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

One of the most significant barriers to worldwide trading of securities is the delay in paying for and delivering securities to all parts of the globe.

One way for the economy to expand is for households to set aside savings so that they will not return to the spending stream.

A surplus of current revenues over current expenditures is a measure of current government saving.

According to your text, the nation's standard of living is increased through the mechanism of the financial system by:

The money market is an excellent place for new corporations to borrow money.

Please classify the following financial transactions as to whether they fit in (a) the money market or the capital market; (b) the primary or secondary market; (c) the open or negotiated market; and (d) the spot or futures/forward market. (Note: The transactions below may fit in more than one of the above categories of markets. Be sure to include all the appropriate types of markets that each transaction fits.) a. You visit a local bank today and secure a three-year loan to finance the purchase of a new car and some furniture. b. You purchase a new U.S. Treasury bill through the Federal Reserve bank in a neighboring city for delivery today. c. Responding to a rise in the price of Texaco common stock, you have just purchased 100 shares of that company's stock through a phone call to your broker who is linked to a major stock exchange.

What roles of the global system of financial markets and institutions are being described in the items listed below? a. Exxon Corporation issues new shares of stock to finance its expansion into foreign markets. b. The Williams family withdraws its bank deposit in order to purchase new furniture for their new home. c. Robert Enlow plans to purchase a new home in three years, but in the interim, he makes a loan to a friend who needs ready cash for a down payment on an automobile.

A household which consumes assets or increases debt during the year is a condition sometimes referred to as:

What functions of the financial system of markets and institutions 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. James Rhodes purchases health and accident insurance policies through the company where he works. b. Sharon MacArthur uses her credit card to purchase wallpaper for a home remodeling project. c. Fearing a slowdown in the rate of economic growth and increased joblessness, the Federal Reserve System and the Bank of England move to lower interest rates.

Acting as an agent for a customer in managing retirement funds or other property represents what financial service area?

Net wealth for an economic unit equals:

Lower savings rates in the United States could be due to:

A market in which prices fully reflect the latest available information is an efficient market.

Accumulated savings built up over time is referred to as a flow of funds.

The principal function of the primary market is to raise money for investment in buildings and equipment.

The market for delivery of securities usually within one or two business days is known as:

The term "liquidity" refers to the ability of a financial asset to be converted quickly into cash with little risk of loss.

The financial markets provide a means to protect businesses, consumers and governments against risk.

The most important institution lending funds in the money market is the commercial bank.

A nation with a relatively low savings ratio will tend to have higher interest rates and more rapid inflation.