Question 1

Although the dominance of ________ over ________ is clear in all countries,the relative importance of bond versus stock markets differs widely.

Accepted Answer

A) financial intermediaries;securities markets 
B) financial intermediaries;government agencies 
C) government agencies;financial intermediaries 
D) government agencies;securities markets 
A) financial intermediaries;securities markets 
B) financial intermediaries;government agencies 
C) government agencies;financial intermediaries 
D) government agencies;securities markets

Question 2

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 3

You can borrow $5000 to finance a new business venture.This new venture will generate annual earnings of $251.The maximum interest rate that you would pay on the borrowed funds and still increase your income is

Accepted Answer

A) 25%. 
B) 12.5%. 
C) 10%. 
D) 5%. 
A) 25%. 
B) 12.5%. 
C) 10%. 
D) 5%.

Question 4

Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them.

Accepted Answer

A) secondary stocks 
B) surplus stocks 
C) U.S.government bonds 
D) common stocks 
A) secondary stocks 
B) surplus stocks 
C) U.S.government bonds 
D) common stocks

Question 5

The problem created by asymmetric information before the transaction occurs is called ________,while the problem created after the transaction occurs is called ________.

Accepted Answer

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

Question 6

The primary liabilities of a commercial bank are

Accepted Answer

A) bonds. 
B) mortgages. 
C) deposits. 
D) commercial paper. 
A) bonds. 
B) mortgages. 
C) deposits. 
D) commercial paper.

Question 7

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 8

The concept of diversification is captured by the statement

Accepted Answer

A) don't look a gift horse in the mouth. 
B) don't put all your eggs in one basket. 
C) it never rains,but it pours. 
D) make hay while the sun shines. 
A) don't look a gift horse in the mouth. 
B) don't put all your eggs in one basket. 
C) it never rains,but it pours. 
D) make hay while the sun shines.

Question 9

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

Question 10

When an investment bank ________ securities,it guarantees a price for a corporation's securities and then sells them to the public.

Accepted Answer

A) underwrites 
B) undertakes 
C) overwrites 
D) overtakes 
A) underwrites 
B) undertakes 
C) overwrites 
D) overtakes

Question 11

An important financial institution that assists in the initial sale of securities in the primary market is the

Accepted Answer

A) investment bank. 
B) commercial bank. 
C) stock exchange. 
D) brokerage house. 
A) investment bank. 
B) commercial bank. 
C) stock exchange. 
D) brokerage house.

Question 12

When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n)

Accepted Answer

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

Question 13

An important source of short-term funds for commercial banks are ________ which can be resold on the secondary market.

Accepted Answer

A) negotiable CDs 
B) commercial paper 
C) mortgage-backed securities 
D) municipal bonds 
A) negotiable CDs 
B) commercial paper 
C) mortgage-backed securities 
D) municipal bonds

Question 14

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 15

A short-term debt instrument issued by well-known corporations is called

Accepted Answer

A) commercial paper. 
B) corporate bonds. 
C) municipal bonds. 
D) commercial mortgages. 
A) commercial paper. 
B) corporate bonds. 
C) municipal bonds. 
D) commercial mortgages.

Question 16

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

Accepted Answer

A) Many common stocks are traded over-the-counter,although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. 
B) As a corporation gets a share of the broker's commission,a corporation acquires new funds whenever its securities are sold. 
C) Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. 
D) Prices of capital market securities are usually more stable than prices of money market securities,and so are often used to hold temporary surplus funds of corporations. 
A) Many common stocks are traded over-the-counter,although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. 
B) As a corporation gets a share of the broker's commission,a corporation acquires new funds whenever its securities are sold. 
C) Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. 
D) Prices of capital market securities are usually more stable than prices of money market securities,and so are often used to hold temporary surplus funds of corporations.

Question 17

The primary purpose of deposit insurance is to

Accepted Answer

A) improve the flow of information to investors. 
B) prevent banking panics. 
C) protect bank shareholders against losses. 
D) protect bank employees from unemployment. 
A) improve the flow of information to investors. 
B) prevent banking panics. 
C) protect bank shareholders against losses. 
D) protect bank employees from unemployment.

Exam 2: An Overview of the Financial System

Although the dominance of ________ over ________ is clear in all countries,the relative importance of bond versus stock markets differs widely.

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

You can borrow $5000 to finance a new business venture.This new venture will generate annual earnings of $251.The maximum interest rate that you would pay on the borrowed funds and still increase your income is

Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them.

The problem created by asymmetric information before the transaction occurs is called ________,while the problem created after the transaction occurs is called ________.

The primary liabilities of a commercial bank are

The primary liabilities of depository institutions are

The concept of diversification is captured by the statement

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

When an investment bank ________ securities,it guarantees a price for a corporation's securities and then sells them to the public.

An important financial institution that assists in the initial sale of securities in the primary market is the

When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n)

An important source of short-term funds for commercial banks are ________ which can be resold on the secondary market.

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

A short-term debt instrument issued by well-known corporations is called

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

The primary purpose of deposit insurance is to

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

Filters

Although the dominance of over is clear in all countries,the relative importance of bond versus stock markets differs widely.

The problem created by asymmetric information before the transaction occurs is called ,while the problem created after the transaction occurs is called .