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

Business investment consists of purchases of plant and equipment and purchases of inventory.

In a recent year the following amounts of money market and capital market instruments - loans and securities - were issued and outstanding in the United States. Based on the discussion in this chapter classify each of the instruments as to whether they usually qualify as (a) a money market instrument or (b) a capital market instrument. If the listed instruments represent all U. S. money and capital market instruments outstanding, what was the total dollar size of the U.S. money market? The total size of the U.S. capital market?

When savings flows fall, living standards rise because people spend more.

The only value of the financial system is that it determines the cost of credit.

At the end of last year the wealth was $48,000, with a return on the accumulated wealth was 2% during this year and $1700 was saved this year. At the end of this year the accumulated wealth is:

The liquidity function of the financial system is designed to protect businesses, consumers and governments against risks to people, property and income.

The financial system is rapidly evolving into a worldwide system, with increasingly intense competition among financial institutions.

Investing in stocks, bonds or other financial instruments is a good idea because:

Which type of market is not part of the circular flow?

The function of the financial system that consists of providing a means of raising funds by converting securities and other assets into cash balances is called the:

Forward markets and futures markets serve the same purpose in principle.

Current savings for business firms are equal to current retained earnings less operating expenses.

Generally a business firm enters the capital market if it experiences a temporary surplus or deficit of funds.

The financial service supplied by the money and capital markets in which financial instruments are created to attract savings for future financial needs is called:

A security evidencing a loan which matures within one year is a money market instrument.

The financial system provides all the following services except:

Arbitrageurs help to maintain consistent prices between financial markets.

_____ risk refers to the risk that you will not receive securities that you have purchased or that you will not receive payment for securities you have sold.

Wealth holdings represent stored purchasing power that will be used in future periods to finance purchases of goods and services and increase society's standard of living.

What concept, device or instrument is described by each of the phrases or sentences listed below? a. On payday, many workers are receiving this negotiable item instead of a traditional paycheck. b. Funds that are transferred electronically from the payor's account to the account of the payee. c. Provides the holder access to cash, the ability to transfer funds and the ability to check balances. d. Transfers information and money in using radio frequencies with no direct contact.