Question 1

A liquid asset is

Accepted Answer

A) an asset that can easily and quickly be sold to raise cash. 
B) a share of an ocean resort. 
C) difficult to resell. 
D) always sold in an over-the-counter market. 
A) an asset that can easily and quickly be sold to raise cash. 
B) a share of an ocean resort. 
C) difficult to resell. 
D) always sold in an over-the-counter market. A

Question 2

Risk sharing is profitable for financial institutions due to

Accepted Answer

A) low transactions costs. 
B) asymmetric information. 
C) adverse selection. 
D) moral hazard. 
A) low transactions costs. 
B) asymmetric information. 
C) adverse selection. 
D) moral hazard. A

Question 3

Which of the following statements about the characteristics of debt and equities is true?

Accepted Answer

A) They can both be long-term financial instruments. 
B) Bond holders are residual claimants. 
C) The income from bonds is typically more variable than that from equities. 
D) Bonds pay dividends. 
A) They can both be long-term financial instruments. 
B) Bond holders are residual claimants. 
C) The income from bonds is typically more variable than that from equities. 
D) Bonds pay dividends. A

Question 4

Which of the following instruments are traded in a money market?

Accepted Answer

A) Bank commercial loans 
B) Commercial paper 
C) State and local government bonds 
D) Residential mortgages 
A) Bank commercial loans 
B) Commercial paper 
C) State and local government bonds 
D) Residential mortgages

Question 5

The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.

Accepted Answer

A) more; primary 
B) more; secondary 
C) less; primary 
D) less; secondary 
A) more; primary 
B) more; secondary 
C) less; primary 
D) less; secondary

Question 6

Because these securities are more liquid and generally have smaller price fluctuations,corporations and banks use the ________ securities to earn interest on temporary surplus funds.

Accepted Answer

A) money market 
B) capital market 
C) bond market 
D) stock market 
A) money market 
B) capital market 
C) bond market 
D) stock market

Question 7

Equity instruments are traded in the ________ market.

Accepted Answer

A) money 
B) bond 
C) capital 
D) commodities 
A) money 
B) bond 
C) capital 
D) commodities

Question 8

The problem created by asymmetric information before the transaction occurs is called ________,while the problem created after the transaction occurs is called ________.

Accepted Answer

A) adverse selection; moral hazard 
B) moral hazard; adverse selection 
C) costly state verification; free-riding 
D) free-riding; costly state verification 
A) adverse selection; moral hazard 
B) moral hazard; adverse selection 
C) costly state verification; free-riding 
D) free-riding; costly state verification

Question 9

If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) free-riding. 
D) costly state verification. 
A) moral hazard. 
B) adverse selection. 
C) free-riding. 
D) costly state verification.

Question 10

Prices of money market instruments undergo the least price fluctuations because of

Accepted Answer

A) the short terms to maturity for the securities. 
B) the heavy regulations in the industry. 
C) the price ceiling imposed by government regulators. 
D) the lack of competition in the market. 
A) the short terms to maturity for the securities. 
B) the heavy regulations in the industry. 
C) the price ceiling imposed by government regulators. 
D) the lack of competition in the market.

Question 11

Collateral is ________ the lender receives if the borrower does not pay back the loan.

Accepted Answer

A) a liability 
B) an asset 
C) a present 
D) an offering 
A) a liability 
B) an asset 
C) a present 
D) an offering

Question 12

Which of the following instruments are traded in a money market?

Accepted Answer

A) State and local government bonds 
B) U.S.Treasury bills 
C) Corporate bonds 
D) U.S.government agency securities 
A) State and local government bonds 
B) U.S.Treasury bills 
C) Corporate bonds 
D) U.S.government agency securities

Question 13

You can borrow $5000 to finance a new business venture.This new venture will generate annual earnings of $251.The maximum interest rate that you would pay on the borrowed funds and still increase your income is

Accepted Answer

A) 25%. 
B) 12.5%. 
C) 10%. 
D) 5%. 
A) 25%. 
B) 12.5%. 
C) 10%. 
D) 5%.

Question 14

U.S.Treasury bills pay no interest but are sold at a ________.That is,you will pay a lower purchase price than the amount you receive at maturity.

Accepted Answer

A) premium 
B) collateral 
C) default 
D) discount 
A) premium 
B) collateral 
C) default 
D) discount

Question 15

U.S.dollar deposits in foreign banks outside the U.S.or in foreign branches of U.S.banks are called

Accepted Answer

A) Atlantic dollars. 
B) Eurodollars. 
C) foreign dollars. 
D) outside dollars. 
A) Atlantic dollars. 
B) Eurodollars. 
C) foreign dollars. 
D) outside dollars.

Question 16

Savings and loan associations are regulated by the

Accepted Answer

A) Federal Reserve System. 
B) Securities and Exchange Commission. 
C) Office of the Comptroller of the Currency. 
D) Office of Thrift Supervision. 
A) Federal Reserve System. 
B) Securities and Exchange Commission. 
C) Office of the Comptroller of the Currency. 
D) Office of Thrift Supervision.

Question 17

Which of the following benefit directly from any increase in the corporation's profitability?

Accepted Answer

A) a bond holder 
B) a commercial paper holder 
C) a shareholder 
D) a T-bill holder 
A) a bond holder 
B) a commercial paper holder 
C) a shareholder 
D) a T-bill holder

Question 18

Banks can lower the cost of information production by applying one information resource to many different services.This process is called

Accepted Answer

A) economies of scale. 
B) asset transformation. 
C) economies of scope. 
D) asymmetric information. 
A) economies of scale. 
B) asset transformation. 
C) economies of scope. 
D) asymmetric information.

Question 19

A goal of the Securities and Exchange Commission is to reduce problems arising from

Accepted Answer

A) competition. 
B) banking panics. 
C) risk. 
D) asymmetric information. 
A) competition. 
B) banking panics. 
C) risk. 
D) asymmetric information.

Question 20

An example of economies of scale in the provision of financial services is

Accepted Answer

A) investing in a diversified collection of assets. 
B) providing depositors with a variety of savings certificates. 
C) spreading the cost of borrowed funds over many customers. 
D) spreading the cost of writing a standardized contract over many borrowers. 
A) investing in a diversified collection of assets. 
B) providing depositors with a variety of savings certificates. 
C) spreading the cost of borrowed funds over many customers. 
D) spreading the cost of writing a standardized contract over many borrowers.

Exam 2: An Overview of the Financial System

A liquid asset is

Risk sharing is profitable for financial institutions due to

Which of the following statements about the characteristics of debt and equities is true?

Which of the following instruments are traded in a money market?

The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market.

Because these securities are more liquid and generally have smaller price fluctuations,corporations and banks use the ________ securities to earn interest on temporary surplus funds.

Equity instruments are traded in the ________ market.

The problem created by asymmetric information before the transaction occurs is called ________,while the problem created after the transaction occurs is called ________.

If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of

Prices of money market instruments undergo the least price fluctuations because of

Collateral is ________ the lender receives if the borrower does not pay back the loan.

Which of the following instruments are traded in a money market?

You can borrow $5000 to finance a new business venture.This new venture will generate annual earnings of $251.The maximum interest rate that you would pay on the borrowed funds and still increase your income is

U.S.Treasury bills pay no interest but are sold at a ________.That is,you will pay a lower purchase price than the amount you receive at maturity.

U.S.dollar deposits in foreign banks outside the U.S.or in foreign branches of U.S.banks are called

Savings and loan associations are regulated by the

Which of the following benefit directly from any increase in the corporation's profitability?

Banks can lower the cost of information production by applying one information resource to many different services.This process is called

A goal of the Securities and Exchange Commission is to reduce problems arising from

An example of economies of scale in the provision of financial services is

Why Study Money, banking, and Financial Markets

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

The higher a security's price in the secondary market the funds a firm can raise by selling securities in the market.

The problem created by asymmetric information before the transaction occurs is called ,while the problem created after the transaction occurs is called .