Exam 1: Understanding the Financial System and Its Impact on the Economy and Markets

The ______ is designed for the making of short-term loans where individuals and institutions with temporary surpluses of funds meet borrowers who have temporary cash shortages.

The construction of office buildings, highways, schools and homes normally is financed by loans from the capital market.

One of the most important functions of the capital market is to finance the working-capital needs of corporations and to provide government with short-term funds in lieu of tax collections.

The financial services area where payments accounts against which the customer can write checks or wire funds to pay for purchases of goods and services is known as thrift services.

According to the text, several different financial assets and instruments have served as a medium of exchange or means of making payments in recent years. Which instrument listed below is not considered a means of making payments or a medium of exchange?

The most significant barriers to 24-hour worldwide trading of securities include:

To gain access to the money market an institution must:

The payments function of the financial system is designed to provide a means to store purchasing power until needed at a future date for spending on goods and services.

The primary task of a financial system is to move scarce loanable funds from those who save to those who borrow to buy goods and services and to make investments in new equipment and facilities so that the global economy can grow and increase the standard of living enjoyed by its citizens.

In early 2009, more than $67 trillion in securities, deposits and other financial assets were held by domestic nonfinancial businesses, households and governments in the United States and represents their financial wealth. After subtracting the total debt owed by these groups, it leaves us with the net financial wealth of:

What functions of the financial system do the following transactions illustrate or represent? (Note: Some transactions may involve more than one function. Be sure to identify all the financial system functions involved in each transaction.) a. Dynamic Corporation places some of its current earnings in a bank CD, anticipating a need for funds in about a year in order to build a new warehouse. b. The Italian government sells new bonds in the open market to cover a large budget deficit. c. Cal and Jane Lewis hope to put their three young children through college someday. Accordingly, they begin buying U.S. savings bonds. d. Needing immediate spending power, Hillcrest Corporation sells its holdings of Denton County bonds through a security broker.

Spending by federal, state and local governments for public facilities is a form of government savings.

The markets that serve the financial system may be classified in several different ways, including:

The largest market in the world for a single security is:

The financial markets that provide for the immediate delivery of securities are known as:

Wealth created income results in:

The U.S. savings rate was one of the lowest among major industrial nations prior to the great credit crisis of 2007-09 because of the:

Personal savings are after-tax funds that are not consumed during the year.

Current savings for a household is measured by:

Arbitrageurs help to insure differentials between financial markets.