Question 1

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.

Accepted Answer

A) adverse selection;moral hazard 
B) adverse selection;risk sharing 
C) moral hazard;transactions costs 
D) adverse selection;economies of scale 
A) adverse selection;moral hazard 
B) adverse selection;risk sharing 
C) moral hazard;transactions costs 
D) adverse selection;economies of scale

Question 2

Asymmetric information is a universal problem. This would suggest that financial regulations

Accepted Answer

A) in industrial countries are an unqualified failure. 
B) differ significantly around the world. 
C) in industrialized nations are similar. 
D) are unnecessary. 
A) in industrial countries are an unqualified failure. 
B) differ significantly around the world. 
C) in industrialized nations are similar. 
D) are unnecessary.

Question 3

Which of the following are investment intermediaries?

Accepted Answer

A) life insurance companies 
B) mutual funds 
C) pension funds 
D) state and local government retirement funds 
A) life insurance companies 
B) mutual funds 
C) pension funds 
D) state and local government retirement funds

Question 4

Equity instruments are traded in the ________ market.

Accepted Answer

A) money 
B) bond 
C) capital 
D) commodities 
A) money 
B) bond 
C) capital 
D) commodities

Question 5

Financial institutions that accept deposits and make loans are called ________ institutions.

Accepted Answer

A) investment 
B) contractual savings 
C) depository 
D) underwriting 
A) investment 
B) contractual savings 
C) depository 
D) underwriting

Question 6

Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders.

Accepted Answer

A) debtors 
B) brokers 
C) residual claimants 
D) underwriters 
A) debtors 
B) brokers 
C) residual claimants 
D) underwriters

Question 7

Which of the following statements about the characteristics of debt and equity is FALSE?

Accepted Answer

A) They can both be long-term financial instruments. 
B) They can both be short-term financial instruments. 
C) They both involve a claim on the issuer's income. 
D) They both enable a corporation to raise funds. 
A) They can both be long-term financial instruments. 
B) They can both be short-term financial instruments. 
C) They both involve a claim on the issuer's income. 
D) They both enable a corporation to raise funds.

Question 8

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds.

Accepted Answer

A) Mutual funds 
B) Investment banks 
C) Finance companies 
D) Credit unions 
A) Mutual funds 
B) Investment banks 
C) Finance companies 
D) Credit unions

Question 9

Risk sharing is profitable for financial institutions due to

Accepted Answer

A) low transactions costs. 
B) asymmetric information. 
C) adverse selection. 
D) moral hazard. 
A) low transactions costs. 
B) asymmetric information. 
C) adverse selection. 
D) moral hazard.

Question 10

________ are short-term loans in which Treasury bills serve as collateral.

Accepted Answer

A) Repurchase agreements 
B) Negotiable certificates of deposit 
C) Federal funds 
D) U)S. government agency securities 
A) Repurchase agreements 
B) Negotiable certificates of deposit 
C) Federal funds 
D) U)S. government agency securities

Question 11

A corporation acquires new funds only when its securities are sold in the

Accepted Answer

A) primary market by an investment bank. 
B) primary market by a stock exchange broker. 
C) secondary market by a securities dealer. 
D) secondary market by a commercial bank. 
A) primary market by an investment bank. 
B) primary market by a stock exchange broker. 
C) secondary market by a securities dealer. 
D) secondary market by a commercial bank.

Question 12

Life insurance companies and fire and casualty insurance companies are both examples of contractual savings institutions. Because fire and casualty insurance companies have a greater possibility of loss of funds if disasters occur,they tend to hold more ________ assets than life insurance companies.

Accepted Answer

A) liquid 
B) real 
C) long-term 
D) consumer loans 
A) liquid 
B) real 
C) long-term 
D) consumer loans

Question 13

An important function of secondary markets is to

Accepted Answer

A) make it easier to sell financial instruments to raise funds. 
B) raise funds for corporations through the sale of securities. 
C) make it easier for governments to raise taxes. 
D) create a market for newly constructed houses. 
A) make it easier to sell financial instruments to raise funds. 
B) raise funds for corporations through the sale of securities. 
C) make it easier for governments to raise taxes. 
D) create a market for newly constructed houses.

Question 14

________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis.

Accepted Answer

A) Investment 
B) Contractual savings 
C) Thrift 
D) Depository 
A) Investment 
B) Contractual savings 
C) Thrift 
D) Depository

Question 15

The purpose of the disclosure requirements of the Securities and Exchange Commission is to

Accepted Answer

A) increase the information available to investors. 
B) prevent bank panics. 
C) improve monetary control. 
D) protect investors against financial losses. 
A) increase the information available to investors. 
B) prevent bank panics. 
C) improve monetary control. 
D) protect investors against financial losses.

Question 16

Securities are ________ for the person who buys them,but are ________ for the individual or firm that issues them.

Accepted Answer

A) assets;liabilities 
B) liabilities;assets 
C) negotiable;nonnegotiable 
D) nonnegotiable;negotiable 
A) assets;liabilities 
B) liabilities;assets 
C) negotiable;nonnegotiable 
D) nonnegotiable;negotiable

Question 17

When I purchase ________,I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

Accepted Answer

A) bonds 
B) bills 
C) notes 
D) stock 
A) bonds 
B) bills 
C) notes 
D) stock

Question 18

A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called

Accepted Answer

A) commercial paper. 
B) a certificate of deposit. 
C) a municipal bond. 
D) federal funds. 
A) commercial paper. 
B) a certificate of deposit. 
C) a municipal bond. 
D) federal funds.

Question 19

Adverse selection is a problem associated with equity and debt contracts arising from

Accepted Answer

A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. 
B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. 
C) the borrower's lack of incentive to seek a loan for highly risky investments. 
D) the borrower's lack of good options for obtaining funds. 
A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. 
B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. 
C) the borrower's lack of incentive to seek a loan for highly risky investments. 
D) the borrower's lack of good options for obtaining funds.

Question 20

Financial intermediaries provide customers with liquidity services. Liquidity services

Accepted Answer

A) make it easier for customers to conduct transactions. 
B) allow customers to have a cup of coffee while waiting in the lobby. 
C) are a result of the asymmetric information problem. 
D) are another term for asset transformation. 
A) make it easier for customers to conduct transactions. 
B) allow customers to have a cup of coffee while waiting in the lobby. 
C) are a result of the asymmetric information problem. 
D) are another term for asset transformation.

Exam 2: An Overview of the Financial System

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.

Asymmetric information is a universal problem. This would suggest that financial regulations

Which of the following are investment intermediaries?

Equity instruments are traded in the ________ market.

Financial institutions that accept deposits and make loans are called ________ institutions.

Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders.

Which of the following statements about the characteristics of debt and equity is FALSE?

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds.

Risk sharing is profitable for financial institutions due to

________ are short-term loans in which Treasury bills serve as collateral.

A corporation acquires new funds only when its securities are sold in the

An important function of secondary markets is to

________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis.

The purpose of the disclosure requirements of the Securities and Exchange Commission is to

Securities are ________ for the person who buys them,but are ________ for the individual or firm that issues them.

When I purchase ________,I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called

Adverse selection is a problem associated with equity and debt contracts arising from

Financial intermediaries provide customers with liquidity services. Liquidity services

Why Study Money, banking, and Financial Markets

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

Filters

Increasing the amount of information available to investors helps to reduce the problems of and in the financial markets.

Securities are for the person who buys them,but are for the individual or firm that issues them.