Question 1

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 2

Which of the following instruments are traded in a capital market?

Accepted Answer

A) U.S.Government agency securities 
B) negotiable bank CDs 
C) repurchase agreements 
D) U.S.Treasury bills 
A) U.S.Government agency securities 
B) negotiable bank CDs 
C) repurchase agreements 
D) U.S.Treasury bills

Question 3

An investment bank helps ________ issue securities.

Accepted Answer

A) a corporation 
B) the United States government 
C) the SEC 
D) foreign governments 
A) a corporation 
B) the United States government 
C) the SEC 
D) foreign governments

Question 4

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 5

Contractual savings institutions include

Accepted Answer

A) mutual savings banks. 
B) money market mutual funds. 
C) commercial banks. 
D) life insurance companies. 
A) mutual savings banks. 
B) money market mutual funds. 
C) commercial banks. 
D) life insurance companies.

Question 6

Mortgage-backed securities are similar to ________ but the interest and principal payments are backed by the individual mortgages within the security.

Accepted Answer

A) bonds 
B) stock 
C) repurchase agreements 
D) negotiable CDs 
A) bonds 
B) stock 
C) repurchase agreements 
D) negotiable CDs

Question 7

A restriction on bank activities that was repealed in 1999 was

Accepted Answer

A) the prohibition of the payment of interest on checking deposits. 
B) restrictions on credit terms. 
C) minimum down payments on loans to purchase securities. 
D) separation of commercial banking from the securities industries. 
A) the prohibition of the payment of interest on checking deposits. 
B) restrictions on credit terms. 
C) minimum down payments on loans to purchase securities. 
D) separation of commercial banking from the securities industries.

Question 8

Assume that you borrow $2000 at 10% annual interest to finance a new business project.For this loan to be profitable,the minimum amount this project must generate in annual earnings is

Accepted Answer

A) $400. 
B) $201. 
C) $200. 
D) $199. 
A) $400. 
B) $201. 
C) $200. 
D) $199.

Question 9

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 10

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 11

Because these securities are more liquid and generally have smaller price fluctuations,corporations and banks use the ________ securities to earn interest on temporary surplus funds.

Accepted Answer

A) money market 
B) capital market 
C) bond market 
D) stock market 
A) money market 
B) capital market 
C) bond market 
D) stock market

Question 12

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 13

Which of the following is an example of an intermediate-term debt?

Accepted Answer

A) a fifteen-year mortgage 
B) a sixty-month car loan 
C) a six-month loan from a finance company 
D) a thirty-year U.S.Treasury bond 
A) a fifteen-year mortgage 
B) a sixty-month car loan 
C) a six-month loan from a finance company 
D) a thirty-year U.S.Treasury bond

Question 14

Long-term debt has a maturity that is

Accepted Answer

A) between one and ten years. 
B) less than a year. 
C) between five and ten years. 
D) ten years or longer. 
A) between one and ten years. 
B) less than a year. 
C) between five and ten years. 
D) ten years or longer.

Question 15

Which of the following is NOT a goal of financial regulation?

Accepted Answer

A) ensuring the soundness of the financial system 
B) reducing moral hazard 
C) reducing adverse selection 
D) ensuring that investors never suffer losses 
A) ensuring the soundness of the financial system 
B) reducing moral hazard 
C) reducing adverse selection 
D) ensuring that investors never suffer losses

Question 16

The primary liabilities of depository institutions are

Accepted Answer

A) premiums from policies. 
B) shares. 
C) deposits. 
D) bonds. 
A) premiums from policies. 
B) shares. 
C) deposits. 
D) bonds.

Question 17

Describe the two methods of organizing a secondary market.

Accepted Answer

A secondary market can be organized as a

Question 18

Reducing risk through the purchase of assets whose returns do not always move together is

Accepted Answer

A) diversification. 
B) intermediation. 
C) intervention. 
D) discounting. 
A) diversification. 
B) intermediation. 
C) intervention. 
D) discounting.

Question 19

Which of the following can be described as direct finance?

Accepted Answer

A) You take out a mortgage from your local bank. 
B) You borrow $2500 from a friend. 
C) You buy shares of common stock in the secondary market. 
D) You buy shares in a mutual fund. 
A) You take out a mortgage from your local bank. 
B) You borrow $2500 from a friend. 
C) You buy shares of common stock in the secondary market. 
D) You buy shares in a mutual fund.

Question 20

Which of the following benefits directly from any increase in the corporation's profitability?

Accepted Answer

A) a bond holder 
B) a commercial paper holder 
C) a shareholder 
D) a T-bill holder 
A) a bond holder 
B) a commercial paper holder 
C) a shareholder 
D) a T-bill holder

Exam 2: An Overview of the Financial System

Risk sharing is profitable for financial institutions due to

Which of the following instruments are traded in a capital market?

An investment bank helps ________ issue securities.

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

Contractual savings institutions include

Mortgage-backed securities are similar to ________ but the interest and principal payments are backed by the individual mortgages within the security.

A restriction on bank activities that was repealed in 1999 was

Assume that you borrow $2000 at 10% annual interest to finance a new business project.For this loan to be profitable,the minimum amount this project must generate in annual earnings is

Which of the following are investment intermediaries?

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

Because these securities are more liquid and generally have smaller price fluctuations,corporations and banks use the ________ securities to earn interest on temporary surplus funds.

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 is an example of an intermediate-term debt?

Long-term debt has a maturity that is

Which of the following is NOT a goal of financial regulation?

The primary liabilities of depository institutions are

Describe the two methods of organizing a secondary market.

Reducing risk through the purchase of assets whose returns do not always move together is

Which of the following can be described as direct finance?

Which of the following benefits directly from any increase in the corporation's profitability?

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

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

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