Question 1

Which of the following is a contractual savings institution?

Accepted Answer

A) a life insurance company 
B) a credit union 
C) a savings and loan association 
D) a mutual fund 
A) a life insurance company 
B) a credit union 
C) a savings and loan association 
D) a mutual fund

Question 2

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 3

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 4

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 5

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 6

The limited memberships and high dollar minimums for hedge funds means that these funds are

Accepted Answer

A) subject to weaker regulation than other mutual funds. 
B) more stringently regulated for fear of collapse. 
C) limited in the types of assets they can purchase. 
D) under the control of the U.S.Treasury. 
A) subject to weaker regulation than other mutual funds. 
B) more stringently regulated for fear of collapse. 
C) limited in the types of assets they can purchase. 
D) under the control of the U.S.Treasury.

Question 7

Bonds issued by state and local governments are called ________ bonds.

Accepted Answer

A) corporate 
B) Treasury 
C) municipal 
D) commercial 
A) corporate 
B) Treasury 
C) municipal 
D) commercial

Question 8

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 9

Banks can lower the cost of information production by applying one information resource to many different services.This process is called

Accepted Answer

A) economies of scale. 
B) asset transformation. 
C) economies of scope. 
D) asymmetric information. 
A) economies of scale. 
B) asset transformation. 
C) economies of scope. 
D) asymmetric information.

Question 10

Which of the following statements about the characteristics of debt and equities is TRUE?

Accepted Answer

A) They can both be long-term financial instruments. 
B) Bond holders are residual claimants. 
C) The income from bonds is typically more variable than that from equities. 
D) Bonds pay dividends. 
A) They can both be long-term financial instruments. 
B) Bond holders are residual claimants. 
C) The income from bonds is typically more variable than that from equities. 
D) Bonds pay dividends.

Question 11

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 12

Which of the following instruments is NOT traded in a money market?

Accepted Answer

A) residential mortgages 
B) U.S.Treasury Bills 
C) negotiable bank certificates of deposit 
D) commercial paper 
A) residential mortgages 
B) U.S.Treasury Bills 
C) negotiable bank certificates of deposit 
D) commercial paper

Question 13

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 14

One reason for the extraordinary growth of foreign financial markets is

Accepted Answer

A) decreased trade. 
B) increases in the pool of savings in foreign countries. 
C) the recent introduction of the foreign bond. 
D) slower technological innovation in foreign markets. 
A) decreased trade. 
B) increases in the pool of savings in foreign countries. 
C) the recent introduction of the foreign bond. 
D) slower technological innovation in foreign markets.

Question 15

Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as

Accepted Answer

A) foreign bonds. 
B) Eurobonds. 
C) equity bonds. 
D) country bonds. 
A) foreign bonds. 
B) Eurobonds. 
C) equity bonds. 
D) country bonds.

Question 16

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 17

Because there is an imbalance of information in a lending situation,we must deal with the problems of adverse selection and moral hazard.Define these terms and explain how financial intermediaries can reduce these problems.

Accepted Answer

Adverse selection is the asymmetric info

Question 18

An example of economies of scale in the provision of financial services is

Accepted Answer

A) investing in a diversified collection of assets. 
B) providing depositors with a variety of savings certificates. 
C) hiring more support staff so that customers don't have to wait so long for assistance. 
D) spreading the cost of writing a standardized contract over many borrowers. 
A) investing in a diversified collection of assets. 
B) providing depositors with a variety of savings certificates. 
C) hiring more support staff so that customers don't have to wait so long for assistance. 
D) spreading the cost of writing a standardized contract over many borrowers.

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

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

Which of the following is a contractual savings institution?

Equity instruments are traded in the ________ market.

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

Which of the following are investment intermediaries?

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

The limited memberships and high dollar minimums for hedge funds means that these funds are

Bonds issued by state and local governments are called ________ bonds.

Risk sharing is profitable for financial institutions due to

Banks can lower the cost of information production by applying one information resource to many different services.This process is called

Which of the following statements about the characteristics of debt and equities is TRUE?

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

Which of the following instruments is NOT traded in a money market?

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

One reason for the extraordinary growth of foreign financial markets is

Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as

A restriction on bank activities that was repealed in 1999 was

Because there is an imbalance of information in a lending situation,we must deal with the problems of adverse selection and moral hazard.Define these terms and explain how financial intermediaries can reduce these problems.

An example of economies of scale in the provision of financial services is

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

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

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

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

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The IS Curve

The Monetary Policy and Aggregate Demand Curves

The Role of Expectations in Monetary Policy

The ISLM Model

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