Question 1

Which of the following is a depository institution?

Accepted Answer

A) A life insurance company 
B) A credit union 
C) A pension fund 
D) A mutual fund 
A) A life insurance company 
B) A credit union 
C) A pension fund 
D) A mutual fund

Question 2

A goal of the Securities and Exchange 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 3

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 4

The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.

Accepted Answer

A) more; primary 
B) more; secondary 
C) less; primary 
D) less; secondary 
A) more; primary 
B) more; secondary 
C) less; primary 
D) less; secondary

Question 5

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 6

Long-term debt has a maturity that is ________.

Accepted Answer

A) between one and ten years. 
B) less than a year. 
C) between five and ten years. 
D) ten years or longer. 
A) between one and ten years. 
B) less than a year. 
C) between five and ten years. 
D) ten years or longer.

Question 7

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 8

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 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

Which of the following is not a contractual savings institution?

Accepted Answer

A) A life insurance company 
B) A pension fund 
C) A savings and loan association 
D) A fire and casualty insurance company 
A) A life insurance company 
B) A pension fund 
C) A savings and loan association 
D) A fire and casualty insurance company

Question 11

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 12

Which of the following is not a goal of financial regulation?

Accepted Answer

A) Ensuring the soundness of the financial system 
B) Reducing moral hazard 
C) Reducing adverse selection 
D) Ensuring that investors never suffer losses 
A) Ensuring the soundness of the financial system 
B) Reducing moral hazard 
C) Reducing adverse selection 
D) Ensuring that investors never suffer losses

Question 13

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) spreading the cost of borrowed funds over many customers. 
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) spreading the cost of borrowed funds over many customers. 
D) spreading the cost of writing a standardized contract over many borrowers.

Question 14

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 15

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 16

Which of the following are not traded in a capital market?

Accepted Answer

A) U.S.government agency securities. 
B) State and local government bonds. 
C) Repurchase agreements. 
D) Corporate bonds. 
A) U.S.government agency securities. 
B) State and local government bonds. 
C) Repurchase agreements. 
D) Corporate bonds.

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

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 19

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 20

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

Exam 2: An Overview of the Financial System

Which of the following is a depository institution?

A goal of the Securities and Exchange Commission is to reduce problems arising from

Which of the following is a contractual savings institution?

The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.

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

Long-term debt has a maturity that is ________.

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

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

Financial intermediaries provide customers with liquidity services.Liquidity services

Which of the following is not a contractual savings institution?

Risk sharing is profitable for financial institutions due to

Which of the following is not a goal of financial regulation?

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

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

Which of the following are not traded in a capital market?

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.

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

Contractual savings institutions include

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

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

The higher a security's price in the secondary market the funds a firm can raise by selling securities in the market.

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 .