Question 1

Which of the following can be described as involving indirect finance?

Accepted Answer

A)  You make a loan to your neighbor. 
B)  You buy shares in a mutual fund. 
C)  You buy a U.S. Treasury bill from the U.S. Treasury. 
D)  A corporation buys a short-term security issued by another corporation in the primary market. 
A)  You make a loan to your neighbor. 
B)  You buy shares in a mutual fund. 
C)  You buy a U.S. Treasury bill from the U.S. Treasury. 
D)  A corporation buys a short-term security issued by another corporation in the primary market.

Question 2

With direct finance,funds are channeled through the financial market from the ________ directly to the ________.

Accepted Answer

A)  savers, spenders 
B)  spenders, investors 
C)  borrowers, savers 
D)  investors, savers 
A)  savers, spenders 
B)  spenders, investors 
C)  borrowers, savers 
D)  investors, savers

Question 3

Which of the following can be described as involving indirect finance?

Accepted Answer

A)  You make a loan to your neighbor. 
B)  A corporation buys a share of common stock issued by another corporation in the primary market. 
C)  You buy a U.S. Treasury bill from the U.S. Treasury. 
D)  You make a deposit at a bank. 
A)  You make a loan to your neighbor. 
B)  A corporation buys a share of common stock issued by another corporation in the primary market. 
C)  You buy a U.S. Treasury bill from the U.S. Treasury. 
D)  You make a deposit at a bank.

Question 4

The regulatory agency that sets reserve requirements for all banks is

Accepted Answer

A)  the Federal Reserve System. 
B)  the Federal Deposit Insurance Corporation. 
C)  the Office of Thrift Supervision. 
D)  the Securities and Exchange Commission. 
A)  the Federal Reserve System. 
B)  the Federal Deposit Insurance Corporation. 
C)  the Office of Thrift Supervision. 
D)  the Securities and Exchange Commission.

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

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

Accepted Answer

A)  Corporate bonds 
B)  U.S. Treasury bills 
C)  Negotiable bank CDs 
D)  Repurchase agreements 
A)  Corporate bonds 
B)  U.S. Treasury bills 
C)  Negotiable bank CDs 
D)  Repurchase agreements

Question 7

Which of the following can be described as involving direct finance?

Accepted Answer

A)  A corporation issues new shares of stock. 
B)  People buy shares in a mutual fund. 
C)  A pension fund manager buys a short-term corporate security in the secondary market. 
D)  An insurance company buys shares of common stock in the over-the-counter markets. 
A)  A corporation issues new shares of stock. 
B)  People buy shares in a mutual fund. 
C)  A pension fund manager buys a short-term corporate security in the secondary market. 
D)  An insurance company buys shares of common stock in the over-the-counter markets.

Question 8

Well-functioning financial markets

Accepted Answer

A)  cause inflation. 
B)  eliminate the need for indirect finance. 
C)  cause financial crises. 
D)  produce an efficient allocation of capital. 
A)  cause inflation. 
B)  eliminate the need for indirect finance. 
C)  cause financial crises. 
D)  produce an efficient allocation of capital.

Question 9

Government regulations to reduce the possibility of financial panic include all of the following except

Accepted Answer

A)  transactions costs. 
B)  restrictions on assets and activities. 
C)  disclosure. 
D)  deposit insurance. 
A)  transactions costs. 
B)  restrictions on assets and activities. 
C)  disclosure. 
D)  deposit insurance.

Question 10

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 11

If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of

Accepted Answer

A)  moral hazard. 
B)  adverse selection. 
C)  free-riding. 
D)  costly state verification. 
A)  moral hazard. 
B)  adverse selection. 
C)  free-riding. 
D)  costly state verification.

Question 12

U)S.dollar deposits in foreign banks outside the U.S.or in foreign branches of U.S.banks are called

Accepted Answer

A)  Atlantic dollars. 
B)  Eurodollars. 
C)  foreign dollars. 
D)  outside dollars. 
A)  Atlantic dollars. 
B)  Eurodollars. 
C)  foreign dollars. 
D)  outside dollars.

Question 13

Which of the following is not a secondary market?

Accepted Answer

A)  foreign exchange market 
B)  futures market 
C)  options market 
D)  IPO market 
A)  foreign exchange market 
B)  futures market 
C)  options market 
D)  IPO market

Question 14

In a(n)________ market,dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices.

Accepted Answer

A)  exchange 
B)  over-the-counter 
C)  common 
D)  barter 
A)  exchange 
B)  over-the-counter 
C)  common 
D)  barter

Question 15

The principal lender-savers are

Accepted Answer

A)  governments. 
B)  businesses. 
C)  households. 
D)  foreigners. 
A)  governments. 
B)  businesses. 
C)  households. 
D)  foreigners.

Question 16

The most liquid securities traded in the capital market are

Accepted Answer

A)  corporate bonds. 
B)  municipal bonds. 
C)  U.S. Treasury bonds. 
D)  mortgage-backed securities. 
A)  corporate bonds. 
B)  municipal bonds. 
C)  U.S. Treasury bonds. 
D)  mortgage-backed securities.

Question 17

An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.

Accepted Answer

A)  adverse selection 
B)  moral hazard 
C)  risk sharing 
D)  credit risk 
A)  adverse selection 
B)  moral hazard 
C)  risk sharing 
D)  credit risk

Question 18

Economies of scale enable financial institutions to

Accepted Answer

A)  reduce transactions costs. 
B)  avoid the asymmetric information problem. 
C)  avoid adverse selection problems. 
D)  reduce moral hazard. 
A)  reduce transactions costs. 
B)  avoid the asymmetric information problem. 
C)  avoid adverse selection problems. 
D)  reduce moral hazard.

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

An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called

Accepted Answer

A)  underwriting. 
B)  underhanded. 
C)  understanding. 
D)  undertaking. 
A)  underwriting. 
B)  underhanded. 
C)  understanding. 
D)  undertaking.

Exam 2: An Overview of the Financial System

Which of the following can be described as involving indirect finance?

With direct finance,funds are channeled through the financial market from the ________ directly to the ________.

Which of the following can be described as involving indirect finance?

The regulatory agency that sets reserve requirements for all banks is

Contractual savings institutions include

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

Which of the following can be described as involving direct finance?

Well-functioning financial markets

Government regulations to reduce the possibility of financial panic include all of the following except

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

If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of

U)S.dollar deposits in foreign banks outside the U.S.or in foreign branches of U.S.banks are called

Which of the following is not a secondary market?

In a(n)________ market,dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices.

The principal lender-savers are

The most liquid securities traded in the capital market are

An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.

Economies of scale enable financial institutions to

Which of the following can be described as direct finance?

An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called

Why Study Money, banking, and Financial Markets

What Is Money

Understanding 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

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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

The ISLM Model

Filters

With direct finance,funds are channeled through the financial market from the directly to the .