Question 1

The "hedging principle"
involves attempting to match maturity of assets held to liabilities taken on.

Accepted Answer

A) True 
 B)False

Question 2

In the United States, banks hold approximately one quarter of the total resources of all US financial institutions, which in 2006 was

Accepted Answer

A)  $9.5 trillion 
B)  $14.5 trillion 
C)  $72 trillion 
D)  $10 billion 
E)  None of the above 
A)  $9.5 trillion 
B)  $14.5 trillion 
C)  $72 trillion 
D)  $10 billion 
E)  None of the above

Question 3

Within the United States financial system the largest borrower of money in 2006 was the federal government.

Accepted Answer

A) True 
 B)False

Question 4

What are the essential differences between primary and secondary securities? Why are these instruments important to the operation of the financial system?

Accepted Answer

- primary securities - direct claims aga

Question 5

Money's role as a store of value is reduced or made less effective by:

Accepted Answer

A)  Greater use of barter 
B)  Taxation 
C)  Declining prices for goods and services 
D)  Rising prices for goods and services 
E)  None of the above 
A)  Greater use of barter 
B)  Taxation 
C)  Declining prices for goods and services 
D)  Rising prices for goods and services 
E)  None of the above

Question 6

Financial assets usually have a high commodity value.

Accepted Answer

A) True 
 B)False

Question 7

According to the textbook, savings and loan associations are classified as:

Accepted Answer

A)  Depository institutions 
B)  Contractual institutions 
C)  Investment institutions 
D)  Short-term intermediaries 
E)  None of the above 
A)  Depository institutions 
B)  Contractual institutions 
C)  Investment institutions 
D)  Short-term intermediaries 
E)  None of the above

Question 8

The so-called "leverage effect"
refers to boosting earnings through the use of debt whose cost is less than the earnings generated by the borrowed funds.

Accepted Answer

A) True 
 B)False

Question 9

Recent trends in disintermediation have tended to increase the relative importance of banks within the global financial system.

Accepted Answer

A) True 
 B)False

Question 10

The recent trend in which some of the best loan customers of banks and other financial intermediaries have chosen instead to raise the loanable funds they need directly from the open market is actually a new form of indirect finance or reintermediation.

Accepted Answer

A) True 
 B)False

Question 11

For the most part secondary securities issued by financial intermediaries share all of the following characteristics except one. Identify which one.

Accepted Answer

A)  Low risk 
B)  Long maturity 
C)  Small denominations 
D)  Liquidity 
E)  Convenience 
A)  Low risk 
B)  Long maturity 
C)  Small denominations 
D)  Liquidity 
E)  Convenience

Question 12

According to the textbook, a new form of disintermediation has appeared in recent years in which:

Accepted Answer

A)  Financial intermediaries sell of some of their loans in order to raise new capital 
B)  Financial intermediaries develop new types of deposits not previously available and thereby add to their capital base 
C)  Some of the best borrowing customers of financial intermediaries have recently chosen to raise funds directly from the open market 
D)  A and C are both correct 
E)  None of the above 
A)  Financial intermediaries sell of some of their loans in order to raise new capital 
B)  Financial intermediaries develop new types of deposits not previously available and thereby add to their capital base 
C)  Some of the best borrowing customers of financial intermediaries have recently chosen to raise funds directly from the open market 
D)  A and C are both correct 
E)  None of the above

Question 13

Explain what money is. What are its principal functions or roles within the system of money and capital markets? Within the economy?

Accepted Answer

- Any financial asset that is generally

Question 14

According to the text, insurance companies are classified as:

Accepted Answer

A)  Depository institutions 
B)  Contractual institutions 
C)  Investment institutions 
D)  Finance companies 
E)  None of the above 
A)  Depository institutions 
B)  Contractual institutions 
C)  Investment institutions 
D)  Finance companies 
E)  None of the above

Question 15

What is direct finance? Semi-direct finance? Indirect finance?

Accepted Answer

- Direct finance: Borrower and lender me

Question 16

What is the difference between internal finance and external finance?

Accepted Answer

&# 59450; To acquire assets, households

Question 17

The biggest borrowers in 2006, in descending order were

Accepted Answer

A)  Individuals, federal government, local and state government 
B)  Federal government, local and state government, nonfinancial businesses 
C)  Nonfinancial businesses, federal government, individuals 
D)  Federal government, nonfinancial businesses, local and state government 
E)  None of the above 
A)  Individuals, federal government, local and state government 
B)  Federal government, local and state government, nonfinancial businesses 
C)  Nonfinancial businesses, federal government, individuals 
D)  Federal government, nonfinancial businesses, local and state government 
E)  None of the above

Question 18

Portfolio choices made by financial institutions are affected by which of the following factors?

Accepted Answer

A)  Relative rates of return expected on various uses of funds 
B)  Relative risk attached to different sources and uses of funds 
C)  Cost of incoming funds 
D)  Maturity and volatility of incoming funds 
E)  All of the above 
A)  Relative rates of return expected on various uses of funds 
B)  Relative risk attached to different sources and uses of funds 
C)  Cost of incoming funds 
D)  Maturity and volatility of incoming funds 
E)  All of the above

Question 19

Savings banks are classified as investment institutions.

Accepted Answer

A) True 
 B)False

Question 20

Commercial banks are contractual institutions.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Assets, Money, Financial Transactions, and Financial Institutions

The "hedging principle" involves attempting to match maturity of assets held to liabilities taken on.

In the United States, banks hold approximately one quarter of the total resources of all US financial institutions, which in 2006 was

Within the United States financial system the largest borrower of money in 2006 was the federal government.

What are the essential differences between primary and secondary securities? Why are these instruments important to the operation of the financial system?

Money's role as a store of value is reduced or made less effective by:

Financial assets usually have a high commodity value.

According to the textbook, savings and loan associations are classified as:

The so-called "leverage effect" refers to boosting earnings through the use of debt whose cost is less than the earnings generated by the borrowed funds.

Recent trends in disintermediation have tended to increase the relative importance of banks within the global financial system.

The recent trend in which some of the best loan customers of banks and other financial intermediaries have chosen instead to raise the loanable funds they need directly from the open market is actually a new form of indirect finance or reintermediation.

For the most part secondary securities issued by financial intermediaries share all of the following characteristics except one. Identify which one.

According to the textbook, a new form of disintermediation has appeared in recent years in which:

Explain what money is. What are its principal functions or roles within the system of money and capital markets? Within the economy?

According to the text, insurance companies are classified as:

What is direct finance? Semi-direct finance? Indirect finance?

What is the difference between internal finance and external finance?

The biggest borrowers in 2006, in descending order were

Portfolio choices made by financial institutions are affected by which of the following factors?

Savings banks are classified as investment institutions.

Commercial banks are contractual institutions.

Functions and Roles of the Financial System in the Global Economy

The Financial Information Marketplace

The Future of the Financial System and the Money and Capital Markets

The Determinants of Interest Rates: Competing Ideas

Measuring and Calculating Interest Rates and Financial Asset Prices

Inflation and Deflation, Yield Curves, and Duration: Impact on Interest Rates and Asset Prices

The Risk Structure of Interest Rates: Defaults, Prepayments, Taxes, and Other Rate-Determining Factors

Interest-Rate Forecasting and Hedging: Swaps, Financial Futures, and Options

Introduction to the Money Market and the Roles Played by Governments and Security Dealers

Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market

Roles and Services of the Federal Reserve and Other Central Banks Around the World

The Tools and Goals of Central Bank Monetary Policy

The Commercial Banking Industry: Structure, Products, and Management

Nonbank Thrift Institutions: Savings and Loans, Savings Banks, Credit Unions, and Money Market Funds

Mutual Funds, Insurance Companies, Investment Banks, and Other Financial Firms

Regulation of the Financial Institutions Sector

Federal, State, and Local Governments Operating in the Financial Markets

Business Borrowing: Corporate Bonds, Asset-Backed Securities, Bank Loans, and Other Forms of Business Debt

The Market for Corporate

Consumer Lending and Borrowing

The Residential Mortgage Market Stock

International Transactions and Currency Values

International Banking

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