Question 1

Which of the following statements is most correct?

Accepted Answer

A)  Financial intermediaries are banks. 
B)  A bank is a financial intermediary. 
C)  Financial intermediaries are insurance companies. 
D)  Financial intermediaries are essential to direct finance. 
A)  Financial intermediaries are banks. 
B)  A bank is a financial intermediary. 
C)  Financial intermediaries are insurance companies. 
D)  Financial intermediaries are essential to direct finance.

Question 2

Financial intermediaries include each of the following, except:

Accepted Answer

A)  the New York Stock Exchange. 
B)  credit unions. 
C)  savings banks. 
D)  commercial banks. 
A)  the New York Stock Exchange. 
B)  credit unions. 
C)  savings banks. 
D)  commercial banks.

Question 3

Money markets are where trades occur for:

Accepted Answer

A)  stocks. 
B)  bonds of all maturities. 
C)  derivatives. 
D)  short-term bonds issued by both governments and private companies. 
A)  stocks. 
B)  bonds of all maturities. 
C)  derivatives. 
D)  short-term bonds issued by both governments and private companies.

Question 4

Brokerage commissions:

Accepted Answer

A)  are set by government regulators so they cannot vary across firms for the same services. 
B)  can vary but typically don't because firms tend to set them at the same levels. 
C)  can differ reflecting the different services being offered. 
D)  are always a percentage of the amount of the trade. 
A)  are set by government regulators so they cannot vary across firms for the same services. 
B)  can vary but typically don't because firms tend to set them at the same levels. 
C)  can differ reflecting the different services being offered. 
D)  are always a percentage of the amount of the trade.

Question 5

A high school basketball player decides to bypass college and go right into the NBA, (the National Basketball Association). Describe the risk the individual is taking and a contract that might transfer the risk.

Accepted Answer

The risks the individual is taking are n

Question 6

Disability income insurance is:

Accepted Answer

A)  insurance borrowers can take out in case the company they invest in defaults. 
B)  insurance that makes payments of wages to workers when the company they work for is disabled due to a natural disaster. 
C)  insurance that makes payments to workers when they are unable to work due to an injury. 
D)  only available through the government as part of the Social Security System. 
A)  insurance borrowers can take out in case the company they invest in defaults. 
B)  insurance that makes payments of wages to workers when the company they work for is disabled due to a natural disaster. 
C)  insurance that makes payments to workers when they are unable to work due to an injury. 
D)  only available through the government as part of the Social Security System.

Question 7

Reasons for the rapid structural change in financial markets in recent years include all of the following except:

Accepted Answer

A)  globalization. 
B)  technological advances in computing. 
C)  technological advances in communication. 
D)  high real interest rates. 
A)  globalization. 
B)  technological advances in computing. 
C)  technological advances in communication. 
D)  high real interest rates.

Question 8

Explain the various ways that financial intermediaries increase the efficiency of an economy.

Accepted Answer

Financial intermediaries increase an eco

Question 9

Consider a typical individual who owns the following financial instruments: A life insurance policy for $250,000; a certificate of deposit for $10,000; homeowner's and auto insurance policies; $50,000 in a mutual fund, and $150,000 in her pension fund at work. Which of these are instruments used primarily as stores of value and which are being used to transfer risk?

Accepted Answer

The life insurance policy, the homeowner

Question 10

Which of the following would not be an example of a secondary financial market transaction?

Accepted Answer

A)  You call a broker and purchase 100 shares of McDonalds Corp. stock. 
B)  You go to the bank and purchase a $5,000 certificate of deposit. 
C)  You call a broker and purchase a U.S. Treasury bond. 
D)  You call a broker and purchase a bond issued by General Motors. 
A)  You call a broker and purchase 100 shares of McDonalds Corp. stock. 
B)  You go to the bank and purchase a $5,000 certificate of deposit. 
C)  You call a broker and purchase a U.S. Treasury bond. 
D)  You call a broker and purchase a bond issued by General Motors.

Question 11

Derivative markets exist to allow for:

Accepted Answer

A)  allow for the transfer of risk. 
B)  direct transfers of common stocks for bonds. 
C)  cash receipts from the sale of bonds. 
D)  reduced information asymmetry. 
A)  allow for the transfer of risk. 
B)  direct transfers of common stocks for bonds. 
C)  cash receipts from the sale of bonds. 
D)  reduced information asymmetry.

Question 12

The ultimate role of the financial system of a country is to:

Accepted Answer

A)  provide a place for wealthy households to save. 
B)  be a low-cost source of funds for government. 
C)  facilitate production, employment, and consumption. 
D)  provide jobs in the financial sector. 
A)  provide a place for wealthy households to save. 
B)  be a low-cost source of funds for government. 
C)  facilitate production, employment, and consumption. 
D)  provide jobs in the financial sector.

Question 13

The owner of a small business applies for a bank loan and tells the loan officer that the funds will be used to expand inventory for the upcoming holiday season. The small business finds itself in need of additional funds to meet the monthly rent for the next quarter and the owner uses the loan proceeds to pay the rent. This is an example of:

Accepted Answer

A)  liquidity risk. 
B)  default risk. 
C)  a lack of diversification for the bank. 
D)  information asymmetry. 
A)  liquidity risk. 
B)  default risk. 
C)  a lack of diversification for the bank. 
D)  information asymmetry.

Question 14

A share of Ford Motor Company stock is an example of:

Accepted Answer

A)  a non-standardized financial instrument. 
B)  a standardized financial instrument. 
C)  a non-standardized financial instrument since their prices can differ over time. 
D)  a financial instrument without risk. 
A)  a non-standardized financial instrument. 
B)  a standardized financial instrument. 
C)  a non-standardized financial instrument since their prices can differ over time. 
D)  a financial instrument without risk.

Question 15

Standard & Poor's sells information to investors; this is their primary business. Is this an example of a financial intermediary? Explain.

Accepted Answer

No. A financial intermediary is involved

Question 16

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Accepted Answer

Probably the best evidence is the volume

Question 17

Many financial instruments are standardized because:

Accepted Answer

A)  it is believed that most parties to a contract do not read them anyway. 
B)  complexity is costly, the more complex a contract, the more it costs to create. 
C)  the standardization of contracts makes them harder to understand. 
D)  it is required by the government. 
A)  it is believed that most parties to a contract do not read them anyway. 
B)  complexity is costly, the more complex a contract, the more it costs to create. 
C)  the standardization of contracts makes them harder to understand. 
D)  it is required by the government.

Question 18

Considering the value of a financial instrument, the sooner the promised payment is made:

Accepted Answer

A)  the less valuable is the promise to make it since time is valuable. 
B)  the greater the risk, therefore the promise has greater value. 
C)  the more valuable is the promise to make it. 
D)  the less relevant is the likelihood that the payment will be made. 
A)  the less valuable is the promise to make it since time is valuable. 
B)  the greater the risk, therefore the promise has greater value. 
C)  the more valuable is the promise to make it. 
D)  the less relevant is the likelihood that the payment will be made.

Question 19

Which of the following are depository institutions?

Accepted Answer

A)  Credit unions 
B)  Mutual funds 
C)  Pension funds 
D)  Insurance companies 
A)  Credit unions 
B)  Mutual funds 
C)  Pension funds 
D)  Insurance companies

Question 20

Suppose that an internet-based program, Novus, wants to raise $10 million to expand its business operations. Describe how Novus can raise these funds directly through each of the follow options: issuing stock, issuing bonds, or obtaining a bank loan. Compare and contrast these three options.

Accepted Answer

Novus can issue new stock worth $10 mill

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

Which of the following statements is most correct?

Financial intermediaries include each of the following, except:

Money markets are where trades occur for:

Brokerage commissions:

A high school basketball player decides to bypass college and go right into the NBA, (the National Basketball Association). Describe the risk the individual is taking and a contract that might transfer the risk.

Disability income insurance is:

Reasons for the rapid structural change in financial markets in recent years include all of the following except:

Explain the various ways that financial intermediaries increase the efficiency of an economy.

Which of the following would not be an example of a secondary financial market transaction?

Derivative markets exist to allow for:

The ultimate role of the financial system of a country is to:

A share of Ford Motor Company stock is an example of:

Standard & Poor's sells information to investors; this is their primary business. Is this an example of a financial intermediary? Explain.

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Many financial instruments are standardized because:

Considering the value of a financial instrument, the sooner the promised payment is made:

Which of the following are depository institutions?

Suppose that an internet-based program, Novus, wants to raise $10 million to expand its business operations. Describe how Novus can raise these funds directly through each of the follow options: issuing stock, issuing bonds, or obtaining a bank loan. Compare and contrast these three options.

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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