Question 1

Which of the following is most likely to be described as a depository institution?

Accepted Answer

A) finance companies 
B) securities firms 
C) credit unions 
D) pension funds 
E) insurance companies 
A) finance companies 
B) securities firms 
C) credit unions 
D) pension funds 
E) insurance companies C

Question 2

Systemic risk exists because

Accepted Answer

A) there is no government regulation of financial markets. 
B) financial institutions invest in similar securities and therefore are similarly exposed to large declines in prices of those securities. 
C) financial institutions borrow using long-term debt securities but lend their funds for short-term periods. 
D) financial institutions invest heavily in Treasury securities and therefore are exposed to the possibility that the government will default on its debts. 
A) there is no government regulation of financial markets. 
B) financial institutions invest in similar securities and therefore are similarly exposed to large declines in prices of those securities. 
C) financial institutions borrow using long-term debt securities but lend their funds for short-term periods. 
D) financial institutions invest heavily in Treasury securities and therefore are exposed to the possibility that the government will default on its debts. B

Question 3

If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire.

Accepted Answer

A) True 
 B)False  False

Question 4

____ maintain a larger amount of assets in aggregate than the other types of nondepository institutions.

Accepted Answer

A) Finance companies 
B) Mutual funds 
C) Life insurance companies 
D) Securities firms 
A) Finance companies 
B) Mutual funds 
C) Life insurance companies 
D) Securities firms

Question 5

The Securities and Exchange Commission (SEC)was established by the

Accepted Answer

A) Federal Reserve Act. 
B) McFadden Act. 
C) Securities Exchange Act of 1934. 
D) Glass-Steagall Act. 
E) None of these are correct. 
A) Federal Reserve Act. 
B) McFadden Act. 
C) Securities Exchange Act of 1934. 
D) Glass-Steagall Act. 
E) None of these are correct.

Question 6

When a securities firm acts as a broker, it

Accepted Answer

A) guarantees the issuer a specific price for newly issued securities. 
B) makes a market in specific securities by adjusting its own inventory. 
C) executes securities transactions between two parties. 
D) purchases securities for its own account. 
A) guarantees the issuer a specific price for newly issued securities. 
B) makes a market in specific securities by adjusting its own inventory. 
C) executes securities transactions between two parties. 
D) purchases securities for its own account.

Question 7

When particular securities are perceived to be ____ by the market, their prices decrease when they are sold by investors.

Accepted Answer

A) undervalued 
B) overvalued 
C) fairly priced 
D) efficient 
E) None of these are correct. 
A) undervalued 
B) overvalued 
C) fairly priced 
D) efficient 
E) None of these are correct.

Question 8

The Securities Act of 1933

Accepted Answer

A) required complete disclosure of relevant financial information for publicly offered securities in the primary market. 
B) declared trading strategies to manipulate the prices of public secondary securities illegal. 
C) imposed heavy penalties for insider trading. 
D) required complete disclosure of relevant financial information for securities traded in the secondary market. 
E) All of these are correct. 
A) required complete disclosure of relevant financial information for publicly offered securities in the primary market. 
B) declared trading strategies to manipulate the prices of public secondary securities illegal. 
C) imposed heavy penalties for insider trading. 
D) required complete disclosure of relevant financial information for securities traded in the secondary market. 
E) All of these are correct.

Question 9

Without the participation of financial intermediaries in financial market transactions,

Accepted Answer

A) information and transaction costs would be lower. 
B) transaction costs would be higher but information costs would be unchanged. 
C) information costs would be higher but transaction costs would be unchanged. 
D) information and transaction costs would be higher. 
A) information and transaction costs would be lower. 
B) transaction costs would be higher but information costs would be unchanged. 
C) information costs would be higher but transaction costs would be unchanged. 
D) information and transaction costs would be higher.

Question 10

Common types of money market securities include negotiable certificates of deposit and Treasury bills.

Accepted Answer

A) True 
 B)False

Question 11

Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.

Accepted Answer

A) liquid; many 
B) liquid; not many 
C) illiquid; not many 
D) illiquid; many 
A) liquid; many 
B) liquid; not many 
C) illiquid; not many 
D) illiquid; many

Question 12

Financial markets facilitating the flow of short-term debt securities with maturities of one year or less are known as

Accepted Answer

A) secondary markets. 
B) capital markets. 
C) primary markets. 
D) money markets. 
E) None of these are correct. 
A) secondary markets. 
B) capital markets. 
C) primary markets. 
D) money markets. 
E) None of these are correct.

Question 13

____ are not considered capital market securities.

Accepted Answer

A) Derivative securities 
B) Treasury bonds 
C) Corporate bonds 
D) Equity securities 
E) Mortgages 
A) Derivative securities 
B) Treasury bonds 
C) Corporate bonds 
D) Equity securities 
E) Mortgages

Question 14

Debt securities represent debt (borrowed funds)incurred by the issuer.

Accepted Answer

A) True 
 B)False

Question 15

Those participants who receive more money than they spend are referred to as

Accepted Answer

A) deficit units. 
B) surplus units. 
C) borrowing units. 
D) government units. 
A) deficit units. 
B) surplus units. 
C) borrowing units. 
D) government units.

Question 16

Which of the following are NOT considered depository financial institutions?

Accepted Answer

A) finance companies 
B) commercial banks 
C) savings institutions 
D) credit unions 
E) All of these are depository financial institutions. 
A) finance companies 
B) commercial banks 
C) savings institutions 
D) credit unions 
E) All of these are depository financial institutions.

Question 17

Which of the following is an example of an asymmetric information problem?

Accepted Answer

A) A corporation releases toxic wastes into a river. 
B) A corporation relocates to Ireland to take advantage of lower corporate tax rates. 
C) A stock analyst rates a stock higher than it deserves because the securities firm she works for wants to obtain business from the corporation that issued the stock. 
D) A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China. 
A) A corporation releases toxic wastes into a river. 
B) A corporation relocates to Ireland to take advantage of lower corporate tax rates. 
C) A stock analyst rates a stock higher than it deserves because the securities firm she works for wants to obtain business from the corporation that issued the stock. 
D) A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China.

Question 18

If a depository institution is experiencing more deposits than it needs to make loans or invest in securities, it can lend its excess funds to another depository institution through the

Accepted Answer

A) Federal Reserve's trading desk. 
B) options market. 
C) federal funds market. 
D) federal exchange market. 
A) Federal Reserve's trading desk. 
B) options market. 
C) federal funds market. 
D) federal exchange market.

Question 19

The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Accepted Answer

A) savings institutions 
B) commercial banks 
C) mutual funds 
D) finance companies 
E) pension funds 
A) savings institutions 
B) commercial banks 
C) mutual funds 
D) finance companies 
E) pension funds

Question 20

Since markets are efficient, institutional and individual investors should ignore the various investment instruments available.

Accepted Answer

A) True 
 B)False

Exam 1: Role of Financial Markets and Institutions

Which of the following is most likely to be described as a depository institution?

Systemic risk exists because

If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire.

____ maintain a larger amount of assets in aggregate than the other types of nondepository institutions.

The Securities and Exchange Commission (SEC)was established by the

When a securities firm acts as a broker, it

When particular securities are perceived to be ____ by the market, their prices decrease when they are sold by investors.

The Securities Act of 1933

Without the participation of financial intermediaries in financial market transactions,

Common types of money market securities include negotiable certificates of deposit and Treasury bills.

Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.

Financial markets facilitating the flow of short-term debt securities with maturities of one year or less are known as

____ are not considered capital market securities.

Debt securities represent debt (borrowed funds)incurred by the issuer.

Those participants who receive more money than they spend are referred to as

Which of the following are NOT considered depository financial institutions?

Which of the following is an example of an asymmetric information problem?

If a depository institution is experiencing more deposits than it needs to make loans or invest in securities, it can lend its excess funds to another depository institution through the

The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Since markets are efficient, institutional and individual investors should ignore the various investment instruments available.

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

Debt securities issued by a small firm may be __, meaning that _ investors want to invest in those securities.