Exam 16: The Financial System

Households,businesses,government,financial institutions,and financial markets together form what is known as the financial system.

Regulation of U.S.financial markets is primarily a function of the federal government; states do not regulate them in any way.

Banks consider the borrower's ability and willingness to repay the loan when evaluating loan applications.

Morgan wants to purchase a low-risk bond.Therefore,he should buy a government bond.

______ are loans made to borrowers with poor credit ratings.

Which of the following interest rates does the Federal Reserve actually set?

The U.S.Department of Treasury sells what type of bonds?

Underwriting is the process used by insurance companies to determine whom to insure and what to charge.

Municipal bonds are exempt from interest payments of federal income tax.

What provision allows the issuer to redeem the bond before its maturity at a specified price?

_______,also called financial instruments,represent obligations on the part of the issuers-businesses and governments-to provide the purchasers with expected or stated returns on the funds invested or loaned.

In the long run,stock prices tend to follow a company's profits.

The vast majority of funds flow through direct transfers.

The difference between the value of what you own and what you currently owe is called

Secured bonds are backed by a specific pledge of company assets.

Two factors determine the price of a bond: _____ and _____.

Speculative or junk bonds are bonds with ratings of BB and below.