Question 1

Which of the following is not true regarding mortgages?

Accepted Answer

A)  Some of them, called ARMs, have interest rates that are adjusted periodically. 
B)  FHA-VA mortgages are insured by government agencies. 
C)  They always have a fixed mortgage rate. 
D)  They often have maturities between 25 and 30 years. 
A)  Some of them, called ARMs, have interest rates that are adjusted periodically. 
B)  FHA-VA mortgages are insured by government agencies. 
C)  They always have a fixed mortgage rate. 
D)  They often have maturities between 25 and 30 years. C

Question 2

An indirect flow of funds occurs when

Accepted Answer

A)  funds flow from saver-lenders to borrower-spenders through financial intermediaries. 
B)  funds flow from saver-lenders to borrower-spenders through financial markets. 
C)  funds flow to saver-lenders from borrower-spenders through financial intermediaries. 
D)  funds flow to saver-lenders from borrower-spenders through financial markets. 
A)  funds flow from saver-lenders to borrower-spenders through financial intermediaries. 
B)  funds flow from saver-lenders to borrower-spenders through financial markets. 
C)  funds flow to saver-lenders from borrower-spenders through financial intermediaries. 
D)  funds flow to saver-lenders from borrower-spenders through financial markets. A

Question 3

Unlike most companies, financial intermediaries

Accepted Answer

A)  carry financial instruments only on the liabilities side of their balance sheet. 
B)  carry financial instruments only on the asset side of their balance sheet. 
C)  carry financial instruments on both sides of the balance sheet. 
D)  have no debt. 
A)  carry financial instruments only on the liabilities side of their balance sheet. 
B)  carry financial instruments only on the asset side of their balance sheet. 
C)  carry financial instruments on both sides of the balance sheet. 
D)  have no debt. C

Question 4

Large-size bank CDs are most likely to appear on the balance sheet of a

Accepted Answer

A)  pension fund. 
B)  life insurance company. 
C)  mutual fund. 
D)  money market mutual fund. 
A)  pension fund. 
B)  life insurance company. 
C)  mutual fund. 
D)  money market mutual fund.

Question 5

If an individual sells a U.S. Treasury bill and uses the funds to open a money market deposit account, it is an example of

Accepted Answer

A)  consumption. 
B)  direct finance. 
C)  tax avoidance. 
D)  financial intermediation. 
A)  consumption. 
B)  direct finance. 
C)  tax avoidance. 
D)  financial intermediation.

Question 6

A major difference between stocks and bonds is that

Accepted Answer

A)  bonds pay their owners dividends while stocks pay interest. 
B)  bonds pay their owners interest while stocks pay dividends. 
C)  the interest on a bond depends on the earnings of the corporation and is not guaranteed while dividends on stock are legally required. 
D)  bonds represent ownership while stock represent debt. 
A)  bonds pay their owners dividends while stocks pay interest. 
B)  bonds pay their owners interest while stocks pay dividends. 
C)  the interest on a bond depends on the earnings of the corporation and is not guaranteed while dividends on stock are legally required. 
D)  bonds represent ownership while stock represent debt.

Question 7

The issuer of a bond is a

Accepted Answer

A)  borrower. 
B)  creditor. 
C)  saver. 
D)  lender. 
A)  borrower. 
B)  creditor. 
C)  saver. 
D)  lender.

Question 8

Financial institutions are just like other firms in that they attempt to maximize

Accepted Answer

A)  total assets. 
B)  total liabilities. 
C)  capital. 
D)  profits. 
A)  total assets. 
B)  total liabilities. 
C)  capital. 
D)  profits.

Question 9

Which of the following securities is least likely to be guaranteed by the full faith and credit of the federal government?

Accepted Answer

A)  A bond issued by a Federal Land Bank 
B)  A bond issued by the United States Postal Service 
C)  A note issued by the Federal National Mortgage Association 
D)  A security issued by a Federal Home Loan Bank 
A)  A bond issued by a Federal Land Bank 
B)  A bond issued by the United States Postal Service 
C)  A note issued by the Federal National Mortgage Association 
D)  A security issued by a Federal Home Loan Bank

Question 10

Checking accounts can be offered by

Accepted Answer

A)  pension funds. 
B)  life insurance companies. 
C)  consumer finance companies. 
D)  savings and loan associations. 
A)  pension funds. 
B)  life insurance companies. 
C)  consumer finance companies. 
D)  savings and loan associations.

Question 11

An example of a derivative financial instrument is a(n)

Accepted Answer

A)  corporate bond. 
B)  option contract on U.S. Treasury bonds. 
C)  variable-rate mortgage. 
D)  preferred stock. 
A)  corporate bond. 
B)  option contract on U.S. Treasury bonds. 
C)  variable-rate mortgage. 
D)  preferred stock.

Question 12

Consumer finance companies get their funds primarily from

Accepted Answer

A)  the federal government. 
B)  selling stock. 
C)  selling commercial paper. 
D)  issuing long term bonds. 
A)  the federal government. 
B)  selling stock. 
C)  selling commercial paper. 
D)  issuing long term bonds.

Question 13

All financial securities share the characteristic that they represent a claim to future

Accepted Answer

A)  interest income. 
B)  ownership. 
C)  cash flows. 
D)  dividend payments. 
A)  interest income. 
B)  ownership. 
C)  cash flows. 
D)  dividend payments.

Question 14

Assets on the balance sheet of a money market mutual fund typically include

Accepted Answer

A)  commercial mortgages. 
B)  high-grade commercial paper. 
C)  U.S. Treasury bonds. 
D)  municipal bonds. 
A)  commercial mortgages. 
B)  high-grade commercial paper. 
C)  U.S. Treasury bonds. 
D)  municipal bonds.

Question 15

A business firm that has temporary surplus funds is most likely to buy

Accepted Answer

A)  U.S. Treasury bills. 
B)  U.S. Treasury bonds. 
C)  corporate stock. 
D)  corporate bonds. 
A)  U.S. Treasury bills. 
B)  U.S. Treasury bonds. 
C)  corporate stock. 
D)  corporate bonds.

Question 16

A put option gives the owner the

Accepted Answer

A)  right to sell the underlying asset at a fixed price. 
B)  right to buy the underlying asset at a fixed price. 
C)  obligation to sell the underlying asset at a fixed price. 
D)  obligation to buy the underlying asset at a fixed price. 
A)  right to sell the underlying asset at a fixed price. 
B)  right to buy the underlying asset at a fixed price. 
C)  obligation to sell the underlying asset at a fixed price. 
D)  obligation to buy the underlying asset at a fixed price.

Question 17

Traditionally, bonds have been issued with coupons that bondholders redeem every

Accepted Answer

A)  year. 
B)  quarter. 
C)  six months. 
D)  month. 
A)  year. 
B)  quarter. 
C)  six months. 
D)  month.

Question 18

Which of these institutions has the greatest degree of certainty regarding the timing of liability payouts?

Accepted Answer

A)  Life insurance companies 
B)  Property and casualty insurance companies 
C)  Money market mutual funds 
D)  Credit unions 
A)  Life insurance companies 
B)  Property and casualty insurance companies 
C)  Money market mutual funds 
D)  Credit unions

Question 19

A secondary market is one in which

Accepted Answer

A)  new securities are issued. 
B)  financial intermediaries make loans. 
C)  savers place funds in financial intermediaries. 
D)  existing securities can be bought and sold. 
A)  new securities are issued. 
B)  financial intermediaries make loans. 
C)  savers place funds in financial intermediaries. 
D)  existing securities can be bought and sold.

Question 20

Which of the following statements is true?

Accepted Answer

A)  Convertible preferred stockholders receive quarterly interest payments. 
B)  Common stockholders receive a fixed dividend, and they are entitled to it before preferred stockholders get anything. 
C)  Convertible preferred stock can be converted into preferred stock at a predetermined price. 
D)  Many buyers of common stock are more interested in capital gains than in dividends. 
A)  Convertible preferred stockholders receive quarterly interest payments. 
B)  Common stockholders receive a fixed dividend, and they are entitled to it before preferred stockholders get anything. 
C)  Convertible preferred stock can be converted into preferred stock at a predetermined price. 
D)  Many buyers of common stock are more interested in capital gains than in dividends.

Exam 3: Financial Instruments, Markets, and Institutions

Which of the following is not true regarding mortgages?

An indirect flow of funds occurs when

Unlike most companies, financial intermediaries

Large-size bank CDs are most likely to appear on the balance sheet of a

If an individual sells a U.S. Treasury bill and uses the funds to open a money market deposit account, it is an example of

A major difference between stocks and bonds is that

The issuer of a bond is a

Financial institutions are just like other firms in that they attempt to maximize

Which of the following securities is least likely to be guaranteed by the full faith and credit of the federal government?

Checking accounts can be offered by

An example of a derivative financial instrument is a(n)

Consumer finance companies get their funds primarily from

All financial securities share the characteristic that they represent a claim to future

Assets on the balance sheet of a money market mutual fund typically include

A business firm that has temporary surplus funds is most likely to buy

A put option gives the owner the

Traditionally, bonds have been issued with coupons that bondholders redeem every

Which of these institutions has the greatest degree of certainty regarding the timing of liability payouts?

A secondary market is one in which

Which of the following statements is true?

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

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