Question 1

Which of the following investments offers fixed dividend payments?

Accepted Answer

A)  Consols 
B)  Zero-coupon bonds 
C)  Preferred stock 
D)  Convertible stock 
A)  Consols 
B)  Zero-coupon bonds 
C)  Preferred stock 
D)  Convertible stock

Question 2

A __________ is a "thrift institution."

Accepted Answer

A)  credit union 
B)  commercial bank 
C)  consumer finance company 
D)  life insurance company 
A)  credit union 
B)  commercial bank 
C)  consumer finance company 
D)  life insurance company

Question 3

When borrower-spenders raise funds in financial markets, they issue new securities in the

Accepted Answer

A)  primary market. 
B)  secondary market. 
C)  third market. 
D)  fourth market. 
A)  primary market. 
B)  secondary market. 
C)  third market. 
D)  fourth market.

Question 4

FHA-VA mortgages differ from conventional mortgages in that

Accepted Answer

A)  the mortgaged land and building are collateral for conventional mortgages but not for FHA-VA mortgages. 
B)  FHA-VA mortgages are insured by the federal government, while conventional mortgages are not. 
C)  FHA-VA mortgages involve real estate, while conventional mortgages may or may not involve real estate. 
D)  conventional mortgages run for 25-30 years, but FHA-VA are considerably shorter in duration. 
A)  the mortgaged land and building are collateral for conventional mortgages but not for FHA-VA mortgages. 
B)  FHA-VA mortgages are insured by the federal government, while conventional mortgages are not. 
C)  FHA-VA mortgages involve real estate, while conventional mortgages may or may not involve real estate. 
D)  conventional mortgages run for 25-30 years, but FHA-VA are considerably shorter in duration.

Question 5

Which of the following investments does not make interest payments annually but is sold at a discount, with the face value of the security paid at maturity?

Accepted Answer

A)  Preferred stock 
B)  Preferred bonds 
C)  Zero-coupon bonds 
D)  Convertible preferred stock 
A)  Preferred stock 
B)  Preferred bonds 
C)  Zero-coupon bonds 
D)  Convertible preferred stock

Question 6

Mortgages carry an uncertain flow of cash because

Accepted Answer

A)  borrowers often default on home loans. 
B)  mortgages are short-term debt instruments. 
C)  homeowners often prepay their mortgage loans. 
D)  lenders cannot legally fix interest rates. 
A)  borrowers often default on home loans. 
B)  mortgages are short-term debt instruments. 
C)  homeowners often prepay their mortgage loans. 
D)  lenders cannot legally fix interest rates.

Question 7

If financial intermediation were substantially reduced, the likely initial effect on individual investors would be

Accepted Answer

A)  higher inflation. 
B)  a shift to a barter economy. 
C)  a reduction in disintermediation. 
D)  increased risk. 
A)  higher inflation. 
B)  a shift to a barter economy. 
C)  a reduction in disintermediation. 
D)  increased risk.

Question 8

A call 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 9

An important role of financial institutions is to

Accepted Answer

A)  provide borrowers with low interest rates. 
B)  provide information to lenders about the quality of financial claims issued. 
C)  buy primary securities. 
D)  control the money supply. 
A)  provide borrowers with low interest rates. 
B)  provide information to lenders about the quality of financial claims issued. 
C)  buy primary securities. 
D)  control the money supply.

Question 10

Financial markets serve as the

Accepted Answer

A)  primary source of funds for financial intermediaries. 
B)  means of converting cash into tangible assets. 
C)  transmission mechanism between savers and borrowers. 
D)  economic system's ultimate source of funds. 
A)  primary source of funds for financial intermediaries. 
B)  means of converting cash into tangible assets. 
C)  transmission mechanism between savers and borrowers. 
D)  economic system's ultimate source of funds.

Question 11

Funds that used to flow through intermediated markets and now flow through financial markets are

Accepted Answer

A)  intermediated. 
B)  indirectly financed. 
C)  securitized. 
D)  saved. 
A)  intermediated. 
B)  indirectly financed. 
C)  securitized. 
D)  saved.

Question 12

That segment of the market for securities which have original maturities of less than one year is called the

Accepted Answer

A)  stock market. 
B)  derivative securities market. 
C)  money market. 
D)  capital market. 
A)  stock market. 
B)  derivative securities market. 
C)  money market. 
D)  capital market.

Question 13

To the stockholder, corporate stock represents

Accepted Answer

A)  a source of fixed interest income. 
B)  a loan. 
C)  ownership. 
D)  a guaranteed return of principal. 
A)  a source of fixed interest income. 
B)  a loan. 
C)  ownership. 
D)  a guaranteed return of principal.

Question 14

An index fund

Accepted Answer

A)  is a bond fund that provides diversification. 
B)  is a mutual fund that buys the stocks that compose a well-known index. 
C)  is a growth fund that reduces transaction costs. 
D)  produces information on the securities it invests in. 
A)  is a bond fund that provides diversification. 
B)  is a mutual fund that buys the stocks that compose a well-known index. 
C)  is a growth fund that reduces transaction costs. 
D)  produces information on the securities it invests in.

Question 15

Which of the following statements is not true?

Accepted Answer

A)  Financial and intermediated markets are conduits through which funds are channeled. 
B)  Borrower-spenders benefit from financial and intermediated markets because they earn interest or dividends on their funds. 
C)  Without financial and intermediated markets, savers would have no choice but to hoard their excess money. 
D)  When funds flow through intermediaries, the process is indirect. 
A)  Financial and intermediated markets are conduits through which funds are channeled. 
B)  Borrower-spenders benefit from financial and intermediated markets because they earn interest or dividends on their funds. 
C)  Without financial and intermediated markets, savers would have no choice but to hoard their excess money. 
D)  When funds flow through intermediaries, the process is indirect.

Question 16

__________ is not a cash flow associated with a bond.

Accepted Answer

A)  Payment to purchase a bond 
B)  Periodic interest payments 
C)  Periodic dividend payments 
D)  Repayment of the face value when the bond matures 
A)  Payment to purchase a bond 
B)  Periodic interest payments 
C)  Periodic dividend payments 
D)  Repayment of the face value when the bond matures

Question 17

Besides differences in maturities, the characteristic that distinguishes financial assets in the capital market from those in the money market is the level of

Accepted Answer

A)  activity. 
B)  liquidity. 
C)  velocity. 
D)  intermediation. 
A)  activity. 
B)  liquidity. 
C)  velocity. 
D)  intermediation.

Question 18

Which of the following bonds are called tax-exempts?

Accepted Answer

A)  Municipal bonds 
B)  U.S. savings bonds 
C)  U.S. Treasury bonds 
D)  Consols 
A)  Municipal bonds 
B)  U.S. savings bonds 
C)  U.S. Treasury bonds 
D)  Consols

Question 19

Bonds that pay no periodic (annual)interest are

Accepted Answer

A)  zero-coupon bonds. 
B)  coupon securities. 
C)  perpetuities. 
D)  tax-exempts. 
A)  zero-coupon bonds. 
B)  coupon securities. 
C)  perpetuities. 
D)  tax-exempts.

Question 20

Commercial paper represents the

Accepted Answer

A)  capital assets of business firms. 
B)  short-term liabilities of the most creditworthy business firms and finance companies. 
C)  long-term liabilities of investment banks. 
D)  short-term liabilities of commercial banks. 
A)  capital assets of business firms. 
B)  short-term liabilities of the most creditworthy business firms and finance companies. 
C)  long-term liabilities of investment banks. 
D)  short-term liabilities of commercial banks.

Exam 3: Financial Instruments, Markets, and Institutions

Which of the following investments offers fixed dividend payments?

A __________ is a "thrift institution."

When borrower-spenders raise funds in financial markets, they issue new securities in the

FHA-VA mortgages differ from conventional mortgages in that

Which of the following investments does not make interest payments annually but is sold at a discount, with the face value of the security paid at maturity?

Mortgages carry an uncertain flow of cash because

If financial intermediation were substantially reduced, the likely initial effect on individual investors would be

A call option gives the owner the

An important role of financial institutions is to

Financial markets serve as the

Funds that used to flow through intermediated markets and now flow through financial markets are

That segment of the market for securities which have original maturities of less than one year is called the

To the stockholder, corporate stock represents

An index fund

Which of the following statements is not true?

__________ is not a cash flow associated with a bond.

Besides differences in maturities, the characteristic that distinguishes financial assets in the capital market from those in the money market is the level of

Which of the following bonds are called tax-exempts?

Bonds that pay no periodic (annual)interest are

Commercial paper represents the

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

Filters