
B) more liquid than capital market instruments. 
C) less liquid than capital market instruments. 
D) riskier, but more liquid, than capital market instruments. 
A) riskier than capital market instruments. 
B) more liquid than capital market instruments. 
C) less liquid than capital market instruments. 
D) riskier, but more liquid, than capital market instruments.

Question 16

Promises given by borrowers to lenders are

Accepted Answer

A) recognized as legally enforceable only in some states. 
B) not subject to federal taxation. 
C) assets to the borrowers. 
D) liabilities to the borrowers. 
A) recognized as legally enforceable only in some states. 
B) not subject to federal taxation. 
C) assets to the borrowers. 
D) liabilities to the borrowers.

Question 17

Which of the following is NOT a financial intermediary?

Accepted Answer

A) Mutual fund 
B) Bank 
C) Stock exchange 
D) Insurance company 
A) Mutual fund 
B) Bank 
C) Stock exchange 
D) Insurance company

Question 18

Small savers prefer to use financial intermediaries rather than make loans to borrowers directly because

Accepted Answer

A) savers prefer to share risk. 
B) financial intermediaries offer higher interest rates than could be obtained directly from borrowers. 
C) savers reduce their tax liability by doing so. 
D) borrowers dislike dealing with small savers. 
A) savers prefer to share risk. 
B) financial intermediaries offer higher interest rates than could be obtained directly from borrowers. 
C) savers reduce their tax liability by doing so. 
D) borrowers dislike dealing with small savers.

Question 19

The maturity of a debt instrument refers to

Accepted Answer

A) its interest rate, expressed as a percentage of its principal. 
B) its interest rate, expressed as an absolute amount. 
C) the length of time until it expires. 
D) the length of time until the first interest payment on it is due. 
A) its interest rate, expressed as a percentage of its principal. 
B) its interest rate, expressed as an absolute amount. 
C) the length of time until it expires. 
D) the length of time until the first interest payment on it is due.

Question 20

Liquidity

Accepted Answer

A) is the best available measure of the riskiness of an asset. 
B) is a characteristic of money, and of no other asset. 
C) is the ease with which an asset can be exchanged for money. 
D) was declining for many financial assets during the 1990s. 
A) is the best available measure of the riskiness of an asset. 
B) is a characteristic of money, and of no other asset. 
C) is the ease with which an asset can be exchanged for money. 
D) was declining for many financial assets during the 1990s.

Exam 3: Overview of the Financial System

Financial integration refers to

Which of the following represents the most diversification for someone who currently owns share of stock in Intel?

Borrowers generally demand funds through the financial system in order to

When a borrower issues a debt instrument to a lender,

The Securities and Exchange Commission was founded in

When assessing the effects of regulation of the financial system, we can say that regulation

In the early nineteenth century in the United States,

Savers who take advantage of the service of transfer risk offered by the financial system

Money markets

Which of the following is NOT true of over-the-counter markets?

The periodic payments received by owners of equity are referred to as

The amount that a borrower borrows is referred to as the

The financial system performs the role of communicating information by

The financial system provides risk sharing by allowing

In comparing money market and capital market instruments, money market instruments are typically

Promises given by borrowers to lenders are

Which of the following is NOT a financial intermediary?

Small savers prefer to use financial intermediaries rather than make loans to borrowers directly because

The maturity of a debt instrument refers to

Liquidity

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