Question 1

Considering the value of a financial instrument, the more likely it is the payment will be made:

Accepted Answer

A) the more valuable the financial instrument. 
B) the less valuable is the instrument because risk is lower. 
C) the less valuable is the financial instrument because it is highly liquid. 
D) the greater the uncertainty; therefore the less valuable is the financial instrument. 
A) the more valuable the financial instrument. 
B) the less valuable is the instrument because risk is lower. 
C) the less valuable is the financial instrument because it is highly liquid. 
D) the greater the uncertainty; therefore the less valuable is the financial instrument.

Question 2

The value of a financial instrument rises as:

Accepted Answer

A) the size of the payment promised decreases. 
B) the promised payment is made sooner rather than later. 
C) it is less likely the payment will be made. 
D) the payments are made when the prospective investor needs them least. 
A) the size of the payment promised decreases. 
B) the promised payment is made sooner rather than later. 
C) it is less likely the payment will be made. 
D) the payments are made when the prospective investor needs them least.

Question 3

An insurance company is an example of a financial institution that:

Accepted Answer

A) transfers risk. 
B) acts as a broker. 
C) serves as a depository institution. 
D) sells derivative securities. 
A) transfers risk. 
B) acts as a broker. 
C) serves as a depository institution. 
D) sells derivative securities.

Question 4

Brokerage commissions:

Accepted Answer

A) are set by government regulators so they cannot vary across firms for the same services. 
B) can vary but typically don't because firms tend to set them at the same levels. 
C) can differ reflecting the different services being offered. 
D) are always a percentage of the amount of the trade. 
A) are set by government regulators so they cannot vary across firms for the same services. 
B) can vary but typically don't because firms tend to set them at the same levels. 
C) can differ reflecting the different services being offered. 
D) are always a percentage of the amount of the trade.

Question 5

A financial instrument would include:

Accepted Answer

A) only a written obligation and a transfer of value. 
B) only a written obligation and a specified date. 
C) a written obligation, a transfer of value, a future date, and certain conditions. 
D) a written obligation, a transfer of value, a specific date for payment, uncertain conditions. 
A) only a written obligation and a transfer of value. 
B) only a written obligation and a specified date. 
C) a written obligation, a transfer of value, a future date, and certain conditions. 
D) a written obligation, a transfer of value, a specific date for payment, uncertain conditions.

Question 6

Financial instruments used primarily to transfer risk would not include:

Accepted Answer

A) a bank loan. 
B) options. 
C) an insurance policy. 
D) home mortgages. 
A) a bank loan. 
B) options. 
C) an insurance policy. 
D) home mortgages.

Question 7

Financial markets:

Accepted Answer

A) enable buyers and sellers to exchange financial instruments but not risk. 
B) enable buyers and sellers to exchange risk by buying and selling financial instruments. 
C) only allow the transfer of risk through derivative securities. 
D) do not allow for the transfer of risk but do help reduce it. 
A) enable buyers and sellers to exchange financial instruments but not risk. 
B) enable buyers and sellers to exchange risk by buying and selling financial instruments. 
C) only allow the transfer of risk through derivative securities. 
D) do not allow for the transfer of risk but do help reduce it.

Question 8

Which of the following statements is most correct?

Accepted Answer

A) Financial intermediaries are banks. 
B) A bank is a financial intermediary. 
C) Financial intermediaries are insurance companies. 
D) Financial intermediaries are essential to direct finance. 
A) Financial intermediaries are banks. 
B) A bank is a financial intermediary. 
C) Financial intermediaries are insurance companies. 
D) Financial intermediaries are essential to direct finance.

Question 9

Which of the following statements is most correct?

Accepted Answer

A) All banks are financial intermediaries, but not all financial intermediaries are banks. 
B) Financial intermediaries must be public corporations. 
C) All financial intermediaries are insurance companies. 
D) Financial intermediaries are government agencies. 
A) All banks are financial intermediaries, but not all financial intermediaries are banks. 
B) Financial intermediaries must be public corporations. 
C) All financial intermediaries are insurance companies. 
D) Financial intermediaries are government agencies.

Question 10

Debt instruments that have maturities less than one year are traded in the:

Accepted Answer

A) primary market exclusively. 
B) bond markets exclusively. 
C) bond market if they are already in existence. 
D) money market. 
A) primary market exclusively. 
B) bond markets exclusively. 
C) bond market if they are already in existence. 
D) money market.

Question 11

The information concerning the issuer of a financial instrument:

Accepted Answer

A) needs to be complete and closely monitored by the buyers of the instrument for change. 
B) is somewhat non-standardized to minimize the cost of the instrument. 
C) is usually standardized to the essential information required by the buyers. 
D) is closely monitored by the buyers of these instruments for change. 
A) needs to be complete and closely monitored by the buyers of the instrument for change. 
B) is somewhat non-standardized to minimize the cost of the instrument. 
C) is usually standardized to the essential information required by the buyers. 
D) is closely monitored by the buyers of these instruments for change.

Question 12

Considering the value of a financial instrument, the bigger the size of the promised payment the:

Accepted Answer

A) less valuable the financial instrument because risk must be greater. 
B) longer an investor has to wait for the payment. 
C) more valuable the financial instrument. 
D) greater the risk. 
A) less valuable the financial instrument because risk must be greater. 
B) longer an investor has to wait for the payment. 
C) more valuable the financial instrument. 
D) greater the risk.

Question 13

Roles served by financial markets include the following, except:

Accepted Answer

A) eliminating risk. 
B) providing liquidity. 
C) pooling and communicating information. 
D) sharing of risk. 
A) eliminating risk. 
B) providing liquidity. 
C) pooling and communicating information. 
D) sharing of risk.

Question 14

Nondepository institutions:

Accepted Answer

A) do not serve as intermediaries. 
B) only serve as brokers. 
C) only transform assets. 
D) do not accept deposits. 
A) do not serve as intermediaries. 
B) only serve as brokers. 
C) only transform assets. 
D) do not accept deposits.

Question 15

Over-the-counter (OTC) markets:

Accepted Answer

A) employ specialists to minimize price volatility. 
B) are centralized exchanges but you must be a dealer to be part of an exchange. 
C) only deal in the stocks of companies with over $100 million in capital. 
D) are networks of security dealers linked electronically. 
A) employ specialists to minimize price volatility. 
B) are centralized exchanges but you must be a dealer to be part of an exchange. 
C) only deal in the stocks of companies with over $100 million in capital. 
D) are networks of security dealers linked electronically.

Question 16

Standardization of financial instruments has occurred as a result of:

Accepted Answer

A) the rule of 70. 
B) the law of demand. 
C) economies of scale. 
D) the law of supply. 
A) the rule of 70. 
B) the law of demand. 
C) economies of scale. 
D) the law of supply.

Question 17

Financial intermediaries include each of the following, except:

Accepted Answer

A) the New York Stock Exchange. 
B) credit unions. 
C) savings banks. 
D) commercial banks. 
A) the New York Stock Exchange. 
B) credit unions. 
C) savings banks. 
D) commercial banks.

Question 18

The high volume of shares of stock that are traded on a normal day on stock markets reflects the:

Accepted Answer

A) high transaction costs associated with these financial markets. 
B) low transaction costs and high liquidity associated with these markets. 
C) low transaction costs and low liquidity associated with these markets. 
D) high transactions costs and low liquidity associated with these markets. 
A) high transaction costs associated with these financial markets. 
B) low transaction costs and high liquidity associated with these markets. 
C) low transaction costs and low liquidity associated with these markets. 
D) high transactions costs and low liquidity associated with these markets.

Question 19

What are the four fundamental characteristics that determine the value of a financial instrument?

Accepted Answer

The four fundamental characteristics tha

Question 20

The owner of a small business applies for a bank loan and tells the loan officer that the funds will be used to expand inventory for the upcoming holiday season.The small business finds itself in need of additional funds to meet the monthly rent for the next quarter and the owner uses the loan proceeds to pay the rent.This is an example of:

Accepted Answer

A) liquidity risk. 
B) default risk. 
C) a lack of diversification for the bank. 
D) information asymmetry. 
A) liquidity risk. 
B) default risk. 
C) a lack of diversification for the bank. 
D) information asymmetry.

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

Considering the value of a financial instrument, the more likely it is the payment will be made:

The value of a financial instrument rises as:

An insurance company is an example of a financial institution that:

Brokerage commissions:

A financial instrument would include:

Financial instruments used primarily to transfer risk would not include:

Financial markets:

Which of the following statements is most correct?

Which of the following statements is most correct?

Debt instruments that have maturities less than one year are traded in the:

The information concerning the issuer of a financial instrument:

Considering the value of a financial instrument, the bigger the size of the promised payment the:

Roles served by financial markets include the following, except:

Nondepository institutions:

Over-the-counter (OTC) markets:

Standardization of financial instruments has occurred as a result of:

Financial intermediaries include each of the following, except:

The high volume of shares of stock that are traded on a normal day on stock markets reflects the:

What are the four fundamental characteristics that determine the value of a financial instrument?

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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