Exam 2: An Overview of the Financial System

Corporations receive funds when their stock is sold in the primary market. Why do corporations pay attention to what is happening to their stock in the secondary market?

An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called

Which of the following is not a goal of financial regulation?

When an investment bank ________ securities, it guarantees a price for a corporation's securities and then sells them to the public.

U.S. Treasury bills are considered the safest of all money market instruments because there is almost no risk of

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.

Which of the following is not a secondary market?

Banks can lower the cost of information production by applying one information resource to many different services. This process is called

Risk sharing is profitable for financial institutions due to

Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is

The primary assets of credit unions are

Which of the following instruments are traded in a capital market?

The concept of diversification is captured by the statement

Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems.

The primary liabilities of a commercial bank are

Which of the following can be described as involving indirect finance?

Which of the following instruments is not traded in a money market?

Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as

The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.

A short-term debt instrument issued by well-known corporations is called