Question 1

Non-depository institutions would include all of the following except:

Accepted Answer

A)  finance companies. 
B)  pension funds. 
C)  insurance companies. 
D)  credit unions. 
A)  finance companies. 
B)  pension funds. 
C)  insurance companies. 
D)  credit unions.

Question 2

How do financial markets pool and communicate the information regarding issuers of financial instruments in a convenient way?

Accepted Answer

Financial markets pool and communicate i

Question 3

Which of the following is not a financial instrument?

Accepted Answer

A)  A share of Microsoft stock 
B)  A U.S. Treasury Bond 
C)  An electric bill 
D)  A life insurance policy 
A)  A share of Microsoft stock 
B)  A U.S. Treasury Bond 
C)  An electric bill 
D)  A life insurance policy

Question 4

A financial instrument would include:

Accepted Answer

A)  only a written obligation and a transfer of value. 
B)  only a written obligation and a specified date. 
C)  a written obligation, a transfer of value, a future date, and certain conditions. 
D)  a written obligation, a transfer of value, a specific date for payment, uncertain conditions. 
A)  only a written obligation and a transfer of value. 
B)  only a written obligation and a specified date. 
C)  a written obligation, a transfer of value, a future date, and certain conditions. 
D)  a written obligation, a transfer of value, a specific date for payment, uncertain conditions.

Question 5

An over-the-counter (OTC) market is:

Accepted Answer

A)  made up of dealers who only sell government bonds. 
B)  an example of a centralized market. 
C)  made up of dealer who buy and sell only for their own accounts. 
D)  made up of dealers who buy and sell for their customers and for their own accounts. 
A)  made up of dealers who only sell government bonds. 
B)  an example of a centralized market. 
C)  made up of dealer who buy and sell only for their own accounts. 
D)  made up of dealers who buy and sell for their customers and for their own accounts.

Question 6

Most of the buying and selling in primary markets:

Accepted Answer

A)  is in the public view. 
B)  is highly transparent and closely monitored by the SEC. 
C)  involve an investment bank. 
D)  is done by the Federal Reserve. 
A)  is in the public view. 
B)  is highly transparent and closely monitored by the SEC. 
C)  involve an investment bank. 
D)  is done by the Federal Reserve.

Question 7

Equity markets are markets:

Accepted Answer

A)  of U.S. Treasury bonds. 
B)  for AAA rated bonds. 
C)  for stocks. 
D)  for either stocks or bonds. 
A)  of U.S. Treasury bonds. 
B)  for AAA rated bonds. 
C)  for stocks. 
D)  for either stocks or bonds.

Question 8

The value of a financial instrument rises as:

Accepted Answer

A)  the size of the payment promised decreases. 
B)  the promised payment is made sooner rather than later. 
C)  it is less likely the payment will be made. 
D)  the payments are made when the prospective investor needs them least. 
A)  the size of the payment promised decreases. 
B)  the promised payment is made sooner rather than later. 
C)  it is less likely the payment will be made. 
D)  the payments are made when the prospective investor needs them least.

Question 9

The most prominent of asset-backed securities is:

Accepted Answer

A)  shares of stock in corporations since stockholders own the assets. 
B)  securities backed by home mortgages. 
C)  U.S. Treasury bonds since they are backed by all public assets. 
D)  movie box-office receipts. 
A)  shares of stock in corporations since stockholders own the assets. 
B)  securities backed by home mortgages. 
C)  U.S. Treasury bonds since they are backed by all public assets. 
D)  movie box-office receipts.

Question 10

Explain how the introduction of asset-backed securities has allowed investors to take advantage of higher returns from loans that most investors could never make on their own.

Accepted Answer

Asset-backed securities are instruments

Question 11

What are some of the advantages of trading in decentralized electronic exchanges?

Accepted Answer

Customers can see the orders,

Question 12

A financial intermediary:

Accepted Answer

A)  is an agency that guarantees a loan. 
B)  is a third-party that facilitates a transaction between a borrower and a lender. 
C)  would be used in direct finance. 
D)  must be a depository institution. 
A)  is an agency that guarantees a loan. 
B)  is a third-party that facilitates a transaction between a borrower and a lender. 
C)  would be used in direct finance. 
D)  must be a depository institution.

Question 13

Which of the following financial instruments is used mainly to transfer risk?

Accepted Answer

A)  Asset-backed securities 
B)  Bonds 
C)  Options 
D)  Stocks 
A)  Asset-backed securities 
B)  Bonds 
C)  Options 
D)  Stocks

Question 14

The primary use of derivative contracts is:

Accepted Answer

A)  for IRA and other pension plans since they only have value well into the future. 
B)  to shift risk among investors. 
C)  for investors seeking a greater return by taking greater risk. 
D)  to add to the profits an investor obtains through information asymmetry. 
A)  for IRA and other pension plans since they only have value well into the future. 
B)  to shift risk among investors. 
C)  for investors seeking a greater return by taking greater risk. 
D)  to add to the profits an investor obtains through information asymmetry.

Question 15

Small savers would rather use financial institutions than lend directly to borrowers because:

Accepted Answer

A)  financial institutions will offer the savers higher interest rates than the savers could obtain directly from borrowers. 
B)  lenders wouldn't want to deal with small savers. 
C)  it allows them to diversify risk. 
D)  the liquidity is lower with financial institutions but the return is higher. 
A)  financial institutions will offer the savers higher interest rates than the savers could obtain directly from borrowers. 
B)  lenders wouldn't want to deal with small savers. 
C)  it allows them to diversify risk. 
D)  the liquidity is lower with financial institutions but the return is higher.

Question 16

Which of the following is not considered to be a shadow bank?

Accepted Answer

A)  Credit unions 
B)  Brokerages 
C)  Insurers 
D)  Money-market mutual funds 
A)  Credit unions 
B)  Brokerages 
C)  Insurers 
D)  Money-market mutual funds

Question 17

An annuity is a contract that makes monthly payments as long as someone lives. Explain why an individual would want to purchase such a contract. What risk is being transferred?

Accepted Answer

An annuity transfers the risk that the b

Question 18

Financial instruments and money share which of the following characteristics?

Accepted Answer

A)  Both can function as a means of payment and a store of value. 
B)  Both can function as a store of value and allow for trading of risk. 
C)  Both can function by acting as a means of payment and allow for trading of risk. 
D)  Both can function as a store of value even though they do not allow for trading of risk. 
A)  Both can function as a means of payment and a store of value. 
B)  Both can function as a store of value and allow for trading of risk. 
C)  Both can function by acting as a means of payment and allow for trading of risk. 
D)  Both can function as a store of value even though they do not allow for trading of risk.

Question 19

A primary financial market is:

Accepted Answer

A)  located only in New York, London, and Tokyo but can handle transactions anywhere in the world. 
B)  one where the borrower obtains funds directly from the lender for newly issued securities. 
C)  a market where U.S. Treasury bonds are traded. 
D)  one that can only deal in the highest investment grade securities. 
A)  located only in New York, London, and Tokyo but can handle transactions anywhere in the world. 
B)  one where the borrower obtains funds directly from the lender for newly issued securities. 
C)  a market where U.S. Treasury bonds are traded. 
D)  one that can only deal in the highest investment grade securities.

Question 20

More detailed financial instruments tend to be:

Accepted Answer

A)  less costly because all possible contingencies are covered. 
B)  more costly because it will cost more to create. 
C)  more desirable than less detailed ones, no matter what the price. 
D)  less costly because they can be standardized more easily. 
A)  less costly because all possible contingencies are covered. 
B)  more costly because it will cost more to create. 
C)  more desirable than less detailed ones, no matter what the price. 
D)  less costly because they can be standardized more easily.

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

Non-depository institutions would include all of the following except:

How do financial markets pool and communicate the information regarding issuers of financial instruments in a convenient way?

Which of the following is not a financial instrument?

A financial instrument would include:

An over-the-counter (OTC) market is:

Most of the buying and selling in primary markets:

Equity markets are markets:

The value of a financial instrument rises as:

The most prominent of asset-backed securities is:

Explain how the introduction of asset-backed securities has allowed investors to take advantage of higher returns from loans that most investors could never make on their own.

What are some of the advantages of trading in decentralized electronic exchanges?

A financial intermediary:

Which of the following financial instruments is used mainly to transfer risk?

The primary use of derivative contracts is:

Small savers would rather use financial institutions than lend directly to borrowers because:

Which of the following is not considered to be a shadow bank?

An annuity is a contract that makes monthly payments as long as someone lives. Explain why an individual would want to purchase such a contract. What risk is being transferred?

Financial instruments and money share which of the following characteristics?

A primary financial market is:

More detailed financial instruments tend to be:

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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