Exam 2: Financial Systems, Monetary Units, and the Role of Money in the Economy

Purchasing stocks and bonds through a broker is an example of direct finance.

One of the most important contributions of security brokers and dealers is to facilitate the development and growth of secondary markets.

When a corporation pools credit receivables and uses them as collateral for the sale of bonds it is engaged in semi-direct finance.

Money's role as a medium of exchange frees buyers and sellers of goods and services from the need to have an exact coincidence of wants in terms of quality, quantity, time and location.

Disintermediation may reverse itself, with funds flowing back into the perceived safer instruments of financial intermediaries, a process called

Countries with more fully developed financial systems usually grow faster and have a higher standard of living.

In a security-dominated financial system, adequate collateral is required by most banks when issuing loans.

Real estate investment trusts are among the largest financial intermediaries.

Ajax Corporation rejects a loan offered by its London bank and decides instead to issue Euronotes through security dealer Credit Suisse into the global financial marketplace in order to raise capital for a new project. What type of financial transaction (funds transfer) has been rejected by Ajax and what type of financial transaction (funds transfer) is Ajax going to use to raise the loanable funds it requires? If financial transactions of this latter type continue to grow in relative importance within the global financial system, how will this trend ultimately change the international system of money and capital markets? What impact do you think this might have on savers and borrowers within the global financial marketplace?

The government sector in the economy usually is a:

Investment companies (sometimes called mutual funds) are classified as, according to the textbook:

Passbook savings accounts and U.S. Savings Bonds are examples of negotiable debt securities.

Disintermediation may reverse itself, with funds flowing back into the perceived safer instruments of financial intermediaries, a process called re-intermediation.

The business sector in the economy usually is a:

The M2 measure of the U.S. money supply includes currency and coin held by the corporations.

Which of the following items is an example of fiat money?

The amount of lending in a closed financial system must always equal the amount of borrowing in that system. In a closed economy the total value of all real assets must equal the amount of borrowing in that system.

Disintermediation occurs when a bank sells loans to raise funds.

The fact that money is the only "perfectly liquid asset" refers to the fact that it is the only asset that need not be converted into any other form before being spent.

The inequality statement R >E and DFA > DD, according to your text, describes a: