Question 1

Which of the following statements about the characteristics of debt and equity is false?

Accepted Answer

A)  They can both be long-term financial instruments. 
B)  They can both be short-term financial instruments. 
C)  They both involve a claim on the issuer's income. 
D)  They both enable a corporation to raise funds. 
A)  They can both be long-term financial instruments. 
B)  They can both be short-term financial instruments. 
C)  They both involve a claim on the issuer's income. 
D)  They both enable a corporation to raise funds.

Question 2

Asymmetric information is a universal problem. This would suggest that financial regulations

Accepted Answer

A)  in industrial countries are an unqualified failure. 
B)  differ significantly around the world. 
C)  in industrialized nations are similar. 
D)  are unnecessary. 
A)  in industrial countries are an unqualified failure. 
B)  differ significantly around the world. 
C)  in industrialized nations are similar. 
D)  are unnecessary.

Question 3

In the United States, loans from ________ are far ________ important for corporate finance than are securities markets.

Accepted Answer

A)  government agencies; more 
B)  government agencies; less 
C)  financial intermediaries; more 
D)  financial intermediaries; less 
A)  government agencies; more 
B)  government agencies; less 
C)  financial intermediaries; more 
D)  financial intermediaries; less

Question 4

Which of the following do not provide charters?

Accepted Answer

A)  The Office of the Comptroller of the Currency 
B)  The Federal Reserve System 
C)  The National Credit Union Administration 
D)  State banking and insurance commissions 
A)  The Office of the Comptroller of the Currency 
B)  The Federal Reserve System 
C)  The National Credit Union Administration 
D)  State banking and insurance commissions

Question 5

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from

Accepted Answer

A)  owning municipal bonds. 
B)  making real estate loans. 
C)  making personal loans. 
D)  owning common stock. 
A)  owning municipal bonds. 
B)  making real estate loans. 
C)  making personal loans. 
D)  owning common stock.

Question 6

________ work in the secondary markets matching buyers with sellers of securities.

Accepted Answer

A)  Dealers 
B)  Underwriters 
C)  Brokers 
D)  Claimants 
A)  Dealers 
B)  Underwriters 
C)  Brokers 
D)  Claimants

Question 7

Which of the following can be described as direct finance?

Accepted Answer

A)  You take out a mortgage from your local bank. 
B)  You borrow $2500 from a friend. 
C)  You buy shares of common stock in the secondary market. 
D)  You buy shares in a mutual fund. 
A)  You take out a mortgage from your local bank. 
B)  You borrow $2500 from a friend. 
C)  You buy shares of common stock in the secondary market. 
D)  You buy shares in a mutual fund.

Question 8

Money market mutual fund shares function like

Accepted Answer

A)  checking accounts that pay interest. 
B)  bonds. 
C)  stocks. 
D)  currency. 
A)  checking accounts that pay interest. 
B)  bonds. 
C)  stocks. 
D)  currency.

Question 9

Distinguish between a foreign bond and a Eurobond.

Accepted Answer

A foreign bond is sold in a fo

Question 10

If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  free-riding. 
D)  costly state verification. 
A)  moral hazard. 
B)  adverse selection. 
C)  free-riding. 
D)  costly state verification.

Question 11

The principal lender-savers are

Accepted Answer

A)  governments. 
B)  businesses. 
C)  households. 
D)  foreigners. 
A)  governments. 
B)  businesses. 
C)  households. 
D)  foreigners.

Question 12

Describe the two methods of organizing a secondary market.

Accepted Answer

A secondary market can be organized as a

Question 13

If the maturity of a debt instrument is less than one year, the debt is called

Accepted Answer

A)  short-term. 
B)  intermediate-term. 
C)  long-term. 
D)  prima-term. 
A)  short-term. 
B)  intermediate-term. 
C)  long-term. 
D)  prima-term.

Question 14

Prices of money market instruments undergo the least price fluctuations because of

Accepted Answer

A)  the short terms to maturity for the securities. 
B)  the heavy regulations in the industry. 
C)  the price ceiling imposed by government regulators. 
D)  the lack of competition in the market. 
A)  the short terms to maturity for the securities. 
B)  the heavy regulations in the industry. 
C)  the price ceiling imposed by government regulators. 
D)  the lack of competition in the market.

Question 15

A corporation acquires new funds only when its securities are sold in the

Accepted Answer

A)  primary market by an investment bank. 
B)  primary market by a stock exchange broker. 
C)  secondary market by a securities dealer. 
D)  secondary market by a commercial bank. 
A)  primary market by an investment bank. 
B)  primary market by a stock exchange broker. 
C)  secondary market by a securities dealer. 
D)  secondary market by a commercial bank.

Question 16

The primary assets of money market mutual funds are

Accepted Answer

A)  stocks. 
B)  bonds. 
C)  money market instruments. 
D)  deposits. 
A)  stocks. 
B)  bonds. 
C)  money market instruments. 
D)  deposits.

Question 17

A liquid asset is

Accepted Answer

A)  an asset that can easily and quickly be sold to raise cash. 
B)  a share of an ocean resort. 
C)  difficult to resell. 
D)  always sold in an over-the-counter market. 
A)  an asset that can easily and quickly be sold to raise cash. 
B)  a share of an ocean resort. 
C)  difficult to resell. 
D)  always sold in an over-the-counter market.

Question 18

Equity and debt instruments with maturities greater than one year are called ________ market instruments.

Accepted Answer

A)  capital 
B)  money 
C)  federal 
D)  benchmark 
A)  capital 
B)  money 
C)  federal 
D)  benchmark

Question 19

A restriction on bank activities that was repealed in 1999 was

Accepted Answer

A)  the prohibition of the payment of interest on checking deposits. 
B)  restrictions on credit terms. 
C)  minimum down payments on loans to purchase securities. 
D)  separation of commercial banking from the securities industries. 
A)  the prohibition of the payment of interest on checking deposits. 
B)  restrictions on credit terms. 
C)  minimum down payments on loans to purchase securities. 
D)  separation of commercial banking from the securities industries.

Question 20

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds.

Accepted Answer

A)  Mutual funds 
B)  Investment banks 
C)  Finance companies 
D)  Credit unions 
A)  Mutual funds 
B)  Investment banks 
C)  Finance companies 
D)  Credit unions

Exam 2: An Overview of the Financial System

Which of the following statements about the characteristics of debt and equity is false?

Asymmetric information is a universal problem. This would suggest that financial regulations

In the United States, loans from ________ are far ________ important for corporate finance than are securities markets.

Which of the following do not provide charters?

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from

________ work in the secondary markets matching buyers with sellers of securities.

Which of the following can be described as direct finance?

Money market mutual fund shares function like

Distinguish between a foreign bond and a Eurobond.

If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of

The principal lender-savers are

Describe the two methods of organizing a secondary market.

If the maturity of a debt instrument is less than one year, the debt is called

Prices of money market instruments undergo the least price fluctuations because of

A corporation acquires new funds only when its securities are sold in the

The primary assets of money market mutual funds are

A liquid asset is

Equity and debt instruments with maturities greater than one year are called ________ market instruments.

A restriction on bank activities that was repealed in 1999 was

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds.

Why Study Money, Banking, and Financial Markets

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Filters

In the United States, loans from are far important for corporate finance than are securities markets.