Question 1

The pool of information collected by financial markets is usually:

Accepted Answer

A)  only available to lenders. 
B)  summarized in the form of a price. 
C)  valuable and not made available until the parties pay for it. 
D)  more than a borrower needs to make a loan. 
A)  only available to lenders. 
B)  summarized in the form of a price. 
C)  valuable and not made available until the parties pay for it. 
D)  more than a borrower needs to make a loan. B

Question 2

A share of Microsoft stock would best be described as which of the following?

Accepted Answer

A)  A derivative instrument 
B)  A means of payment 
C)  An underlying instrument 
D)  A debt instrument 
A)  A derivative instrument 
B)  A means of payment 
C)  An underlying instrument 
D)  A debt instrument C

Question 3

The better the information provided to financial markets the:

Accepted Answer

A)  less the amount of funds transferred between savers and borrowers. 
B)  greater the amount of funds transferred between savers and borrowers, though risk increases. 
C)  higher the return required by lenders. 
D)  greater will be the flow of funds in these markets. 
A)  less the amount of funds transferred between savers and borrowers. 
B)  greater the amount of funds transferred between savers and borrowers, though risk increases. 
C)  higher the return required by lenders. 
D)  greater will be the flow of funds in these markets. D

Question 4

A derivative instrument:

Accepted Answer

A)  comes into existence after the underlying instrument is in default. 
B)  is a low-risk financial instrument used by highly risk-averse savers. 
C)  gets its value and payoff from the performance of the underlying instrument. 
D)  should be purchased prior to purchasing the underlying security. 
A)  comes into existence after the underlying instrument is in default. 
B)  is a low-risk financial instrument used by highly risk-averse savers. 
C)  gets its value and payoff from the performance of the underlying instrument. 
D)  should be purchased prior to purchasing the underlying security.

Question 5

A bank is a financial intermediary. Which of the following statements is most accurate?

Accepted Answer

A)  The bank's depositors are the ultimate lenders and the bank is the ultimate borrower. 
B)  People seeking loans from the bank are the ultimate spenders while the bank is the ultimate lender. 
C)  The bank's depositors are the ultimate lenders, while those seeking loans from the bank are the ultimate spenders. 
D)  Those seeking loans from the bank are the ultimate spenders; the bank's stockholders are the ultimate lenders. 
A)  The bank's depositors are the ultimate lenders and the bank is the ultimate borrower. 
B)  People seeking loans from the bank are the ultimate spenders while the bank is the ultimate lender. 
C)  The bank's depositors are the ultimate lenders, while those seeking loans from the bank are the ultimate spenders. 
D)  Those seeking loans from the bank are the ultimate spenders; the bank's stockholders are the ultimate lenders.

Question 6

Financial instruments are different from money because they:

Accepted Answer

A)  can act as a store of value and money cannot. 
B)  can't be a means of payment but money can. 
C)  can allow for the transfer of risk. 
D)  have greater liquidity. 
A)  can act as a store of value and money cannot. 
B)  can't be a means of payment but money can. 
C)  can allow for the transfer of risk. 
D)  have greater liquidity.

Question 7

Countries that lack well-defined property laws and legal structures:

Accepted Answer

A)  have large secondary financial markets because the primary markets do not exist. 
B)  will not develop as fast economically as counties with clear property rights and a formal legal system. 
C)  will have much lower transaction costs associated with any level of lending. 
D)  will not have any financial markets at all. 
A)  have large secondary financial markets because the primary markets do not exist. 
B)  will not develop as fast economically as counties with clear property rights and a formal legal system. 
C)  will have much lower transaction costs associated with any level of lending. 
D)  will not have any financial markets at all.

Question 8

Financial markets enable the transfer of risk by:

Accepted Answer

A)  requiring that risk-averse investors have access to U.S. Treasury bond markets. 
B)  allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk. 
C)  making sure that higher default risk is offset by greater liquidity. 
D)  enabling even unsophisticated investors to purchase highly complex financial instruments. 
A)  requiring that risk-averse investors have access to U.S. Treasury bond markets. 
B)  allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk. 
C)  making sure that higher default risk is offset by greater liquidity. 
D)  enabling even unsophisticated investors to purchase highly complex financial instruments.

Question 9

A primary financial market is:

Accepted Answer

A)  a market just for corporate stocks. 
B)  a market only for AAA rated Securities. 
C)  the New York Stock Exchange. 
D)  one in which newly issued securities are sold. 
A)  a market just for corporate stocks. 
B)  a market only for AAA rated Securities. 
C)  the New York Stock Exchange. 
D)  one in which newly issued securities are sold.

Question 10

Loans made between borrowers and lenders are:

Accepted Answer

A)  liabilities to the lenders and assets to the borrowers since the borrower obtains the funds. 
B)  assets to the lenders and liabilities of the borrowers since the promises are made to the lenders. 
C)  not part of either parties' assets or liabilities until the loans are repaid. 
D)  liabilities to both the lenders and the borrowers. 
A)  liabilities to the lenders and assets to the borrowers since the borrower obtains the funds. 
B)  assets to the lenders and liabilities of the borrowers since the promises are made to the lenders. 
C)  not part of either parties' assets or liabilities until the loans are repaid. 
D)  liabilities to both the lenders and the borrowers.

Question 11

The New York Stock Exchange (NYSE) originated as:

Accepted Answer

A)  a decentralized electronic market made up of dealers all over the world. 
B)  an example of a centralized exchange. 
C)  a financial market where nearly 100 million shares of stock are traded every business day. 
D)  the only centralized stock exchange in the world. 
A)  a decentralized electronic market made up of dealers all over the world. 
B)  an example of a centralized exchange. 
C)  a financial market where nearly 100 million shares of stock are traded every business day. 
D)  the only centralized stock exchange in the world.

Question 12

Which of the following statements is most correct?

Accepted Answer

A)  When a risk is difficult to predict, financial instruments are created to transfer these risks. 
B)  Financial instruments are created to transfer risks that are relatively easy to predict. 
C)  Financial instruments require certainty of an event to be able to transfer risk. 
D)  Financial instruments eliminate the risk from uncertainty, they do not transfer it. 
A)  When a risk is difficult to predict, financial instruments are created to transfer these risks. 
B)  Financial instruments are created to transfer risks that are relatively easy to predict. 
C)  Financial instruments require certainty of an event to be able to transfer risk. 
D)  Financial instruments eliminate the risk from uncertainty, they do not transfer it.

Question 13

Today the primary distinction between direct and indirect finance is in:

Accepted Answer

A)  direct finance the asset holder has a claim on a financial institution while in indirect finance the asset holder has a direct claim on the borrower. 
B)  indirect finance the lender has a direct claim on the borrower while in direct finance the lender has a claim on a financial institution. 
C)  direct finance the asset holder has a direct claim on the borrower while in indirect finance the asset holder has a claim on a financial institution. 
D)  indirect finance the asset holder has a claim on the government while in direct finance the asset holder has a direct claim on a private sector corporation. 
A)  direct finance the asset holder has a claim on a financial institution while in indirect finance the asset holder has a direct claim on the borrower. 
B)  indirect finance the lender has a direct claim on the borrower while in direct finance the lender has a claim on a financial institution. 
C)  direct finance the asset holder has a direct claim on the borrower while in indirect finance the asset holder has a claim on a financial institution. 
D)  indirect finance the asset holder has a claim on the government while in direct finance the asset holder has a direct claim on a private sector corporation.

Question 14

The information concerning the issuer of a financial instrument:

Accepted Answer

A)  needs to be complete and closely monitored by the buyers of the instrument for change. 
B)  is somewhat non-standardized to minimize the cost of the instrument. 
C)  is usually standardized to the essential information required by the buyers. 
D)  is closely monitored by the buyers of these instruments for change. 
A)  needs to be complete and closely monitored by the buyers of the instrument for change. 
B)  is somewhat non-standardized to minimize the cost of the instrument. 
C)  is usually standardized to the essential information required by the buyers. 
D)  is closely monitored by the buyers of these instruments for change.

Question 15

The process of financial intermediation:

Accepted Answer

A)  creates a net cost to an economy. 
B)  increases the economy's ability to produce. 
C)  is always used when a borrower needs to obtain funds. 
D)  is used primarily in underdeveloped countries. 
A)  creates a net cost to an economy. 
B)  increases the economy's ability to produce. 
C)  is always used when a borrower needs to obtain funds. 
D)  is used primarily in underdeveloped countries.

Question 16

Asymmetric information in financial markets is a potential problem usually resulting from:

Accepted Answer

A)  borrowers having more information than the lenders. 
B)  lenders having more information than borrowers. 
C)  the fact that people are basically dishonest. 
D)  the uncertainty about Federal Reserve monetary policy. 
A)  borrowers having more information than the lenders. 
B)  lenders having more information than borrowers. 
C)  the fact that people are basically dishonest. 
D)  the uncertainty about Federal Reserve monetary policy.

Question 17

Loans made between borrowers and lenders are:

Accepted Answer

A)  usually not taxable at the federal level. 
B)  legal only in the state of origination. 
C)  assets of the lenders. 
D)  assets of the borrowers. 
A)  usually not taxable at the federal level. 
B)  legal only in the state of origination. 
C)  assets of the lenders. 
D)  assets of the borrowers.

Question 18

Compare and contrast financial institutions that act as brokers to those that transform
assets. In what sense are both types of institutions financial intermediaries? Provide one example of each type and describe how each functions as a financial intermediary.

Accepted Answer

Financial institutions that act as broke

Question 19

What is the relationship between financial market development and economic growth?

Accepted Answer

A country's economic growth is linked to

Question 20

Over-the-counter (OTC) markets:

Accepted Answer

A)  employ specialists to minimize price volatility. 
B)  are centralized exchanges but you must be a dealer to be part of an exchange. 
C)  only deal in the stocks of companies with over $100 million in capital. 
D)  are networks of security dealers linked electronically. 
A)  employ specialists to minimize price volatility. 
B)  are centralized exchanges but you must be a dealer to be part of an exchange. 
C)  only deal in the stocks of companies with over $100 million in capital. 
D)  are networks of security dealers linked electronically.

Exam 3: Financial Instruments, Financial Markets, and Financial Institutions

The pool of information collected by financial markets is usually:

A share of Microsoft stock would best be described as which of the following?

The better the information provided to financial markets the:

A derivative instrument:

A bank is a financial intermediary. Which of the following statements is most accurate?

Financial instruments are different from money because they:

Countries that lack well-defined property laws and legal structures:

Financial markets enable the transfer of risk by:

A primary financial market is:

Loans made between borrowers and lenders are:

The New York Stock Exchange (NYSE) originated as:

Which of the following statements is most correct?

Today the primary distinction between direct and indirect finance is in:

The information concerning the issuer of a financial instrument:

The process of financial intermediation:

Asymmetric information in financial markets is a potential problem usually resulting from:

Loans made between borrowers and lenders are:

Compare and contrast financial institutions that act as brokers to those that transform assets. In what sense are both types of institutions financial intermediaries? Provide one example of each type and describe how each functions as a financial intermediary.

What is the relationship between financial market development and economic growth?

Over-the-counter (OTC) markets:

An Introduction to Money and the Financial System

Money and the Payments System

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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