Question 1

A share of Ford Motor Company stock is an example of:

Accepted Answer

A) a non-standardized financial instrument. 
B) a standardized financial instrument. 
C) a non-standardized financial instrument since their prices can differ over time. 
D) a financial instrument without risk. 
A) a non-standardized financial instrument. 
B) a standardized financial instrument. 
C) a non-standardized financial instrument since their prices can differ over time. 
D) a financial instrument without risk.

Question 2

The most prominent of asset-backed securities is:

Accepted Answer

A) shares of stock in corporations since stockholders own the assets. 
B) securities backed by home mortgages. 
C) U.S.Treasury bonds since they are backed by all public assets. 
D) movie box-office receipts. 
A) shares of stock in corporations since stockholders own the assets. 
B) securities backed by home mortgages. 
C) U.S.Treasury bonds since they are backed by all public assets. 
D) movie box-office receipts.

Question 3

Commissions paid to a stock broker are an example of:

Accepted Answer

A) risk transfer. 
B) transaction costs. 
C) information asymmetry. 
D) liquidity. 
A) risk transfer. 
B) transaction costs. 
C) information asymmetry. 
D) liquidity.

Question 4

A borrower has information that is not available to a prospective lender; this is an example of:

Accepted Answer

A) a wise borrower and an unwise lender. 
B) a transfer of risk. 
C) information asymmetry. 
D) liquidity risk. 
A) a wise borrower and an unwise lender. 
B) a transfer of risk. 
C) information asymmetry. 
D) liquidity risk.

Question 5

A collection of assets is known as a(n):

Accepted Answer

A) asset-backed security. 
B) derivative. 
C) futures contract. 
D) portfolio. 
A) asset-backed security. 
B) derivative. 
C) futures contract. 
D) portfolio.

Question 6

Financial instruments used primarily as stores of value would not include:

Accepted Answer

A) a car insurance policy. 
B) a U.S.Treasury bond. 
C) shares of General Motors stock. 
D) a home mortgage. 
A) a car insurance policy. 
B) a U.S.Treasury bond. 
C) shares of General Motors stock. 
D) a home mortgage.

Question 7

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Accepted Answer

Probably the best evidence is the volume

Question 8

Most of the buying and selling in primary markets:

Accepted Answer

A) is in the public view. 
B) is highly transparent and closely monitored by the SEC. 
C) involve an investment bank. 
D) is done by the Federal Reserve. 
A) is in the public view. 
B) is highly transparent and closely monitored by the SEC. 
C) involve an investment bank. 
D) is done by the Federal Reserve.

Question 9

Which of the following would not be an example of a secondary financial market transaction?

Accepted Answer

A) You call a broker and purchase 100 shares of McDonalds Corp.stock. 
B) You go to the bank and purchase a $5000 certificate of deposit. 
C) You call a broker and purchase a U.S.Treasury bond. 
D) You call a broker and purchase a bond issued by General Motors. 
A) You call a broker and purchase 100 shares of McDonalds Corp.stock. 
B) You go to the bank and purchase a $5000 certificate of deposit. 
C) You call a broker and purchase a U.S.Treasury bond. 
D) You call a broker and purchase a bond issued by General Motors.

Question 10

Loans made between borrowers and lenders are:

Accepted Answer

A) usually not taxable at the federal level. 
B) legal only in the state of origination. 
C) assets of the lenders. 
D) assets of the borrowers. 
A) usually not taxable at the federal level. 
B) legal only in the state of origination. 
C) assets of the lenders. 
D) assets of the borrowers.

Question 11

An annuity is a contract that makes monthly payments as long as someone lives.Explain why an individual would want to purchase such a contract.What risk is being transferred?

Accepted Answer

An annuity transfers the risk that the b

Question 12

What is the primary distinction between debt/equity markets and derivative markets?

Accepted Answer

The market for equities (stocks) and deb

Question 13

Agencies exist which rate bonds based on characteristics of the borrower Such bond rating agencies are an example of a financial market response designed to:

Accepted Answer

A) increase information asymmetry. 
B) decrease the real return to bondholders. 
C) provide a lower cost solution to the high cost of information. 
D) transfer risk from the buyer to the rating agency. 
A) increase information asymmetry. 
B) decrease the real return to bondholders. 
C) provide a lower cost solution to the high cost of information. 
D) transfer risk from the buyer to the rating agency.

Question 14

The process of financial intermediation:

Accepted Answer

A) creates a net cost to an economy. 
B) increases the economy's ability to produce. 
C) is always used when a borrower needs to obtain funds. 
D) is used primarily in underdeveloped countries. 
A) creates a net cost to an economy. 
B) increases the economy's ability to produce. 
C) is always used when a borrower needs to obtain funds. 
D) is used primarily in underdeveloped countries.

Question 15

What are some of the advantages of trading in decentralized electronic exchanges?

Accepted Answer

Customers can see the orders,

Question 16

Financial instruments used primarily to transfer risk would include all of the following, except:

Accepted Answer

A) an insurance contract. 
B) a futures contract. 
C) options. 
D) a bank loan. 
A) an insurance contract. 
B) a futures contract. 
C) options. 
D) a bank loan.

Question 17

Financial institutions:

Accepted Answer

A) raise the level of transaction costs relating to borrowing/lending. 
B) can lower the information asymmetry involved with borrowing/lending. 
C) decrease the liquidity to savers. 
D) are required for all financial transactions. 
A) raise the level of transaction costs relating to borrowing/lending. 
B) can lower the information asymmetry involved with borrowing/lending. 
C) decrease the liquidity to savers. 
D) are required for all financial transactions.

Question 18

Compare and contrast financial institutions that act as brokers to those that transform assets.In what sense are both types of institutions financial intermediaries? Provide one example of each type and describe how each functions as a financial intermediary.

Accepted Answer

Financial institutions that act as broke

Question 19

The fundamental characteristics influencing the value of a financial instrument include each of the following except:

Accepted Answer

A) the size of the payment promised. 
B) when the promised payment will be made. 
C) where the instrument is traded. 
D) the likelihood of payment. 
A) the size of the payment promised. 
B) when the promised payment will be made. 
C) where the instrument is traded. 
D) the likelihood of payment.

Question 20

Can a financial instrument be bought and sold in both a primary and secondary financial market? Explain.

Accepted Answer

The answer is yes and highly likely.When

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

A share of Ford Motor Company stock is an example of:

The most prominent of asset-backed securities is:

Commissions paid to a stock broker are an example of:

A borrower has information that is not available to a prospective lender; this is an example of:

A collection of assets is known as a(n):

Financial instruments used primarily as stores of value would not include:

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Most of the buying and selling in primary markets:

Which of the following would not be an example of a secondary financial market transaction?

Loans made between borrowers and lenders are:

An annuity is a contract that makes monthly payments as long as someone lives.Explain why an individual would want to purchase such a contract.What risk is being transferred?

What is the primary distinction between debt/equity markets and derivative markets?

Agencies exist which rate bonds based on characteristics of the borrower Such bond rating agencies are an example of a financial market response designed to:

The process of financial intermediation:

What are some of the advantages of trading in decentralized electronic exchanges?

Financial instruments used primarily to transfer risk would include all of the following, except:

Financial institutions:

Compare and contrast financial institutions that act as brokers to those that transform assets.In what sense are both types of institutions financial intermediaries? Provide one example of each type and describe how each functions as a financial intermediary.

The fundamental characteristics influencing the value of a financial instrument include each of the following except:

Can a financial instrument be bought and sold in both a primary and secondary financial market? Explain.

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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