Question 1

Which of the following statements about the characteristics of debt and equities is true?

Accepted Answer

A)  They can both be long-term financial instruments. 
B)  Bond holders are residual claimants. 
C)  The income from bonds is typically more variable than that from equities. 
D)  Bonds pay dividends. 
A)  They can both be long-term financial instruments. 
B)  Bond holders are residual claimants. 
C)  The income from bonds is typically more variable than that from equities. 
D)  Bonds pay dividends.

Question 2

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

Accepted Answer

A)  A corporation issues new shares of stock. 
B)  People buy shares in a mutual fund. 
C)  A pension fund manager buys a short-term corporate security in the secondary market. 
D)  An insurance company buys shares of common stock in the over-the-counter markets. 
A)  A corporation issues new shares of stock. 
B)  People buy shares in a mutual fund. 
C)  A pension fund manager buys a short-term corporate security in the secondary market. 
D)  An insurance company buys shares of common stock in the over-the-counter markets.

Question 3

The process of asset transformation refers to the conversion of

Accepted Answer

A)  safer assets into risky assets. 
B)  safer assets into safer liabilities. 
C)  risky assets into safer assets. 
D)  risky assets into risky liabilities. 
A)  safer assets into risky assets. 
B)  safer assets into safer liabilities. 
C)  risky assets into safer assets. 
D)  risky assets into risky liabilities.

Question 4

Contractual savings institutions include

Accepted Answer

A)  mutual savings banks. 
B)  money market mutual funds. 
C)  commercial banks. 
D)  life insurance companies. 
A)  mutual savings banks. 
B)  money market mutual funds. 
C)  commercial banks. 
D)  life insurance companies.

Question 5

Collateral is ________ the lender receives if the borrower does not pay back the loan.

Accepted Answer

A)  a liability 
B)  an asset 
C)  a present 
D)  an offering 
A)  a liability 
B)  an asset 
C)  a present 
D)  an offering

Question 6

A breakdown of financial markets can result in

Accepted Answer

A)  financial stability. 
B)  rapid economic growth. 
C)  political instability. 
D)  stable prices. 
A)  financial stability. 
B)  rapid economic growth. 
C)  political instability. 
D)  stable prices.

Question 7

U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity.

Accepted Answer

A)  premium 
B)  collateral 
C)  default 
D)  discount 
A)  premium 
B)  collateral 
C)  default 
D)  discount

Question 8

An example of economies of scale in the provision of financial services is

Accepted Answer

A)  investing in a diversified collection of assets. 
B)  providing depositors with a variety of savings certificates. 
C)  spreading the cost of borrowed funds over many customers. 
D)  spreading the cost of writing a standardized contract over many borrowers. 
A)  investing in a diversified collection of assets. 
B)  providing depositors with a variety of savings certificates. 
C)  spreading the cost of borrowed funds over many customers. 
D)  spreading the cost of writing a standardized contract over many borrowers.

Question 9

Secondary markets make financial instruments more

Accepted Answer

A)  solid. 
B)  vapid. 
C)  liquid. 
D)  risky. 
A)  solid. 
B)  vapid. 
C)  liquid. 
D)  risky.

Question 10

Which of the following are not traded in a capital market?

Accepted Answer

A)  U.S. government agency securities. 
B)  State and local government bonds. 
C)  Repurchase agreements. 
D)  Corporate bonds. 
A)  U.S. government agency securities. 
B)  State and local government bonds. 
C)  Repurchase agreements. 
D)  Corporate bonds.

Question 11

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

Accepted Answer

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

Question 12

An important feature of money market mutual fund shares is

Accepted Answer

A)  deposit insurance. 
B)  the ability to write checks against shareholdings. 
C)  the ability to borrow against shareholdings. 
D)  claims on shares of corporate stock. 
A)  deposit insurance. 
B)  the ability to write checks against shareholdings. 
C)  the ability to borrow against shareholdings. 
D)  claims on shares of corporate stock.

Question 13

Equity of U.S. companies can be purchased by

Accepted Answer

A)  U.S. citizens only. 
B)  foreign citizens only. 
C)  U.S. citizens and foreign citizens. 
D)  U.S. mutual funds only. 
A)  U.S. citizens only. 
B)  foreign citizens only. 
C)  U.S. citizens and foreign citizens. 
D)  U.S. mutual funds only.

Question 14

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

Accepted Answer

A)  A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. 
B)  A debt instrument is intermediate term if its maturity is less than one year. 
C)  A debt instrument is intermediate term if its maturity is ten years or longer. 
D)  The maturity of a debt instrument is the number of years (term) to that instrument's expiration date. 
A)  A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. 
B)  A debt instrument is intermediate term if its maturity is less than one year. 
C)  A debt instrument is intermediate term if its maturity is ten years or longer. 
D)  The maturity of a debt instrument is the number of years (term) to that instrument's expiration date.

Question 15

A financial market in which previously issued securities can be resold is called a ________ market.

Accepted Answer

A)  primary 
B)  secondary 
C)  tertiary 
D)  used securities 
A)  primary 
B)  secondary 
C)  tertiary 
D)  used securities

Question 16

How do regulators help to ensure the soundness of financial intermediaries?

Accepted Answer

Regulators restrict who can se

Question 17

The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________.

Accepted Answer

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

Question 18

Which of the following is a depository institution?

Accepted Answer

A)  A life insurance company 
B)  A credit union 
C)  A pension fund 
D)  A mutual fund 
A)  A life insurance company 
B)  A credit union 
C)  A pension fund 
D)  A mutual fund

Question 19

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

Accepted Answer

A)  U.S. Government agency securities. 
B)  Negotiable bank CDs. 
C)  Repurchase agreements. 
D)  U.S. Treasury bills. 
A)  U.S. Government agency securities. 
B)  Negotiable bank CDs. 
C)  Repurchase agreements. 
D)  U.S. Treasury bills.

Question 20

You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is

Accepted Answer

A)  25%. 
B)  12.5%. 
C)  10%. 
D)  5%. 
A)  25%. 
B)  12.5%. 
C)  10%. 
D)  5%.

Exam 2: An Overview of the Financial System

Which of the following statements about the characteristics of debt and equities is true?

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

The process of asset transformation refers to the conversion of

Contractual savings institutions include

Collateral is ________ the lender receives if the borrower does not pay back the loan.

A breakdown of financial markets can result in

U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity.

An example of economies of scale in the provision of financial services is

Secondary markets make financial instruments more

Which of the following are not traded in a capital market?

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

An important feature of money market mutual fund shares is

Equity of U.S. companies can be purchased by

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

A financial market in which previously issued securities can be resold is called a ________ market.

How do regulators help to ensure the soundness of financial intermediaries?

The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________.

Which of the following is a depository institution?

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

You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is

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

The problem created by asymmetric information before the transaction occurs is called , while the problem created after the transaction occurs is called .