Question 1

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.

Accepted Answer

A) adverse selection; moral hazard 
B) adverse selection; risk sharing 
C) moral hazard; transactions costs 
D) adverse selection; economies of scale 
A) adverse selection; moral hazard 
B) adverse selection; risk sharing 
C) moral hazard; transactions costs 
D) adverse selection; economies of scale

Question 2

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 3

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

Accepted Answer

A) Federal Reserve System. 
B) Federal Deposit Insurance Corporation. 
C) Treasury Department. 
D) Office of the Comptroller of the Currency. 
A) Federal Reserve System. 
B) Federal Deposit Insurance Corporation. 
C) Treasury Department. 
D) Office of the Comptroller of the Currency.

Question 4

Describe the two methods of organizing a secondary market.

Accepted Answer

A secondary market can be organized as a

Question 5

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 6

Equity and debt instruments with maturities greater than one year are called ________ market instruments.

Accepted Answer

A) capital 
B) money 
C) federal 
D) benchmark 
A) capital 
B) money 
C) federal 
D) benchmark

Question 7

When I purchase ________,I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

Accepted Answer

A) bonds 
B) bills 
C) notes 
D) stock 
A) bonds 
B) bills 
C) notes 
D) stock

Question 8

The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as

Accepted Answer

A) risk sharing. 
B) risk aversion. 
C) risk neutrality. 
D) risk selling. 
A) risk sharing. 
B) risk aversion. 
C) risk neutrality. 
D) risk selling.

Question 9

A financial market in which only short-term debt instruments are traded is called the ________ market.

Accepted Answer

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

Question 10

How do regulators help to ensure the soundness of financial intermediaries?

Accepted Answer

Regulators restrict who can se

Question 11

Securities are ________ for the person who buys them,but are ________ for the individual or firm that issues them.

Accepted Answer

A) assets; liabilities 
B) liabilities; assets 
C) negotiable; nonnegotiable 
D) nonnegotiable; negotiable 
A) assets; liabilities 
B) liabilities; assets 
C) negotiable; nonnegotiable 
D) nonnegotiable; negotiable

Question 12

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds.

Accepted Answer

A) Mutual funds 
B) Investment banks 
C) Finance companies 
D) Credit unions 
A) Mutual funds 
B) Investment banks 
C) Finance companies 
D) Credit unions

Question 13

The primary assets of credit unions are

Accepted Answer

A) municipal bonds. 
B) business loans. 
C) consumer loans. 
D) mortgages. 
A) municipal bonds. 
B) business loans. 
C) consumer loans. 
D) mortgages.

Question 14

Adverse selection is a problem associated with equity and debt contracts arising from

Accepted Answer

A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. 
B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. 
C) the borrower's lack of incentive to seek a loan for highly risky investments. 
D) the borrower's lack of good options for obtaining funds. 
A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. 
B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. 
C) the borrower's lack of incentive to seek a loan for highly risky investments. 
D) the borrower's lack of good options for obtaining funds.

Question 15

Financial institutions that accept deposits and make loans are called ________ institutions.

Accepted Answer

A) investment 
B) contractual savings 
C) depository 
D) underwriting 
A) investment 
B) contractual savings 
C) depository 
D) underwriting

Question 16

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 17

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 18

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 19

Thrift institutions include

Accepted Answer

A) banks,mutual funds,and insurance companies. 
B) savings and loan associations,mutual savings banks,and credit unions. 
C) finance companies,mutual funds,and money market funds. 
D) pension funds,mutual funds,and banks. 
A) banks,mutual funds,and insurance companies. 
B) savings and loan associations,mutual savings banks,and credit unions. 
C) finance companies,mutual funds,and money market funds. 
D) pension funds,mutual funds,and banks.

Question 20

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) Because of their short-terms to maturity,the prices of money market instruments tend to fluctuate wildly. 
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) Because of their short-terms to maturity,the prices of money market instruments tend to fluctuate wildly.

Exam 2: An Overview of the Financial System

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.

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

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

Describe the two methods of organizing a secondary market.

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

Equity and debt instruments with maturities greater than one year are called ________ market instruments.

When I purchase ________,I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as

A financial market in which only short-term debt instruments are traded is called the ________ market.

How do regulators help to ensure the soundness of financial intermediaries?

Securities are ________ for the person who buys them,but are ________ for the individual or firm that issues them.

________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds.

The primary assets of credit unions are

Adverse selection is a problem associated with equity and debt contracts arising from

Financial institutions that accept deposits and make loans are called ________ institutions.

The regulatory agency that sets reserve requirements for all banks is

Equity instruments are traded in the ________ market.

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

Thrift institutions include

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

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 and the Subprime Meltdown

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 for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

Increasing the amount of information available to investors helps to reduce the problems of and in the financial markets.

Securities are for the person who buys them,but are for the individual or firm that issues them.