Question 1

The oldest U.S. government intervention in financial intermediation is government lending to

Accepted Answer

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

Question 2

Money market mutual funds

Accepted Answer

A) hold portfolios of stocks. 
B) hold portfolios of short-term assets. 
C) are always load funds. 
D) hold only U.S. Treasury securities. 
A) hold portfolios of stocks. 
B) hold portfolios of short-term assets. 
C) are always load funds. 
D) hold only U.S. Treasury securities.

Question 3

Deleveraging

Accepted Answer

A) is another name for underwriting. 
B) refers to underwriting carried out by merchant banks. 
C) refers to investment banks helping firms reduce their debt burdens by raising equity in public markets. 
D) refers to a takeover of a corporation by its management. 
A) is another name for underwriting. 
B) refers to underwriting carried out by merchant banks. 
C) refers to investment banks helping firms reduce their debt burdens by raising equity in public markets. 
D) refers to a takeover of a corporation by its management.

Question 4

Which of the following is a depository 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 5

The greatest difficulty with federal loan guarantees is that

Accepted Answer

A) they interfere with the smooth working of the market system. 
B) they have largely driven out private lending in the mortgage market. 
C) they have largely driven out private lending in the market for small business loans. 
D) moral hazard problems have led to excessive defaults. 
A) they interfere with the smooth working of the market system. 
B) they have largely driven out private lending in the mortgage market. 
C) they have largely driven out private lending in the market for small business loans. 
D) moral hazard problems have led to excessive defaults.

Question 6

The most important service provided by underwriters is

Accepted Answer

A) lowering of information costs. 
B) dealing with problems of moral hazard. 
C) insuring firms against loss from fire. 
D) insuring firms against loss from employee theft. 
A) lowering of information costs. 
B) dealing with problems of moral hazard. 
C) insuring firms against loss from fire. 
D) insuring firms against loss from employee theft.

Question 7

The portfolios that mutual funds offer to savers are

Accepted Answer

A) usually made up of bonds. 
B) usually made up of common stocks. 
C) tax free in most states. 
D) usually more liquid than the underlying assets. 
A) usually made up of bonds. 
B) usually made up of common stocks. 
C) tax free in most states. 
D) usually more liquid than the underlying assets.

Question 8

Property and casualty insurers hold

Accepted Answer

A) more short-term assets than do life insurance companies. 
B) fewer short-term assets than do life insurance companies. 
C) roughly the same amount of short-term assets as do life insurance companies. 
D) only long-term assets. 
A) more short-term assets than do life insurance companies. 
B) fewer short-term assets than do life insurance companies. 
C) roughly the same amount of short-term assets as do life insurance companies. 
D) only long-term assets.

Question 9

An insurance premium is a

Accepted Answer

A) payment made by an insurance company to a policyholder after the occurrence of an insurable event. 
B) payment made by an insurance company to a policyholder following a period in which the policyholder has filed no claims against the company. 
C) fee paid by policyholders to insurance companies as payment for coverage. 
D) fee paid by policyholders to insurance companies in exchange for special considerations, such as a particularly large policy. 
A) payment made by an insurance company to a policyholder after the occurrence of an insurable event. 
B) payment made by an insurance company to a policyholder following a period in which the policyholder has filed no claims against the company. 
C) fee paid by policyholders to insurance companies as payment for coverage. 
D) fee paid by policyholders to insurance companies in exchange for special considerations, such as a particularly large policy.

Question 10

Credit unions have invested primarily in

Accepted Answer

A) corporate stock. 
B) commercial paper. 
C) corporate bonds. 
D) mortgages. 
A) corporate stock. 
B) commercial paper. 
C) corporate bonds. 
D) mortgages.

Question 11

If an investment bank underwrites an issue on an "all-or-none" basis,

Accepted Answer

A) the issuing company receives nothing unless the investment bank sells the complete issue at the offering price. 
B) the issuing company receives the guaranteed price even if the investment bank sells none of the issue. 
C) the investment bank makes no guarantee and is required to sell to investors only as much of the issue as it can. 
D) the investment bank will raise the indicated funds from an issue that is either all stock or all bonds. 
A) the issuing company receives nothing unless the investment bank sells the complete issue at the offering price. 
B) the issuing company receives the guaranteed price even if the investment bank sells none of the issue. 
C) the investment bank makes no guarantee and is required to sell to investors only as much of the issue as it can. 
D) the investment bank will raise the indicated funds from an issue that is either all stock or all bonds.

Question 12

Which of the following is true of the New York Stock Exchange?

Accepted Answer

A) It is an over-the-counter market. 
B) It maintains a liquid central market for small and medium-sized investors. 
C) It accounted for a larger fraction of all shares traded in the United States in 1991 than in 1971. 
D) Trading on it takes place over the telephone and by computer. 
A) It is an over-the-counter market. 
B) It maintains a liquid central market for small and medium-sized investors. 
C) It accounted for a larger fraction of all shares traded in the United States in 1991 than in 1971. 
D) Trading on it takes place over the telephone and by computer.

Question 13

The largest firms in securities markets

Accepted Answer

A) act as both brokers and dealers. 
B) act as brokers, but not as dealers. 
C) act as dealers, but not as brokers. 
D) act as neither brokers nor dealers. 
A) act as both brokers and dealers. 
B) act as brokers, but not as dealers. 
C) act as dealers, but not as brokers. 
D) act as neither brokers nor dealers.

Question 14

In a defined contribution pension plan,

Accepted Answer

A) pension income varies depending on how well the plan's investments have done. 
B) the employee is promised an assigned benefit based on earnings and years of service. 
C) if the funds in the pension plan exceed the amount promised, the excess accrues to the issuing firm or institution. 
D) all earnings are taxable as regular income. 
A) pension income varies depending on how well the plan's investments have done. 
B) the employee is promised an assigned benefit based on earnings and years of service. 
C) if the funds in the pension plan exceed the amount promised, the excess accrues to the issuing firm or institution. 
D) all earnings are taxable as regular income.

Question 15

"Sallie Mae" was established to encourage 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 16

Property and casualty insurance companies hold more liquid assets than do life insurance companies because

Accepted Answer

A) they face greater adverse selection problems. 
B) they face greater moral hazard problems. 
C) events such as fires and earthquakes are difficult to predict. 
D) they are required to do so by law. 
A) they face greater adverse selection problems. 
B) they face greater moral hazard problems. 
C) events such as fires and earthquakes are difficult to predict. 
D) they are required to do so by law.

Question 17

Which of the following is NOT a government financial institution?

Accepted Answer

A) Social Security Administration 
B) Federal National Mortgage Association 
C) Federal Land Banks 
D) Student Loan Market Association 
A) Social Security Administration 
B) Federal National Mortgage Association 
C) Federal Land Banks 
D) Student Loan Market Association

Question 18

Factoring

Accepted Answer

A) involves selling stocks and using the proceeds to buy bonds. 
B) is purchasing accounts receivable at a discount. 
C) is calculating the optimal par values of stocks and bonds. 
D) has been declared illegal under the Factoring Reform Act of 1994. 
A) involves selling stocks and using the proceeds to buy bonds. 
B) is purchasing accounts receivable at a discount. 
C) is calculating the optimal par values of stocks and bonds. 
D) has been declared illegal under the Factoring Reform Act of 1994.

Question 19

Discuss changes in the level of competition in security underwriting during the last few decades.

Accepted Answer

The level of competition in security und

Question 20

Blood tests administered to applicants for medical insurance are an example of an attempt by insurance companies to deal with the problem of

Accepted Answer

A) moral hazard. 
B) the drug abuse problems currently plaguing the country. 
C) adverse selection. 
D) failure of policyholders to keep paying their premiums. 
A) moral hazard. 
B) the drug abuse problems currently plaguing the country. 
C) adverse selection. 
D) failure of policyholders to keep paying their premiums.

Exam 12: What Financial Institutions Do

The oldest U.S. government intervention in financial intermediation is government lending to

Money market mutual funds

Deleveraging

Which of the following is a depository institution?

The greatest difficulty with federal loan guarantees is that

The most important service provided by underwriters is

The portfolios that mutual funds offer to savers are

Property and casualty insurers hold

An insurance premium is a

Credit unions have invested primarily in

If an investment bank underwrites an issue on an "all-or-none" basis,

Which of the following is true of the New York Stock Exchange?

The largest firms in securities markets

In a defined contribution pension plan,

"Sallie Mae" was established to encourage lending to

Property and casualty insurance companies hold more liquid assets than do life insurance companies because

Which of the following is NOT a government financial institution?

Factoring

Discuss changes in the level of competition in security underwriting during the last few decades.

Blood tests administered to applicants for medical insurance are an example of an attempt by insurance companies to deal with the problem of

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

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