Question 1

In primary markets, the property of shares which made it easy to sell newly issued security is considered as

Accepted Answer

A) increased liquidity 
B) decreased liquidity 
C) money flow 
D) large funds A

Question 2

In foreign financial markets, the growth is represented by the factors such as

Accepted Answer

A) savings in foreign countries 
B) investment opportunities 
C) accessible information 
D) all of above D

Question 3

In indirect finance:

Accepted Answer

A) lenders loan to borrowers. 
B) an institution borrows from the lender and provides funds to the borrower. 
C) occurs between a borrower and lender, with or without an intermediary. 
D) the borrower is required to have collateral. B

Question 4

Which of the following are functions of a financial system?
1) The operation of a payments system.
2) Providing the means of portfolio adjustment.
3) Helping to reduce unemployment.
4) Channelling funds between lenders and borrowers.
5) Helping speculators to bet on price movements.

Accepted Answer

A) 1 and 5 
B) 2, 3 and 5 
C) 1, 2 and 4 
D) 2 to 5

Question 5

The stocks or shares that are sold to investors without transacting through financial institutions are classified as

Accepted Answer

A) direct transfer 
B) indirect transfer 
C) global transfer 
D) pension transfer

Question 6

The public debt of a country is not necessarily a burden on the economy to the extent that:

Accepted Answer

A) it grows less rapidly than GDP. 
B) people receive good public services. 
C) people are happy to hold government bonds. 
D) it can be financed without adding to inflation.

Question 7

The sale of government bonds overseas:

Accepted Answer

A) causes a fall in the domestic money supply. 
B) causes a deficit in the balance of payments. 
C) causes a smaller increase in interest rates than the sale of bonds to the domestic banking sector. 
D) causes a smaller increase in interest rates than the sale of bonds to the domestic private sector.

Question 8

The money market where debt and stocks are traded and maturity period is more than a year is classified as

Accepted Answer

A) shorter term markets 
B) capital markets 
C) counter markets 
D) longterm markets

Question 9

Statutory regulation is likely to create larger compliance costs than self-regulation because:

Accepted Answer

A) self-regulation does not involve lawyers and the courts. 
B) consumers are better able to assess risk under self-regulation. 
C) statutory regulators are often over-cautious. 
D) statutory regulation is controlled by consumers.

Question 10

The transaction cost of trading of financial instruments in centralized market is classified as

Accepted Answer

A) flexible costs 
B) low transaction costs 
C) high transaction costs 
D) constant costs

Question 11

Moral hazard caused by regulation can only be removed from financial transactions if:

Accepted Answer

A) regulations are regularly revised to keep pace with the changing circumstances of the market. 
B) the regulations prevent agency capture. 
C) all regulation is self-regulation. 
D) participants in the finance industry do not feel protected by the regulations.

Question 12

Aloan:

Accepted Answer

A) is an asset for both the lender and the borrower. 
B) is an asset for the lender and a liability for the borrower. 
C) is a liability for the lender and an asset for the borrower 
D) is a liability for both the lender and the borrower.

Question 13

The regulation of the banking industry is of particular importance in modern economies because:

Accepted Answer

A) banks are large and very profitable. 
B) everyone in the economy has a bank account. 
C) banks employ many people. 
D) banks provide the principal means of payment for the economy.

Question 14

If the public debt can be financed without adding to inflation or causing interest rates to rise, it is said to be:

Accepted Answer

A) only a burden on future generations. 
B) following the golden rule of the public finances. 
C) in primary balance. 
D) sustainable

Question 15

In primary markets, the first time issued shares to be publicly traded in stock markets is considered as

Accepted Answer

A) traded offering 
B) public markets 
C) issuance offering 
D) initial public offering

Question 16

Interest rate expectations have been thought to be an important influence on bond sales because:

Accepted Answer

A) government bond-holders are, by and large, are income risk averse. 
B) interest rates have always been very unstable. 
C) the bond market is dominated by people interested mainly in capital gains. 
D) government bond-holders hold extrapolative expectations.

Question 17

The type of financial security which have linked payoff to another issued security is classified as.

Accepted Answer

A) linked security 
B) derivative security 
C) payable security 
D) non- issuing security

Question 18

RBI issues currency noted under

Accepted Answer

A) Minimum reserve system 
B) Proportional reserve system 
C) Maximum issue system 
D) None of the above

Exam 1: Understanding Financial Systems and Regulations