Question 1

Savings institutions are a type of nondepository institution.

Accepted Answer

A) True 
 B)False

Question 2

Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.

Accepted Answer

A) True 
 B)False

Question 3

Bonds issued by corporations have a ____ expected return and ____ risk than Treasury bonds.

Accepted Answer

A)   lower; lower
B)   lower; higher
C)   higher; lower
D)   higher; higher

Question 4

A five-year security was purchased two years ago by an investor who plans to resell it. The investor will sell the security r in the

Accepted Answer

A)   secondary market.
B)   primary market.
C)   deficit market
D)   surplus market.

Question 5

Without the participation of financial intermediaries in financial market transactions,

Accepted Answer

A)   information and transaction costs would be lower.
B)   transaction costs would be higher but information costs would be unchanged.
C)   information costs would be higher but transaction costs would be unchanged.
D)   information and transaction costs would be higher.

Question 6

Which of the following statements is incorrect?

Accepted Answer

A)   Financial markets attract funds from investors and channel the funds to corporations.
B)   Money markets enable corporations to borrow funds on a short-term basis so that they can support their existing operations.
C)   Financial institutions serve solely as intermediaries with the financial markets and never serve as investors.
D)   Investors seek to invest their funds in the stock of firms that are presently undervalued and have much potential to improve.

Question 7

Which of the following financial intermediaries commonly invests in stocks and bonds?

Accepted Answer

A)   pension funds
B)   insurance companies
C)   mutual funds
D)   all of the above

Question 8

The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Accepted Answer

A)   savings institutions
B)   commercial banks
C)   mutual funds
D)   finance companies
E)   pension funds

Question 9

Those financial markets that facilitate the flow of short-term funds are known as

Accepted Answer

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

Question 10

Households with ____ are served by ____.

Accepted Answer

A)   deficient funds; depository institutions and finance companies
B)   deficient funds; finance companies only
C)   savings; finance companies only
D)   savings; pension funds and finance companies

Question 11

When a depository institution offers a loan, it is acting as a creditor.

Accepted Answer

A) True 
 B)False

Question 12

The creditors in the federal funds market are

Accepted Answer

A)   households.
B)   depository institutions.
C)   firms.
D)   government agencies.

Question 13

Which of the following is a capital market instrument?

Accepted Answer

A)   a six-month certificate of deposit
B)   a three-month Treasury bill
C)   a ten-year bond
D)   an agreement for a bank to loan funds directly to a company for nine months

Question 14

Those participants who receive more money than they spend are referred to as

Accepted Answer

A)   deficit units.
B)   surplus units.
C)   borrowing units.
D)   government units.

Question 15

Securities represent a claim on the provider of funds.

Accepted Answer

A) True 
 B)False

Question 16

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

Accepted Answer

A)   perfect
B)   active
C)   inefficient
D)   in equilibrium

Question 17

Financial markets facilitating the flow of short-term debt securities with maturities of less than one year are known as

Accepted Answer

A)   secondary markets.
B)   capital markets.
C)   primary markets.
D)   money markets.
E)   none of the above

Question 18

The risk that financial problems could spread among financial institutions and across financial markets, causing a collapse of the financial system, is known as:

Accepted Answer

A)   systemic risk.
B)   leverage risk.
C)   financial meltdown risk.
D)   credit risk.

Question 19

Institutional investors not only provide financial support to companies but also exercise some degree of governance over them.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following distinguishes credit unions from commercial banks and savings institutions?

Accepted Answer

A)   Credit unions are nonprofit.
B)   Credit unions accept deposits but do not make loans.
C)   Credit unions make loans but do not accept deposits.
D)   Savings institutions restrict their business to members who share a common bond.

Exam 1: Role of Financial Markets and Institutions

The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Correct AnswerverifiedShow Answer

The risk that financial problems could spread among financial institutions and across financial markets, causing a collapse of the financial system, is known as:

Correct AnswerverifiedShow Answer

Which of the following distinguishes credit unions from commercial banks and savings institutions?

Correct AnswerverifiedShow Answer

Institutional investors not only provide financial support to companies but also exercise some degree of governance over them.

Correct AnswerverifiedShow Answer

A five-year security was purchased two years ago by an investor who plans to resell it. The investor will sell the security r in the

Correct AnswerverifiedShow Answer

Households with ____ are served by ____.

Correct AnswerverifiedShow Answer

Securities represent a claim on the provider of funds.

Correct AnswerverifiedShow Answer

The creditors in the federal funds market are

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Savings institutions are a type of nondepository institution.

Correct AnswerverifiedShow Answer

Those financial markets that facilitate the flow of short-term funds are known as

Correct AnswerverifiedShow Answer

Which of the following financial intermediaries commonly invests in stocks and bonds?

Correct AnswerverifiedShow Answer

Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.

Correct AnswerverifiedShow Answer

Which of the following is a capital market instrument?

Correct AnswerverifiedShow Answer

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

Correct AnswerverifiedShow Answer

Those participants who receive more money than they spend are referred to as

Correct AnswerverifiedShow Answer

When a depository institution offers a loan, it is acting as a creditor.

Correct AnswerverifiedShow Answer

Bonds issued by corporations have a ____ expected return and ____ risk than Treasury bonds.

Correct AnswerverifiedShow Answer

Financial markets facilitating the flow of short-term debt securities with maturities of less than one year are known as

Correct AnswerverifiedShow Answer

Without the participation of financial intermediaries in financial market transactions,

Correct AnswerverifiedShow Answer

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Households with are served by .

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Bonds issued by corporations have a expected return and risk than Treasury bonds.

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