Question 1

Electronic communications networks (ECNs) are

Accepted Answer

A) stock-trading systems that rely on computer software to match buy and sell orders. 
B) systems for communicating financial information to private investors over the Internet. 
C) systems for private investors to communicate buy and sell orders to their brokers. 
D) systems by which the government is able to monitor securities trades for possibly fraudulent activities. 
A) stock-trading systems that rely on computer software to match buy and sell orders. 
B) systems for communicating financial information to private investors over the Internet. 
C) systems for private investors to communicate buy and sell orders to their brokers. 
D) systems by which the government is able to monitor securities trades for possibly fraudulent activities.

Question 2

Sales 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 affiliated with companies which manufacture or sell goods. 
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 affiliated with companies which manufacture or sell goods.

Question 3

What is the name of the pension plan under which employees can make tax-deductible contributions through regular payroll deductions?

Accepted Answer

A) 401(k) plans 
B) Social Security plans 
C) Early retirement plans 
D) 486(b) plans 
A) 401(k) plans 
B) Social Security plans 
C) Early retirement plans 
D) 486(b) plans

Question 4

The largest category of U.S. government lending activities is government lending to

Accepted Answer

A) individual home buyers. 
B) students. 
C) large corporations. 
D) farmers. 
A) individual home buyers. 
B) students. 
C) large corporations. 
D) farmers.

Question 5

Which of the following is not a leading underwriting firm?

Accepted Answer

A) Merrill Lynch 
B) First Boston 
C) Fidelity Magellan Fund 
D) Goldman Sachs 
A) Merrill Lynch 
B) First Boston 
C) Fidelity Magellan Fund 
D) Goldman Sachs

Question 6

Why are securities market institutions not considered to be financial intermediaries?

Accepted Answer

A) Because they have no direct dealings with the general public 
B) Because they don't acquire funds from savers to invest in borrowers 
C) Because they are not allowed to pay interest on the deposits they receive 
D) Because they fail to provide the services of risk-sharing, liquidity, and information 
A) Because they have no direct dealings with the general public 
B) Because they don't acquire funds from savers to invest in borrowers 
C) Because they are not allowed to pay interest on the deposits they receive 
D) Because they fail to provide the services of risk-sharing, liquidity, and information

Question 7

Charging drivers with good records lower premiums than drivers with bad records is an example of an attempt by insurance companies to deal with the problem of

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) drunk driving. 
D) failure of policyholders to keep paying their premiums. 
A) moral hazard. 
B) adverse selection. 
C) drunk driving. 
D) failure of policyholders to keep paying their premiums.

Question 8

Merchant banking refers to

Accepted Answer

A) banking services available only to retail merchants. 
B) banking services available to businesses but not to the general public. 
C) investment banks investing their own funds in companies. 
D) banking activities being carried out by companies that are not banks. 
A) banking services available only to retail merchants. 
B) banking services available to businesses but not to the general public. 
C) investment banks investing their own funds in companies. 
D) banking activities being carried out by companies that are not banks.

Question 9

Term life insurance

Accepted Answer

A) is offered only by mutual insurance companies. 
B) may be converted into an annuity when the policyholder reaches retirement age. 
C) pays off only at the death of the policyholder. 
D) receives favorable tax treatment from the U.S. government. 
A) is offered only by mutual insurance companies. 
B) may be converted into an annuity when the policyholder reaches retirement age. 
C) pays off only at the death of the policyholder. 
D) receives favorable tax treatment from the U.S. government.

Question 10

Mutual funds

Accepted Answer

A) take in deposits from savers and make loans to borrowers. 
B) sell shares to savers and purchase assets with the funds. 
C) take in deposits from savers and purchase assets with the funds. 
D) bring together small savers and small borrowers. 
A) take in deposits from savers and make loans to borrowers. 
B) sell shares to savers and purchase assets with the funds. 
C) take in deposits from savers and purchase assets with the funds. 
D) bring together small savers and small borrowers.

Question 11

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

Accepted Answer

A) Money market mutual funds 
B) Other mutual funds 
C) Private pension funds 
D) Commercial banks 
A) Money market mutual funds 
B) Other mutual funds 
C) Private pension funds 
D) Commercial banks

Question 12

Which of the following had the largest percentage of total assets of financial intermediaries in the United States?

Accepted Answer

A) Money market mutual funds 
B) Life insurance companies 
C) Private pension funds 
D) Commercial banks 
A) Money market mutual funds 
B) Life insurance companies 
C) Private pension funds 
D) Commercial banks

Question 13

Insurance companies

Accepted Answer

A) hold capital market instruments as assets and issue insurance promises as liabilities. 
B) issue insurance promises as assets and hold capital market instruments as liabilities. 
C) hold capital market instruments as assets and also issue insurance promises as assets. 
D) hold capital market instruments as liabilities and also issue insurance promises as liabilities. 
A) hold capital market instruments as assets and issue insurance promises as liabilities. 
B) issue insurance promises as assets and hold capital market instruments as liabilities. 
C) hold capital market instruments as assets and also issue insurance promises as assets. 
D) hold capital market instruments as liabilities and also issue insurance promises as liabilities.

Question 14

Why was the Securities and Exchange Commission established?

Accepted Answer

A) To ensure that "noise trading" on the New York Stock Exchange did not become excessive 
B) To regulate the commission charged by stockbrokers 
C) In response to disreputable underwriting practices 
D) In response to the financial panic of 1907 
A) To ensure that "noise trading" on the New York Stock Exchange did not become excessive 
B) To regulate the commission charged by stockbrokers 
C) In response to disreputable underwriting practices 
D) In response to the financial panic of 1907

Question 15

Many issuers of stocks and bonds use underwriters for all of the following reasons EXCEPT

Accepted Answer

A) only licensed underwriters can issue stocks and bonds. 
B) underwriters are skilled in collecting market information and communicating it to their clients. 
C) investment bankers collect information on issuing firms and put their reputations on the line in issues they underwrite. 
D) an investment bank's endorsement is particularly valuable for issuers that are less well know to small investors. 
A) only licensed underwriters can issue stocks and bonds. 
B) underwriters are skilled in collecting market information and communicating it to their clients. 
C) investment bankers collect information on issuing firms and put their reputations on the line in issues they underwrite. 
D) an investment bank's endorsement is particularly valuable for issuers that are less well know to small investors.

Question 16

Vesting refers to

Accepted Answer

A) the right of the holder of an insurance policy to collect for an insurable event. 
B) the shielding of returns on whole life policies from taxation. 
C) the length of service required of an employee before he or she is eligible for a pension. 
D) the payments made by an employee into a pension plan. 
A) the right of the holder of an insurance policy to collect for an insurable event. 
B) the shielding of returns on whole life policies from taxation. 
C) the length of service required of an employee before he or she is eligible for a pension. 
D) the payments made by an employee into a pension plan.

Question 17

Which of the following is an investment 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 18

In what year did the mutual fund industry in the United States begin?

Accepted Answer

A) 1812 
B) 1924 
C) 1974 
D) 1990 
A) 1812 
B) 1924 
C) 1974 
D) 1990

Question 19

A specialist is

Accepted Answer

A) a securities firm that deals in only one type of security. 
B) an accountant trained in securities law. 
C) a tax lawyer at a securites firm. 
D) a broker-dealer on the floor of the New York Stock Exchange. 
A) a securities firm that deals in only one type of security. 
B) an accountant trained in securities law. 
C) a tax lawyer at a securites firm. 
D) a broker-dealer on the floor of the New York Stock Exchange.

Question 20

The relative illiquidity of corporate bonds is reflected in their having

Accepted Answer

A) higher prices than U.S. government securities. 
B) smaller coupons than U.S. government securities. 
C) higher bid-asked spreads than U.S. government securities. 
D) more active secondary markets than U.S. government securities. 
A) higher prices than U.S. government securities. 
B) smaller coupons than U.S. government securities. 
C) higher bid-asked spreads than U.S. government securities. 
D) more active secondary markets than U.S. government securities.

Exam 12: What Financial Institutions Do

Electronic communications networks (ECNs) are

Sales finance companies

What is the name of the pension plan under which employees can make tax-deductible contributions through regular payroll deductions?

The largest category of U.S. government lending activities is government lending to

Which of the following is not a leading underwriting firm?

Why are securities market institutions not considered to be financial intermediaries?

Charging drivers with good records lower premiums than drivers with bad records is an example of an attempt by insurance companies to deal with the problem of

Merchant banking refers to

Term life insurance

Mutual funds

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

Which of the following had the largest percentage of total assets of financial intermediaries in the United States?

Insurance companies

Why was the Securities and Exchange Commission established?

Many issuers of stocks and bonds use underwriters for all of the following reasons EXCEPT

Vesting refers to

Which of the following is an investment institution?

In what year did the mutual fund industry in the United States begin?

A specialist is

The relative illiquidity of corporate bonds is reflected in their having

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