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

The circular flow occurs between governments and households.

Most loans to families and individuals would be classified as money market instruments.

The financial system determines:

The largest borrower in the U.S. money market is Citibank, the nation's largest commercial bank.

The purchase of a new home is a form of business investment.

One of the financial markets listed below is not part of the money market. Which one is not?

If there is imperfect information in a market, it is perfectly competitive.

What roles of the global system of financial markets and institutions are being described in the items listed below? a. Deutsche Bank develops and offers to its customers a new savings plan that combines traditional bank deposits with the availability of shares in a growth-oriented mutual fund. b. Randy Bose plans to retire in 18 months but elects to loan a portion of his long-term savings to his son Robert who is starting a new business and has recently married. c. The Greater Asia Insurance Corporation has managed to attract $100 million in annuity investments from savers over the past six months and plans to make a loan to Eastman Hotel Corporation, which is beginning construction on a series of luxury resorts in Honolulu and Singapore.

Most loans to families and individuals would be classified as capital market instruments.

The net wealth of an economic unit is determined by adding all the unit's assets to it net worth or equity capital.

The tax status of interest paid on debt causes most individuals to think twice before using credit.

Few companies or governments have the prestige or stature that would cause investors throughout the world to want to trade their particular securities.

The term "financial system" refers to the collection of markets, individuals and institutions, laws, regulations and techniques through which cash is traded and interest rates determined.

If households set aside funds that are not returned to the spending stream the economy will:

Two areas that are major sources of funding for loans are:

For any business, individual or government, wealth is:

What concept, institution or instrument is described by each of the phrases or sentences listed below? a. Trading of loans and securities in which any individual or institution can participate. b. Mechanisms set up by society to trade newly issued loans and securities. c. Set up to channel temporary cash surpluses into temporary loans. d. Immediately spendable cash. e. Assets minus liabilities held by an economic unit.

The market for trading newly issued securities is known as the:

Financial transactions between nations have increased faster in volume than has international trade in goods and nonfinancial services.

Credit represents a loan of funds in return for a promise of future payment.