Question 1

Depository institutions seek to generate income by:

Accepted Answer

A)  The difference between the return that they earn on assets and the cost of their funds. 
B)  Selling money for more than it costs to buy money. 
C)  The bid-ask spread. 
D)  a and b only. 
E)  None of the above. 
A)  The difference between the return that they earn on assets and the cost of their funds. 
B)  Selling money for more than it costs to buy money. 
C)  The bid-ask spread. 
D)  a and b only. 
E)  None of the above. D

Question 2

A perfectly competitive market is characterized by:

Accepted Answer

A)  Governmental regulation. 
B)  Efficiency. 
C)  Low-cost production. 
D)  b and c only. 
E)  All of the above. 
A)  Governmental regulation. 
B)  Efficiency. 
C)  Low-cost production. 
D)  b and c only. 
E)  All of the above. D

Question 3

Investors who place their funds in an investment company, which in turn invests the funds received in the stock of a large number of companies benefit from:

Accepted Answer

A)  Diversification. 
B)  Reduced risk. 
C)  Lower cost. 
D)  All of the above. 
E)  a and b only. 
A)  Diversification. 
B)  Reduced risk. 
C)  Lower cost. 
D)  All of the above. 
E)  a and b only. D

Question 4

The ultimate causes of financial innovations include:

Accepted Answer

A)  Increased volatility of interest rates, inflation, equity prices, and exchange rates. 
B)  Advances in computer and telecommunication technologies. 
C)  Financial intermediary competition. 
D)  Changing global patterns of financial wealth. 
E)  All of the above. 
A)  Increased volatility of interest rates, inflation, equity prices, and exchange rates. 
B)  Advances in computer and telecommunication technologies. 
C)  Financial intermediary competition. 
D)  Changing global patterns of financial wealth. 
E)  All of the above.

Question 5

A fixed-rate deposit represents what type of liability to a financial institution?

Accepted Answer

A)  Type I liability. 
B)  Type II liability. 
C)  Type III liability. 
D)  Type IV liability. 
E)  None of the above. 
A)  Type I liability. 
B)  Type II liability. 
C)  Type III liability. 
D)  Type IV liability. 
E)  None of the above.

Question 6

Which of the following is true concerning a Type-II liability?

Accepted Answer

A)  Amount and timing of cash outlay are known. 
B)  Amount and timing of cash outlay are unknown. 
C)  Amount of cash outlay is known while timing of cash outlay is unknown. 
D)  Amount of cash outlay is unknown while timing of cash outlay is known. 
E)  None of the above. 
A)  Amount and timing of cash outlay are known. 
B)  Amount and timing of cash outlay are unknown. 
C)  Amount of cash outlay is known while timing of cash outlay is unknown. 
D)  Amount of cash outlay is unknown while timing of cash outlay is known. 
E)  None of the above.

Question 7

Depository institutions acquire the bulk of their funds by offering their liabilities to the public in the form of deposits. The depository institutions are:

Accepted Answer

A)  Commercial banks. 
B)  Savings and loan associations. 
C)  Savings banks. 
D)  Credit unions. 
E)  All of the above. 
A)  Commercial banks. 
B)  Savings and loan associations. 
C)  Savings banks. 
D)  Credit unions. 
E)  All of the above.

Question 8

Financial institutions provide which of the following services:

Accepted Answer

A)  Exchanging financial assets on behalf of customers. 
B)  Providing investment advice. 
C)  Managing portfolios 
D)  Assisting in the creation of financial assets. 
E)  All of the above. 
A)  Exchanging financial assets on behalf of customers. 
B)  Providing investment advice. 
C)  Managing portfolios 
D)  Assisting in the creation of financial assets. 
E)  All of the above.

Question 9

Which of the following transactions is an example of direct investment?

Accepted Answer

A)  An investment company buys a portfolio of stocks and bonds. 
B)  An individual makes a deposit at a commercial bank. 
C)  Owning an equity claim against an investment company. 
D)  a and b only. 
E)  All of the above. 
A)  An investment company buys a portfolio of stocks and bonds. 
B)  An individual makes a deposit at a commercial bank. 
C)  Owning an equity claim against an investment company. 
D)  a and b only. 
E)  All of the above.

Question 10

Financial intermediaries transfer financial assets that are less desirable into other financial assets, which are more widely preferred by the public. This transformation involves which of the following economic functions?

Accepted Answer

A)  Providing maturity intermediation. 
B)  Risk reduction via diversification. 
C)  Reducing the costs of contracting and information processing. 
D)  Providing a payments mechanism. 
E)  All of the above. 
A)  Providing maturity intermediation. 
B)  Risk reduction via diversification. 
C)  Reducing the costs of contracting and information processing. 
D)  Providing a payments mechanism. 
E)  All of the above.

Question 11

The investments made by financial intermediaries in loans and/or securities are referred to as direct investment.

Accepted Answer

A) True 
 B)False

Question 12

Explain how financial intermediaries provide at least one of four economic functions.

Accepted Answer

a. Maturity intermediation.
b.

Question 13

Maturity intermediation has implications for financial markets in that:

Accepted Answer

A)  Investors have more choices concerning the maturity of their investments. 
B)  Borrowers have more choices for the length of their debt obligations. 
C)  Investors will require that long-term borrowers pay a higher interest rate than on short-term borrowing. 
D)  a and c only. 
E)  All of the above. 
A)  Investors have more choices concerning the maturity of their investments. 
B)  Borrowers have more choices for the length of their debt obligations. 
C)  Investors will require that long-term borrowers pay a higher interest rate than on short-term borrowing. 
D)  a and c only. 
E)  All of the above.

Question 14

The Securities Act of 193 and the Securities of Exchange Act of 1934 led to the creation of the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 15

As a result of the amount of funds managed by financial intermediaries, there are economies of scale in contracting and processing information about financial assets.

Accepted Answer

A) True 
 B)False

Question 16

"Market failure" is cited by economists as a reason for:

Accepted Answer

A)  Increased globalization. 
B)  Regulation. 
C)  Competition. 
D)  Competitive markets. 
E)  None of the above. 
A)  Increased globalization. 
B)  Regulation. 
C)  Competition. 
D)  Competitive markets. 
E)  None of the above.

Question 17

When financial institutions' activities are restricted in the areas of lending, borrowing, and funding, the regulation is referred to as:

Accepted Answer

A)  Financial activity regulation. 
B)  Disclosure regulation. 
C)  Regulation of financial institutions. 
D)  Regulation of foreign participants. 
E)  None of the above. 
A)  Financial activity regulation. 
B)  Disclosure regulation. 
C)  Regulation of financial institutions. 
D)  Regulation of foreign participants. 
E)  None of the above.

Question 18

One of the results of the financial innovations, which have occurred since the 1960, has been the introduction of market-broadening instruments, which increase the liquidity of markets and the availability of funds by:

Accepted Answer

A)  Attracting new investors. 
B)  Offering new opportunities for borrowers. 
C)  Reallocating financial risk to those less adverse to them. 
D)  a anb b only. 
E)  All of the above. 
A)  Attracting new investors. 
B)  Offering new opportunities for borrowers. 
C)  Reallocating financial risk to those less adverse to them. 
D)  a anb b only. 
E)  All of the above.

Question 19

With a debit card,

Accepted Answer

A)  A bill is sent to the debit cardholder periodically requesting payment for transactions that have been made in the past. 
B)  Funds are immediately withdrawn from the purchaser's account at the time the transaction takes place. 
C)  Funds are withdrawn periodically (usually once a month) for transactions made by the cardholder during the previous month. 
D)  All of the above. 
E)  None of the above. 
A)  A bill is sent to the debit cardholder periodically requesting payment for transactions that have been made in the past. 
B)  Funds are immediately withdrawn from the purchaser's account at the time the transaction takes place. 
C)  Funds are withdrawn periodically (usually once a month) for transactions made by the cardholder during the previous month. 
D)  All of the above. 
E)  None of the above.

Question 20

Government regulation of financial markets takes which of the following forms?

Accepted Answer

A)  Disclosure regulation. 
B)  Financial activity regulation. 
C)  Regulation of financial institutions. 
D)  Regulation of foreign participants. 
E)  All of the above. 
A)  Disclosure regulation. 
B)  Financial activity regulation. 
C)  Regulation of financial institutions. 
D)  Regulation of foreign participants. 
E)  All of the above.

Exam 2: Overview of Market Participants and Financial Innovation

Depository institutions seek to generate income by:

A perfectly competitive market is characterized by:

Investors who place their funds in an investment company, which in turn invests the funds received in the stock of a large number of companies benefit from:

The ultimate causes of financial innovations include:

A fixed-rate deposit represents what type of liability to a financial institution?

Which of the following is true concerning a Type-II liability?

Depository institutions acquire the bulk of their funds by offering their liabilities to the public in the form of deposits. The depository institutions are:

Financial institutions provide which of the following services:

Which of the following transactions is an example of direct investment?

Financial intermediaries transfer financial assets that are less desirable into other financial assets, which are more widely preferred by the public. This transformation involves which of the following economic functions?

The investments made by financial intermediaries in loans and/or securities are referred to as direct investment.

Explain how financial intermediaries provide at least one of four economic functions.

Maturity intermediation has implications for financial markets in that:

The Securities Act of 193 and the Securities of Exchange Act of 1934 led to the creation of the Federal Reserve.

As a result of the amount of funds managed by financial intermediaries, there are economies of scale in contracting and processing information about financial assets.

"Market failure" is cited by economists as a reason for:

When financial institutions' activities are restricted in the areas of lending, borrowing, and funding, the regulation is referred to as:

One of the results of the financial innovations, which have occurred since the 1960, has been the introduction of market-broadening instruments, which increase the liquidity of markets and the availability of funds by:

With a debit card,

Government regulation of financial markets takes which of the following forms?

Introduction

Depository Institutions

Insurance Companies

Asset Management Firms

Investment Banking Firms

Primary and Secondary Markets

Risk and Return Theories: I

Risk and Return Theories: II

Introduction to Financial Futures Markets

Introduction to Options Markets

Introduction to the Swaps, Caps, and Floors Markets

Common Stock Market: I

Common Stock Market: II

Stock Options Market

The Market for Stock Index Products and Other Equity Derivatives

The Theory and Structure of Interest Rates

Valuation of Debt Contracts and Their Price Volatility Characteristics

The Term Structure of Interest Rates

Money Markets

Treasury and Agency Securities Markets

Corporate Senior Instruments Markets: I

Corporate Senior Instruments Markets: II

Municipal Securities Markets

The Residential Mortgage Market

The Market for Residential Mortgage-Backed Securities

Market for Asset-Backed Securities

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

International Bond Markets

International Bond Markets

Market for Interest Rate Risk Transfer Vehicles: OTC Instruments

The Market for Foreign Exchange and Risk Control Instruments

Filters