Question 1

Long-term debt and equity instruments are traded in the ________ market.

Accepted Answer

A) primary 
B) secondary 
C) capital 
D) money 
A) primary 
B) secondary 
C) capital 
D) money C

Question 2

The money market is the market in which ________ are traded.

Accepted Answer

A) new issues of securities 
B) previously issued securities 
C) short-term debt instruments 
D) long-term debt and equity instruments 
A) new issues of securities 
B) previously issued securities 
C) short-term debt instruments 
D) long-term debt and equity instruments C

Question 3

Which of the following statements about financial markets and securities are 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 long term if its maturity is ten years or longer. 
D) The maturity of a debt instrument is the time (term)that has elapsed since it was issued. 
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 long term if its maturity is ten years or longer. 
D) The maturity of a debt instrument is the time (term)that has elapsed since it was issued. C

Question 4

A ________ is when one party in a financial contract has incentives to act in its own interest rather than in the interests of the other party.

Accepted Answer

A) moral hazard 
B) risk 
C) conflict of interest 
D) financial panic 
A) moral hazard 
B) risk 
C) conflict of interest 
D) financial panic

Question 5

Which of the following markets is sometimes organized as an over-the-counter market?

Accepted Answer

A) The stock market 
B) The bond market 
C) The foreign exchange market 
D) The federal funds market 
E) all of the above 
A) The stock market 
B) The bond market 
C) The foreign exchange market 
D) The federal funds market 
E) all of the above

Question 6

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

Accepted Answer

A) A corporation takes out loans from a bank. 
B) People buy shares in a mutual fund. 
C) A corporation buys commercial paper in a secondary market. 
D) All of the above. 
E) Only A and B of the above. 
A) A corporation takes out loans from a bank. 
B) People buy shares in a mutual fund. 
C) A corporation buys commercial paper in a secondary market. 
D) All of the above. 
E) Only A and B of the above.

Question 7

When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist.

Accepted Answer

A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud 
A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud

Question 8

Which of the following statements about the characteristics of debt and equity are true?

Accepted Answer

A) They both can be long-term financial instruments. 
B) They both involve a claim on the issuer's income. 
C) They both enable a corporation to raise funds. 
D) All of the above. 
E) Only A and B of the above. 
A) They both can be long-term financial instruments. 
B) They both involve a claim on the issuer's income. 
C) They both enable a corporation to raise funds. 
D) All of the above. 
E) Only A and B of the above.

Question 9

Distinguish between direct financing and indirect financing.

Accepted Answer

The answer of Distinguish between direct financing and indirect financing....

Question 10

Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a

Accepted Answer

A) bank holiday. 
B) financial panic. 
C) financial disintermediation. 
D) financial collapse. 
A) bank holiday. 
B) financial panic. 
C) financial disintermediation. 
D) financial collapse.

Question 11

Intermediaries who are agents of investors and match buyers with sellers of securities are called

Accepted Answer

A) investment bankers. 
B) traders. 
C) brokers. 
D) dealers. 
E) none of the above. 
A) investment bankers. 
B) traders. 
C) brokers. 
D) dealers. 
E) none of the above.

Question 12

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist.

Accepted Answer

A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud 
A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud

Question 13

The purpose of diversification is to

Accepted Answer

A) reduce the volatility of a portfolio's return. 
B) raise the volatility of a portfolio's return. 
C) reduce the average return on a portfolio. 
D) raise the average return on a portfolio. 
A) reduce the volatility of a portfolio's return. 
B) raise the volatility of a portfolio's return. 
C) reduce the average return on a portfolio. 
D) raise the average return on a portfolio.

Question 14

The government regulates financial markets for two main reasons:

Accepted Answer

A) to ensure soundness of the financial system and to increase the information available to investors. 
B) to improve control of monetary policy and to increase the information available to investors. 
C) to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy. 
D) to ensure soundness of financial intermediaries and to prevent financial intermediaries from earning less than the normal rate of return. 
A) to ensure soundness of the financial system and to increase the information available to investors. 
B) to improve control of monetary policy and to increase the information available to investors. 
C) to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy. 
D) to ensure soundness of financial intermediaries and to prevent financial intermediaries from earning less than the normal rate of return.

Question 15

Why is it so important for an economy to have fully developed financial markets?

Accepted Answer

The answer of Why is it so important for an...

Question 16

Every financial market performs the following function:

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 17

Equity represents an ownership interest in a firm and entitles the holder to the residual cash flows.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

A) Most common stocks are traded over-the-counter, although the largest corporations have their shares traded at organized stock exchanges such as the New York Stock Exchange. 
B) A corporation acquires new funds only when its securities are sold in the primary market. 
C) Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) Most common stocks are traded over-the-counter, although the largest corporations have their shares traded at organized stock exchanges such as the New York Stock Exchange. 
B) A corporation acquires new funds only when its securities are sold in the primary market. 
C) Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 20

An example of direct financing is if you were to lend money to your neighbor.

Accepted Answer

A) True 
 B)False

Exam 2: Overview of the Financial System

Long-term debt and equity instruments are traded in the ________ market.

The money market is the market in which ________ are traded.

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

A ________ is when one party in a financial contract has incentives to act in its own interest rather than in the interests of the other party.

Which of the following markets is sometimes organized as an over-the-counter market?

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

When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist.

Which of the following statements about the characteristics of debt and equity are true?

Distinguish between direct financing and indirect financing.

Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a

Intermediaries who are agents of investors and match buyers with sellers of securities are called

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist.

The purpose of diversification is to

The government regulates financial markets for two main reasons:

Why is it so important for an economy to have fully developed financial markets?

Every financial market performs the following function:

Equity represents an ownership interest in a firm and entitles the holder to the residual cash flows.

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

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

An example of direct financing is if you were to lend money to your neighbor.

Why Study Financial Markets and Institutions

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

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