Question 1

Money markets are where trades occur for:

Accepted Answer

A) stocks. 
B) bonds of all maturities. 
C) derivatives. 
D) short-term bonds issued by both governments and private companies. 
A) stocks. 
B) bonds of all maturities. 
C) derivatives. 
D) short-term bonds issued by both governments and private companies. D

Question 2

Mary purchases a U.S.Treasury bond; the bond is a(n):

Accepted Answer

A) asset of the U.S.government as well as an asset for Mary. 
B) liability of the U.S.government and an asset for Mary. 
C) asset for Mary but not a liability of the U.S.Government. 
D) asset for the government but a liability for Mary. 
A) asset of the U.S.government as well as an asset for Mary. 
B) liability of the U.S.government and an asset for Mary. 
C) asset for Mary but not a liability of the U.S.Government. 
D) asset for the government but a liability for Mary. B

Question 3

Explain why most financial instruments are fairly complex, while at the same time quite standardized.

Accepted Answer

Most financial instruments are complex in the sense that many possible contingencies are identified and both buyer and seller want to avoid problems that can arise from unforeseen events.To write a complete contract, however, would be very time consuming and expensive.As a result, most financial instruments are standardized because over time many common problems have been identified and worked into the contract, and standardization makes it easier to compare contracts and makes the instruments more liquid.

Question 4

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 5

Describe what is likely to happen to the average price of a share of stock if the stock markets decide to close every Friday and Monday to provide workers at the exchanges with longer weekends.

Accepted Answer

The average price of stocks would decrea

Question 6

Derivatives would include all of the following except:

Accepted Answer

A) options. 
B) U.S.Treasury securities. 
C) swaps. 
D) futures. 
A) options. 
B) U.S.Treasury securities. 
C) swaps. 
D) futures.

Question 7

A futures contract is an example of:

Accepted Answer

A) a derivative instrument. 
B) an instrument used solely by financial institutions. 
C) a high-risk security that will only have value if certain events occur. 
D) a contract that is traded but is not a financial instrument. 
A) a derivative instrument. 
B) an instrument used solely by financial institutions. 
C) a high-risk security that will only have value if certain events occur. 
D) a contract that is traded but is not a financial instrument.

Question 8

What is the relationship between financial market development and economic growth?

Accepted Answer

A country's economic growth is linked to

Question 9

Consider the price paid for debt issued by the State of California.Which of the following would lead to a decrease in the value of State of California bonds?

Accepted Answer

A) The State of California bonds are in small dollar amounts. 
B) The State of California bonds have a shorter maturity. 
C) The State of California experiences a fiscal crisis that makes it less likely it will be able to honor its interest payments. 
D) The State of California pays back its previous bonds ahead of schedule. 
A) The State of California bonds are in small dollar amounts. 
B) The State of California bonds have a shorter maturity. 
C) The State of California experiences a fiscal crisis that makes it less likely it will be able to honor its interest payments. 
D) The State of California pays back its previous bonds ahead of schedule.

Question 10

Most individuals borrow:

Accepted Answer

A) directly without the use of a financial intermediary. 
B) using a financial intermediary because it lowers the cost of borrowing. 
C) using a financial intermediary, but would save money if they financed directly. 
D) without using financial intermediaries, preferring credit cards. 
A) directly without the use of a financial intermediary. 
B) using a financial intermediary because it lowers the cost of borrowing. 
C) using a financial intermediary, but would save money if they financed directly. 
D) without using financial intermediaries, preferring credit cards.

Question 11

Which of the following is not a reason why interbank lending dried up during the financial crisis of 2007-2009?

Accepted Answer

A) Banks preferred to hold on to their liquid assets in case their own need for them increased. 
B) Banks grew increasingly concerned about the ability of their trading partners to repay the loans. 
C) The increased cost of loans. 
D) The Fed grew increasingly wary of making liquidity available to banks. 
A) Banks preferred to hold on to their liquid assets in case their own need for them increased. 
B) Banks grew increasingly concerned about the ability of their trading partners to repay the loans. 
C) The increased cost of loans. 
D) The Fed grew increasingly wary of making liquidity available to banks.

Question 12

A share of Microsoft stock would best be described as which of the following?

Accepted Answer

A) A derivative instrument 
B) A means of payment 
C) An underlying instrument 
D) A debt instrument 
A) A derivative instrument 
B) A means of payment 
C) An underlying instrument 
D) A debt instrument

Question 13

Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because:

Accepted Answer

A) we like uncertain payoffs because this adds to the return. 
B) payments that are made when we need them the most are more valuable. 
C) the sooner the payment is to be made the better. 
D) we know when certain events are going to occur and that is when we want the payment. 
A) we like uncertain payoffs because this adds to the return. 
B) payments that are made when we need them the most are more valuable. 
C) the sooner the payment is to be made the better. 
D) we know when certain events are going to occur and that is when we want the payment.

Question 14

A primary financial market is:

Accepted Answer

A) a market just for corporate stocks. 
B) a market only for AAA rated Securities. 
C) the New York Stock Exchange. 
D) one in which newly issued securities are sold. 
A) a market just for corporate stocks. 
B) a market only for AAA rated Securities. 
C) the New York Stock Exchange. 
D) one in which newly issued securities are sold.

Question 15

Derivative markets exist to allow for:

Accepted Answer

A) allow for the transfer of risk. 
B) direct transfers of common stocks for bonds. 
C) cash receipts from the sale of bonds. 
D) reduced information asymmetry. 
A) allow for the transfer of risk. 
B) direct transfers of common stocks for bonds. 
C) cash receipts from the sale of bonds. 
D) reduced information asymmetry.

Question 16

Explain the various ways that financial intermediaries increase the efficiency of an economy.

Accepted Answer

Financial intermediaries increase an eco

Question 17

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 18

Disability Income Insurance is:

Accepted Answer

A) insurance borrowers can take out in case the company they invest in defaults. 
B) insurance that makes payments of wages to workers when the company they work for is disabled due to a natural disaster. 
C) insurance that makes payments to workers when they are unable to work due to an injury. 
D) only available through the government as part of the Social Security System. 
A) insurance borrowers can take out in case the company they invest in defaults. 
B) insurance that makes payments of wages to workers when the company they work for is disabled due to a natural disaster. 
C) insurance that makes payments to workers when they are unable to work due to an injury. 
D) only available through the government as part of the Social Security System.

Question 19

Countries that lack well-defined property laws and legal structures:

Accepted Answer

A) have large secondary financial markets because the primary markets do not exist. 
B) will not develop as fast economically as counties with clear property rights and a formal legal system. 
C) will have much lower transaction costs associated with any level of lending. 
D) will not have any financial markets at all. 
A) have large secondary financial markets because the primary markets do not exist. 
B) will not develop as fast economically as counties with clear property rights and a formal legal system. 
C) will have much lower transaction costs associated with any level of lending. 
D) will not have any financial markets at all.

Question 20

Juan purchases automobile insurance; the insurance contract is a:

Accepted Answer

A) financial instrument. 
B) form of money. 
C) transfer of risk from the insurance company to Juan. 
D) financial intermediary. 
A) financial instrument. 
B) form of money. 
C) transfer of risk from the insurance company to Juan. 
D) financial intermediary.

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

Money markets are where trades occur for:

Mary purchases a U.S.Treasury bond; the bond is a(n):

Explain why most financial instruments are fairly complex, while at the same time quite standardized.

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

Describe what is likely to happen to the average price of a share of stock if the stock markets decide to close every Friday and Monday to provide workers at the exchanges with longer weekends.

Derivatives would include all of the following except:

A futures contract is an example of:

What is the relationship between financial market development and economic growth?

Consider the price paid for debt issued by the State of California.Which of the following would lead to a decrease in the value of State of California bonds?

Most individuals borrow:

Which of the following is not a reason why interbank lending dried up during the financial crisis of 2007-2009?

A share of Microsoft stock would best be described as which of the following?

Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because:

A primary financial market is:

Derivative markets exist to allow for:

Explain the various ways that financial intermediaries increase the efficiency of an economy.

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

Disability Income Insurance is:

Countries that lack well-defined property laws and legal structures:

Juan purchases automobile insurance; the insurance contract is a:

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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