Question 1

Government regulations to reduce the possibility of financial panic include all of the following except

Accepted Answer

A)  transactions costs. 
B)  restrictions on assets and activities. 
C)  disclosure. 
D)  deposit insurance. 
A)  transactions costs. 
B)  restrictions on assets and activities. 
C)  disclosure. 
D)  deposit insurance.

Question 2

An important financial institution that assists in the initial sale of securities in the primary market is the

Accepted Answer

A)  investment bank. 
B)  commercial bank. 
C)  stock exchange. 
D)  brokerage house. 
A)  investment bank. 
B)  commercial bank. 
C)  stock exchange. 
D)  brokerage house.

Question 3

The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as

Accepted Answer

A)  risk sharing. 
B)  risk aversion. 
C)  risk neutrality. 
D)  risk selling. 
A)  risk sharing. 
B)  risk aversion. 
C)  risk neutrality. 
D)  risk selling.

Question 4

Savings and loan associations are regulated by the

Accepted Answer

A)  Federal Reserve System. 
B)  Securities and Exchange Commission. 
C)  Office of the Comptroller of the Currency. 
D)  Office of Thrift Supervision. 
A)  Federal Reserve System. 
B)  Securities and Exchange Commission. 
C)  Office of the Comptroller of the Currency. 
D)  Office of Thrift Supervision.

Question 5

Financial markets improve economic welfare because

Accepted Answer

A)  they channel funds from investors to savers. 
B)  they allow consumers to time their purchase better. 
C)  they weed out inefficient firms. 
D)  eliminate the need for indirect finance. 
A)  they channel funds from investors to savers. 
B)  they allow consumers to time their purchase better. 
C)  they weed out inefficient firms. 
D)  eliminate the need for indirect finance.

Question 6

Long-term debt has a maturity that is

Accepted Answer

A)  between one and ten years. 
B)  less than a year. 
C)  between five and ten years. 
D)  ten years or longer. 
A)  between one and ten years. 
B)  less than a year. 
C)  between five and ten years. 
D)  ten years or longer.

Question 7

Which of the following are investment intermediaries?

Accepted Answer

A)  Life insurance companies 
B)  Mutual funds 
C)  Pension funds 
D)  State and local government retirement funds 
A)  Life insurance companies 
B)  Mutual funds 
C)  Pension funds 
D)  State and local government retirement funds

Question 8

With direct finance, funds are channeled through the financial market from the ________ directly to the ________.

Accepted Answer

A)  savers, spenders 
B)  spenders, investors 
C)  borrowers, savers 
D)  investors, savers 
A)  savers, spenders 
B)  spenders, investors 
C)  borrowers, savers 
D)  investors, savers

Question 9

Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the ________ securities to earn interest on temporary surplus funds.

Accepted Answer

A)  money market 
B)  capital market 
C)  bond market 
D)  stock market 
A)  money market 
B)  capital market 
C)  bond market 
D)  stock market

Question 10

Which of the following statements about financial markets and securities is true?

Accepted Answer

A)  Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. 
B)  As a corporation gets a share of the broker's commission, a corporation acquires new funds whenever its securities are sold. 
C)  Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. 
D)  Because of their short-terms to maturity, the prices of money market instruments tend to fluctuate wildly. 
A)  Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. 
B)  As a corporation gets a share of the broker's commission, a corporation acquires new funds whenever its securities are sold. 
C)  Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. 
D)  Because of their short-terms to maturity, the prices of money market instruments tend to fluctuate wildly.

Question 11

Well-functioning financial markets

Accepted Answer

A)  cause inflation. 
B)  eliminate the need for indirect finance. 
C)  cause financial crises. 
D)  produce an efficient allocation of capital. 
A)  cause inflation. 
B)  eliminate the need for indirect finance. 
C)  cause financial crises. 
D)  produce an efficient allocation of capital.

Question 12

An investment bank helps ________ issue securities.

Accepted Answer

A)  a corporation 
B)  the United States government 
C)  the SEC 
D)  foreign governments 
A)  a corporation 
B)  the United States government 
C)  the SEC 
D)  foreign governments

Question 13

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

Accepted Answer

A)  Federal Reserve System. 
B)  Federal Deposit Insurance Corporation. 
C)  Treasury Department. 
D)  Office of the Comptroller of the Currency. 
A)  Federal Reserve System. 
B)  Federal Deposit Insurance Corporation. 
C)  Treasury Department. 
D)  Office of the Comptroller of the Currency.

Question 14

An investment intermediary that lends funds to consumers is

Accepted Answer

A)  a finance company. 
B)  an investment bank. 
C)  a finance fund. 
D)  a consumer company. 
A)  a finance company. 
B)  an investment bank. 
C)  a finance fund. 
D)  a consumer company.

Question 15

U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called

Accepted Answer

A)  Atlantic dollars. 
B)  Eurodollars. 
C)  foreign dollars. 
D)  outside dollars. 
A)  Atlantic dollars. 
B)  Eurodollars. 
C)  foreign dollars. 
D)  outside dollars.

Question 16

The primary assets of a pension fund are

Accepted Answer

A)  money market instruments. 
B)  corporate bonds and stock. 
C)  consumer and business loans. 
D)  mortgages. 
A)  money market instruments. 
B)  corporate bonds and stock. 
C)  consumer and business loans. 
D)  mortgages.

Question 17

Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called

Accepted Answer

A)  moral selection. 
B)  risk sharing. 
C)  asymmetric information. 
D)  adverse hazard 
A)  moral selection. 
B)  risk sharing. 
C)  asymmetric information. 
D)  adverse hazard

Question 18

Financial markets have the basic function of

Accepted Answer

A)  getting people with funds to lend together with people who want to borrow funds. 
B)  assuring that the swings in the business cycle are less pronounced. 
C)  assuring that governments need never resort to printing money. 
D)  providing a risk-free repository of spending power. 
A)  getting people with funds to lend together with people who want to borrow funds. 
B)  assuring that the swings in the business cycle are less pronounced. 
C)  assuring that governments need never resort to printing money. 
D)  providing a risk-free repository of spending power.

Question 19

Bonds issued by state and local governments are called ________ bonds.

Accepted Answer

A)  corporate 
B)  Treasury 
C)  municipal 
D)  commercial 
A)  corporate 
B)  Treasury 
C)  municipal 
D)  commercial

Question 20

The most liquid securities traded in the capital market are

Accepted Answer

A)  corporate bonds. 
B)  municipal bonds. 
C)  U.S. Treasury bonds. 
D)  mortgage-backed securities. 
A)  corporate bonds. 
B)  municipal bonds. 
C)  U.S. Treasury bonds. 
D)  mortgage-backed securities.

Exam 2: An Overview of the Financial System

Government regulations to reduce the possibility of financial panic include all of the following except

An important financial institution that assists in the initial sale of securities in the primary market is the

The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as

Savings and loan associations are regulated by the

Financial markets improve economic welfare because

Long-term debt has a maturity that is

Which of the following are investment intermediaries?

With direct finance, funds are channeled through the financial market from the ________ directly to the ________.

Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the ________ securities to earn interest on temporary surplus funds.

Which of the following statements about financial markets and securities is true?

Well-functioning financial markets

An investment bank helps ________ issue securities.

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

An investment intermediary that lends funds to consumers is

U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called

The primary assets of a pension fund are

Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called

Financial markets have the basic function of

Bonds issued by state and local governments are called ________ bonds.

The most liquid securities traded in the capital market are

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

With direct finance, funds are channeled through the financial market from the directly to the .