Question 1

Securities dealers make most of their income from

Accepted Answer

A) commissions charged to buyers. 
B) the spread between the bid and the asked price on securities. 
C) reports they sell investors containing information on the securities they handle. 
D) underwriting. 
A) commissions charged to buyers. 
B) the spread between the bid and the asked price on securities. 
C) reports they sell investors containing information on the securities they handle. 
D) underwriting.

Question 2

All of the following are part of Euronext (an integrated European stock exchange) EXCEPT

Accepted Answer

A) Paris Bourne. 
B) London Exchange. 
C) Amsterdam Exchange. 
D) Brussels Exchange. 
A) Paris Bourne. 
B) London Exchange. 
C) Amsterdam Exchange. 
D) Brussels Exchange.

Question 3

A defined benefits plan

Accepted Answer

A) is always fully funded. 
B) may be underfunded but cannot be overfunded. 
C) may be overfunded but cannot be underfunded. 
D) may be either underfunded or overfunded. 
A) is always fully funded. 
B) may be underfunded but cannot be overfunded. 
C) may be overfunded but cannot be underfunded. 
D) may be either underfunded or overfunded.

Question 4

Savings institutions originated as

Accepted Answer

A) commercial banks. 
B) building and loan societies. 
C) farm cooperatives. 
D) consumer cooperatives. 
A) commercial banks. 
B) building and loan societies. 
C) farm cooperatives. 
D) consumer cooperatives.

Question 5

The use of deductibles and coinsurance are examples of attempts by insurance companies to deal with the problem of

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) failure of policyholders to keep paying their premiums. 
D) excessive government regulation. 
A) moral hazard. 
B) adverse selection. 
C) failure of policyholders to keep paying their premiums. 
D) excessive government regulation.

Question 6

Which of the following is a securities market institution?

Accepted Answer

A) The New York Stock Exchange 
B) Greater Illinois Savings and Loan 
C) Prudential Insurance Company 
D) Fidelity Magellan Mutual Fund 
A) The New York Stock Exchange 
B) Greater Illinois Savings and Loan 
C) Prudential Insurance Company 
D) Fidelity Magellan Mutual Fund

Question 7

By 2006, the primary growth area for investment banking was

Accepted Answer

A) Latin America. 
B) Africa. 
C) Australia. 
D) Europe. 
A) Latin America. 
B) Africa. 
C) Australia. 
D) Europe.

Question 8

To deal with difficulties in administering pension funds, Congress in 1974 passed the

Accepted Answer

A) Corrupt Pension Fund Reform Act. 
B) Securities and Exchange Act. 
C) Employee Retirement Income Security Act. 
D) Social Security Act. 
A) Corrupt Pension Fund Reform Act. 
B) Securities and Exchange Act. 
C) Employee Retirement Income Security Act. 
D) Social Security Act.

Question 9

A "tombstone" is a

Accepted Answer

A) company in danger of bankruptcy. 
B) an advertisement of a new security issue by an investment bank. 
C) a bond that has been defaulted on. 
D) a share of stock in a failed company. 
A) company in danger of bankruptcy. 
B) an advertisement of a new security issue by an investment bank. 
C) a bond that has been defaulted on. 
D) a share of stock in a failed company.

Question 10

What was the "big bang"?

Accepted Answer

A) The stock market crash of October 1987 
B) The deregulation of financial markets in England in 1986 
C) The Wall Street insider trading scandal of 1989 
D) The explosion of short-term interest rates in 1981 
A) The stock market crash of October 1987 
B) The deregulation of financial markets in England in 1986 
C) The Wall Street insider trading scandal of 1989 
D) The explosion of short-term interest rates in 1981

Question 11

Which of the following is NOT a financial intermediary?

Accepted Answer

A) Salomon Brothers 
B) Chase Manhattan Bank 
C) Aetna Insurance Company 
D) California State Teachers Pension Fund 
A) Salomon Brothers 
B) Chase Manhattan Bank 
C) Aetna Insurance Company 
D) California State Teachers Pension Fund

Question 12

A syndicate is

Accepted Answer

A) a group of brokers illegally making use of insider information. 
B) a group of commercial banks that agrees to accept the checks of each other's depositors. 
C) a group of investment banks underwriting a large security issue. 
D) a group of dealers that markets a government bond issue. 
A) a group of brokers illegally making use of insider information. 
B) a group of commercial banks that agrees to accept the checks of each other's depositors. 
C) a group of investment banks underwriting a large security issue. 
D) a group of dealers that markets a government bond issue.

Question 13

Underwriting involves

Accepted Answer

A) insuring the life or health of individuals. 
B) guaranteeing a price for new capital to the issuing firm. 
C) selling stock more cheaply than conventional stockbrokers. 
D) issuing stock and using the proceeds to buy bonds. 
A) insuring the life or health of individuals. 
B) guaranteeing a price for new capital to the issuing firm. 
C) selling stock more cheaply than conventional stockbrokers. 
D) issuing stock and using the proceeds to buy bonds.

Question 14

Which of the following decreased its share of the percentage of total assets of financial intermediaries between 1960 and 2006?

Accepted Answer

A) Commercial banks 
B) Private pension funds 
C) State and local government retirement funds 
D) Life insurance companies 
A) Commercial banks 
B) Private pension funds 
C) State and local government retirement funds 
D) Life insurance companies

Question 15

Closed-end mutual funds

Accepted Answer

A) will always redeem shares issued. 
B) are not obligated to redeem shares issued. 
C) issue shares that always sell at the market value of the underlying assets. 
D) may not hold U.S. government securities in their portfolios. 
A) will always redeem shares issued. 
B) are not obligated to redeem shares issued. 
C) issue shares that always sell at the market value of the underlying assets. 
D) may not hold U.S. government securities in their portfolios.

Question 16

A firm with both auction market and over-the-counter capabilities was formed late in 1998 when

Accepted Answer

A) the New York and American Stock Exchanges merged. 
B) the New York Stock Exchange merged with the Chicago Mercantile Exchange. 
C) the National Association of Securities Dealers merged with the American Stock Exchange. 
D) the American Stock Exchange merged with the Chicago Mercantile Exchange. 
A) the New York and American Stock Exchanges merged. 
B) the New York Stock Exchange merged with the Chicago Mercantile Exchange. 
C) the National Association of Securities Dealers merged with the American Stock Exchange. 
D) the American Stock Exchange merged with the Chicago Mercantile Exchange.

Question 17

In an over-the-counter market trading takes place

Accepted Answer

A) face-to-face at the front counter of a securities firm. 
B) on the floor of an exchange. 
C) over the telephone or by computer. 
D) at SEC-approved trading locations. 
A) face-to-face at the front counter of a securities firm. 
B) on the floor of an exchange. 
C) over the telephone or by computer. 
D) at SEC-approved trading locations.

Question 18

The largest institutional participants in capital markets are

Accepted Answer

A) pension funds. 
B) insurance companies. 
C) consumer finance companies. 
D) business finance companies. 
A) pension funds. 
B) insurance companies. 
C) consumer finance companies. 
D) business finance companies.

Question 19

Business finance companies

Accepted Answer

A) purchase accounts receivable of small firms at a discount. 
B) sell commercial paper and buy long-term corporate bonds. 
C) take in deposits from savers and buy corporate commercial paper. 
D) are strictly regulated by state governments. 
A) purchase accounts receivable of small firms at a discount. 
B) sell commercial paper and buy long-term corporate bonds. 
C) take in deposits from savers and buy corporate commercial paper. 
D) are strictly regulated by state governments.

Question 20

SEC Rule 415

Accepted Answer

A) fixes the fees that may be charged by underwriters. 
B) requires underwriters to invest their own funds in the firms whose securities they are underwriting. 
C) eliminates the requirement that short-term securities be underwritten. 
D) allows firms to wait as long as two years before selling a newly registered security. 
A) fixes the fees that may be charged by underwriters. 
B) requires underwriters to invest their own funds in the firms whose securities they are underwriting. 
C) eliminates the requirement that short-term securities be underwritten. 
D) allows firms to wait as long as two years before selling a newly registered security.

Exam 12: What Financial Institutions Do

Securities dealers make most of their income from

All of the following are part of Euronext (an integrated European stock exchange) EXCEPT

A defined benefits plan

Savings institutions originated as

The use of deductibles and coinsurance are examples of attempts by insurance companies to deal with the problem of

Which of the following is a securities market institution?

By 2006, the primary growth area for investment banking was

To deal with difficulties in administering pension funds, Congress in 1974 passed the

A "tombstone" is a

What was the "big bang"?

Which of the following is NOT a financial intermediary?

A syndicate is

Underwriting involves

Which of the following decreased its share of the percentage of total assets of financial intermediaries between 1960 and 2006?

Closed-end mutual funds

A firm with both auction market and over-the-counter capabilities was formed late in 1998 when

In an over-the-counter market trading takes place

The largest institutional participants in capital markets are

Business finance companies

SEC Rule 415

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters