Question 1

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 2

With ________ finance,borrowers obtain funds from lenders by selling them securities in the financial markets.

Accepted Answer

A)  active 
B)  determined 
C)  indirect 
D)  direct 
A)  active 
B)  determined 
C)  indirect 
D)  direct

Question 3

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 4

A goal of the Ontario Securities Commission is to reduce problems arising from ________.

Accepted Answer

A)  competition 
B)  banking panics 
C)  risk 
D)  asymmetric information 
A)  competition 
B)  banking panics 
C)  risk 
D)  asymmetric information

Question 5

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 Canadian Treasury bill from the Bank of Canada. 
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 Canadian Treasury bill from the Bank of Canada. 
D)  You make a deposit at a bank.

Question 6

Every financial market has which of the following characteristics?

Accepted Answer

A)  It determines the level of interest rates. 
B)  It allows common stock to be traded. 
C)  It allows loans to be made. 
D)  It channels funds from lenders-savers to borrowers-spenders. 
A)  It determines the level of interest rates. 
B)  It allows common stock to be traded. 
C)  It allows loans to be made. 
D)  It channels funds from lenders-savers to borrowers-spenders.

Question 7

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

Accepted Answer

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

Question 8

The primary assets of a finance company are ________.

Accepted Answer

A)  municipal bonds 
B)  corporate stocks and bonds 
C)  consumer and business loans 
D)  mortgages 
A)  municipal bonds 
B)  corporate stocks and bonds 
C)  consumer and business loans 
D)  mortgages

Question 9

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

Question 10

Financial markets have the basic function of ________.

Accepted Answer

A)  getting people with funds to lend together with people who want to borrow funds 
B)  assuring that the swings in the business cycle are less pronounced 
C)  assuring that governments need never resort to printing money 
D)  providing a risk-free repository of spending power 
A)  getting people with funds to lend together with people who want to borrow funds 
B)  assuring that the swings in the business cycle are less pronounced 
C)  assuring that governments need never resort to printing money 
D)  providing a risk-free repository of spending power

Question 11

An investment intermediary that lends funds to consumers is ________.

Accepted Answer

A)  a finance company 
B)  an investment bank 
C)  a finance fund 
D)  a consumer company 
A)  a finance company 
B)  an investment bank 
C)  a finance fund 
D)  a consumer company

Question 12

Which of the following statements about financial markets and securities is true?

Accepted Answer

A)  A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. 
B)  A debt instrument is intermediate term if its maturity is less than one year. 
C)  A debt instrument is intermediate term if its maturity is ten years or longer. 
D)  The maturity of a debt instrument is the number of years (term) to that instrument's expiration date. 
A)  A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. 
B)  A debt instrument is intermediate term if its maturity is less than one year. 
C)  A debt instrument is intermediate term if its maturity is ten years or longer. 
D)  The maturity of a debt instrument is the number of years (term) to that instrument's expiration date.

Question 13

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 14

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 15

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 16

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 17

Explain why Government of Canada Treasury Bills are considered as a financial instrument with very low risk.

Accepted Answer

Government of Canada Treasury Bills are

Question 18

Collateral is ________ the lender receives if the borrower does not pay back the loan.

Accepted Answer

A)  a liability 
B)  an asset 
C)  a present 
D)  an offering 
A)  a liability 
B)  an asset 
C)  a present 
D)  an offering

Question 19

A financial market in which previously issued securities can be resold is called a ________ market.

Accepted Answer

A)  primary 
B)  secondary 
C)  tertiary 
D)  used securities 
A)  primary 
B)  secondary 
C)  tertiary 
D)  used securities

Question 20

Assume that you borrow $2000 at 10 percent 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

Exam 2: An Overview of the Financial System

Contractual savings institutions include ________.

With ________ finance,borrowers obtain funds from lenders by selling them securities in the financial markets.

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

A goal of the Ontario Securities Commission is to reduce problems arising from ________.

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

Every financial market has which of the following characteristics?

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

The primary assets of a finance company are ________.

Financial intermediaries provide customers with liquidity services.Liquidity services ________.

Financial markets have the basic function of ________.

An investment intermediary that lends funds to consumers is ________.

Which of the following statements about financial markets and securities is true?

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 ________.

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

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

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

Explain why Government of Canada Treasury Bills are considered as a financial instrument with very low risk.

Collateral is ________ the lender receives if the borrower does not pay back the loan.

A financial market in which previously issued securities can be resold is called a ________ market.

Assume that you borrow $2000 at 10 percent 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 ________.

Why Study Money, banking, and Financial Markets

What Is Money

Understanding Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

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