Question 1

In a(n)________ market,dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices.

Accepted Answer

A) exchange 
B) over-the-counter 
C) common 
D) barter 
A) exchange 
B) over-the-counter 
C) common 
D) barter

Question 2

Because these securities are more liquid and generally have smaller price fluctuations,corporations and banks use the ________ securities to earn interest on temporary surplus funds.

Accepted Answer

A) money market 
B) capital market 
C) bond market 
D) stock market 
A) money market 
B) capital market 
C) bond market 
D) stock market

Question 3

An example of economies of scale in the provision of financial services is

Accepted Answer

A) investing in a diversified collection of assets. 
B) providing depositors with a variety of savings certificates. 
C) hiring more support staff so that customers don't have to wait so long for assistance. 
D) spreading the cost of writing a standardized contract over many borrowers. 
A) investing in a diversified collection of assets. 
B) providing depositors with a variety of savings certificates. 
C) hiring more support staff so that customers don't have to wait so long for assistance. 
D) spreading the cost of writing a standardized contract over many borrowers.

Question 4

The process of asset transformation refers to the conversion of

Accepted Answer

A) safer assets into risky assets. 
B) safer assets into safer liabilities. 
C) risky assets into safer assets. 
D) risky assets into risky liabilities. 
A) safer assets into risky assets. 
B) safer assets into safer liabilities. 
C) risky assets into safer assets. 
D) risky assets into risky liabilities.

Question 5

Assume that you borrow $2,000 at 10% annual interest to finance a new business project. For this loan to be profitable,the minimum amount this project must generate in annual earnings is

Accepted Answer

A) $400. 
B) $201. 
C) $200. 
D) $199. 
A) $400. 
B) $201. 
C) $200. 
D) $199.

Question 6

In order to reduce risk and increase the safety of financial institutions,commercial banks and other depository institutions are prohibited from

Accepted Answer

A) owning municipal bonds. 
B) making real estate loans. 
C) making personal loans. 
D) owning common stock. 
A) owning municipal bonds. 
B) making real estate loans. 
C) making personal loans. 
D) owning common stock.

Question 7

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

Accepted Answer

A) Federal Reserve System. 
B) Federal Deposit Insurance Corporation. 
C) Treasury Department. 
D) Office of the Comptroller of the Currency. 
A) Federal Reserve System. 
B) Federal Deposit Insurance Corporation. 
C) Treasury Department. 
D) Office of the Comptroller of the Currency.

Question 8

Money market mutual fund shares function like

Accepted Answer

A) checking accounts that pay interest. 
B) bonds. 
C) stocks. 
D) currency. 
A) checking accounts that pay interest. 
B) bonds. 
C) stocks. 
D) currency.

Question 9

Well-functioning financial markets

Accepted Answer

A) cause inflation. 
B) eliminate the need for indirect finance. 
C) cause financial crises. 
D) allow the economy to operate more efficiently. 
A) cause inflation. 
B) eliminate the need for indirect finance. 
C) cause financial crises. 
D) allow the economy to operate more efficiently.

Question 10

An investment bank helps ________ issue securities.

Accepted Answer

A) a corporation 
B) the United States government 
C) the SEC 
D) foreign governments 
A) a corporation 
B) the United States government 
C) the SEC 
D) foreign governments

Question 11

Which of the following are short-term financial instruments?

Accepted Answer

A) a repurchase agreement 
B) a share of Walt Disney Corporation stock 
C) a Treasury note with a maturity of four years 
D) a residential mortgage 
A) a repurchase agreement 
B) a share of Walt Disney Corporation stock 
C) a Treasury note with a maturity of four years 
D) a residential mortgage

Question 12

If the maturity of a debt instrument is less than one year,the debt is called

Accepted Answer

A) short-term. 
B) intermediate-term. 
C) long-term. 
D) prima-term. 
A) short-term. 
B) intermediate-term. 
C) long-term. 
D) prima-term.

Question 13

If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) free-riding. 
D) costly state verification. 
A) moral hazard. 
B) adverse selection. 
C) free-riding. 
D) costly state verification.

Question 14

The primary assets of a finance company are

Accepted Answer

A) municipal bonds. 
B) corporate stocks and bonds. 
C) consumer and business loans. 
D) mortgages. 
A) municipal bonds. 
B) corporate stocks and bonds. 
C) consumer and business loans. 
D) mortgages.

Question 15

The regulatory agency that sets reserve requirements for all banks is

Accepted Answer

A) the Federal Reserve System. 
B) the Federal Deposit Insurance Corporation. 
C) the Office of Thrift Supervision. 
D) the Securities and Exchange Commission. 
A) the Federal Reserve System. 
B) the Federal Deposit Insurance Corporation. 
C) the Office of Thrift Supervision. 
D) the Securities and Exchange Commission.

Question 16

One reason for the extraordinary growth of foreign financial markets is

Accepted Answer

A) decreased trade. 
B) increases in the pool of savings in foreign countries. 
C) the recent introduction of the foreign bond. 
D) slower technological innovation in foreign markets. 
A) decreased trade. 
B) increases in the pool of savings in foreign countries. 
C) the recent introduction of the foreign bond. 
D) slower technological innovation in foreign markets.

Question 17

Mortgage-backed securities are similar to ________ but the interest and principal payments are backed by the individual mortgages within the security.

Accepted Answer

A) bonds 
B) stock 
C) repurchase agreements 
D) negotiable CDs 
A) bonds 
B) stock 
C) repurchase agreements 
D) negotiable CDs

Question 18

Which of the following is NOT a contractual savings institution?

Accepted Answer

A) a life insurance company 
B) a pension fund 
C) a savings and loan association 
D) a fire and casualty insurance company 
A) a life insurance company 
B) a pension fund 
C) a savings and loan association 
D) a fire and casualty insurance company

Question 19

The concept of diversification is captured by the statement

Accepted Answer

A) don't look a gift horse in the mouth. 
B) don't put all your eggs in one basket. 
C) it never rains,but it pours. 
D) make hay while the sun shines. 
A) don't look a gift horse in the mouth. 
B) don't put all your eggs in one basket. 
C) it never rains,but it pours. 
D) make hay while the sun shines.

Question 20

Financial intermediaries are better equipped than individuals to screen out bad credit risks from good ones,thus reducing losses due to

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) free-riding. 
D) economies of scope. 
A) adverse selection. 
B) moral hazard. 
C) free-riding. 
D) economies of scope.

Exam 2: An Overview of the Financial System

In a(n)________ market,dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices.

Because these securities are more liquid and generally have smaller price fluctuations,corporations and banks use the ________ securities to earn interest on temporary surplus funds.

An example of economies of scale in the provision of financial services is

The process of asset transformation refers to the conversion of

Assume that you borrow $2,000 at 10% annual interest to finance a new business project. For this loan to be profitable,the minimum amount this project must generate in annual earnings is

In order to reduce risk and increase the safety of financial institutions,commercial banks and other depository institutions are prohibited from

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

Money market mutual fund shares function like

Well-functioning financial markets

An investment bank helps ________ issue securities.

Which of the following are short-term financial instruments?

If the maturity of a debt instrument is less than one year,the debt is called

If bad credit risks are the ones who most actively seek loans and,therefore,receive them from financial intermediaries,then financial intermediaries face the problem of

The primary assets of a finance company are

The regulatory agency that sets reserve requirements for all banks is

One reason for the extraordinary growth of foreign financial markets is

Mortgage-backed securities are similar to ________ but the interest and principal payments are backed by the individual mortgages within the security.

Which of the following is NOT a contractual savings institution?

The concept of diversification is captured by the statement

Financial intermediaries are better equipped than individuals to screen out bad credit risks from good ones,thus reducing losses due to

Why Study Money, banking, and Financial Markets

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Market Economies

The ISLM Model

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