Question 1

Which of the following are depository institutions?

Accepted Answer

A) Credit unions 
B) Mutual funds 
C) Pension funds 
D) Insurance companies 
A) Credit unions 
B) Mutual funds 
C) Pension funds 
D) Insurance companies

Question 2

Well-run financial markets:

Accepted Answer

A) keep transactions costs high to benefit brokers 
B) prevent the widespread pooling of information 
C) ensure that resources are allocated efficiently 
D) are usually the result of little or no government regulation 
A) keep transactions costs high to benefit brokers 
B) prevent the widespread pooling of information 
C) ensure that resources are allocated efficiently 
D) are usually the result of little or no government regulation

Question 3

Considering the value of a financial instrument, the sooner the promised payment is made:

Accepted Answer

A) the less valuable is the promise to make it since time is valuable. 
B) the greater the risk, therefore the promise has greater value. 
C) the more valuable is the promise to make it. 
D) the less relevant is the likelihood that the payment will be made. 
A) the less valuable is the promise to make it since time is valuable. 
B) the greater the risk, therefore the promise has greater value. 
C) the more valuable is the promise to make it. 
D) the less relevant is the likelihood that the payment will be made.

Question 4

Loans made between lenders and borrowers are:

Accepted Answer

A) assets to the borrowers. 
B) liabilities of the lenders. 
C) not taxable in the state of origination. 
D) liabilities of the borrowers. 
A) assets to the borrowers. 
B) liabilities of the lenders. 
C) not taxable in the state of origination. 
D) liabilities of the borrowers.

Question 5

Financial instruments are different from money because they:

Accepted Answer

A) can act as a store of value and money cannot. 
B) can't be a means of payment but money can. 
C) can allow for the transfer of risk. 
D) have greater liquidity. 
A) can act as a store of value and money cannot. 
B) can't be a means of payment but money can. 
C) can allow for the transfer of risk. 
D) have greater liquidity.

Question 6

Trading in electronic exchanges has grown tremendously in recent years, what are some of the disadvantages of trading in decentralized electronic exchanges?

Accepted Answer

Electronic operations have proven prone

Question 7

Financial markets enable the transfer of risk by:

Accepted Answer

A) requiring that risk-averse investors have access to U.S.Treasury bond markets. 
B) allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk. 
C) making sure that higher default risk is offset by greater liquidity. 
D) enabling even unsophisticated investors to purchase highly complex financial instruments. 
A) requiring that risk-averse investors have access to U.S.Treasury bond markets. 
B) allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk. 
C) making sure that higher default risk is offset by greater liquidity. 
D) enabling even unsophisticated investors to purchase highly complex financial instruments.

Question 8

The ultimate role of the financial system of a country is to:

Accepted Answer

A) provide a place for wealthy households to save. 
B) be a low-cost source of funds for government. 
C) facilitate production, employment, and consumption. 
D) provide jobs in the financial sector. 
A) provide a place for wealthy households to save. 
B) be a low-cost source of funds for government. 
C) facilitate production, employment, and consumption. 
D) provide jobs in the financial sector.

Question 9

Which of the following is not a financial instrument?

Accepted Answer

A) A share of Microsoft stock 
B) A U.S.Treasury Bond 
C) An electric bill 
D) A life insurance policy 
A) A share of Microsoft stock 
B) A U.S.Treasury Bond 
C) An electric bill 
D) A life insurance policy

Question 10

An over-the-counter (OTC) market is:

Accepted Answer

A) made up of dealers who only sell government bonds. 
B) an example of a centralized market. 
C) made up of dealer who buy and sell only for their own accounts. 
D) made up of dealers who buy and sell for their customers and for their own accounts. 
A) made up of dealers who only sell government bonds. 
B) an example of a centralized market. 
C) made up of dealer who buy and sell only for their own accounts. 
D) made up of dealers who buy and sell for their customers and for their own accounts.

Question 11

A counterparty to a financial instrument is always the:

Accepted Answer

A) issuer of the financial instrument. 
B) government agency guaranteeing the value of the instrument. 
C) person or institution that purchases the financial instrument. 
D) person or institution that is on the other side of the financial contract. 
A) issuer of the financial instrument. 
B) government agency guaranteeing the value of the instrument. 
C) person or institution that purchases the financial instrument. 
D) person or institution that is on the other side of the financial contract.

Question 12

What are the four characteristics of a financial instrument?

Accepted Answer

(1) A financial instrument is a written

Question 13

Secondary financial markets:

Accepted Answer

A) are financial markets for all financial instruments rated less than investment grade. 
B) are financial markets where existing securities are bought and sold. 
C) eliminate the transaction costs for buyers and sellers. 
D) are only for stock. 
A) are financial markets for all financial instruments rated less than investment grade. 
B) are financial markets where existing securities are bought and sold. 
C) eliminate the transaction costs for buyers and sellers. 
D) are only for stock.

Question 14

Why are options referred to as derivative instruments?

Accepted Answer

Unlike underlying instruments, such as s

Question 15

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

Accepted Answer

A) asset backed securities. 
B) U.S.Treasury bonds. 
C) a car insurance policy. 
D) a bank loan. 
A) asset backed securities. 
B) U.S.Treasury bonds. 
C) a car insurance policy. 
D) a bank loan.

Question 16

A derivative instrument:

Accepted Answer

A) comes into existence after the underlying instrument is in default. 
B) is a low-risk financial instrument used by highly risk-averse savers. 
C) gets its value and payoff from the performance of the underlying instrument. 
D) should be purchased prior to purchasing the underlying security. 
A) comes into existence after the underlying instrument is in default. 
B) is a low-risk financial instrument used by highly risk-averse savers. 
C) gets its value and payoff from the performance of the underlying instrument. 
D) should be purchased prior to purchasing the underlying security.

Question 17

Which of the following statements is most correct?

Accepted Answer

A) When a risk is difficult to predict, financial instruments are created to transfer these risks. 
B) Financial instruments are created to transfer risks that are relatively easy to predict. 
C) Financial instruments require certainty of an event to be able to transfer risk. 
D) Financial instruments eliminate the risk from uncertainty, they do not transfer it. 
A) When a risk is difficult to predict, financial instruments are created to transfer these risks. 
B) Financial instruments are created to transfer risks that are relatively easy to predict. 
C) Financial instruments require certainty of an event to be able to transfer risk. 
D) Financial instruments eliminate the risk from uncertainty, they do not transfer it.

Question 18

A bank is a financial intermediary.Which of the following statements is most accurate?

Accepted Answer

A) The bank's depositors are the ultimate lenders and the bank is the ultimate borrower. 
B) People seeking loans from the bank are the ultimate spenders while the bank is the ultimate lender. 
C) The bank's depositors are the ultimate lenders, while those seeking loans from the bank are the ultimate spenders. 
D) Those seeking loans from the bank are the ultimate spenders; the bank's stockholders are the ultimate lenders. 
A) The bank's depositors are the ultimate lenders and the bank is the ultimate borrower. 
B) People seeking loans from the bank are the ultimate spenders while the bank is the ultimate lender. 
C) The bank's depositors are the ultimate lenders, while those seeking loans from the bank are the ultimate spenders. 
D) Those seeking loans from the bank are the ultimate spenders; the bank's stockholders are the ultimate lenders.

Question 19

All of the following are depository institutions, except:

Accepted Answer

A) commercial banks. 
B) credit unions. 
C) insurance companies. 
D) savings banks. 
A) commercial banks. 
B) credit unions. 
C) insurance companies. 
D) savings banks.

Question 20

A primary financial market is:

Accepted Answer

A) located only in New York, London, and Tokyo but can handle transactions anywhere in the world. 
B) one where the borrower obtains funds directly from the lender for newly issued securities. 
C) a market where U.S.Treasury bonds are traded. 
D) one that can only deal in the highest investment grade securities. 
A) located only in New York, London, and Tokyo but can handle transactions anywhere in the world. 
B) one where the borrower obtains funds directly from the lender for newly issued securities. 
C) a market where U.S.Treasury bonds are traded. 
D) one that can only deal in the highest investment grade securities.

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

Which of the following are depository institutions?

Well-run financial markets:

Considering the value of a financial instrument, the sooner the promised payment is made:

Loans made between lenders and borrowers are:

Financial instruments are different from money because they:

Trading in electronic exchanges has grown tremendously in recent years, what are some of the disadvantages of trading in decentralized electronic exchanges?

Financial markets enable the transfer of risk by:

The ultimate role of the financial system of a country is to:

Which of the following is not a financial instrument?

An over-the-counter (OTC) market is:

A counterparty to a financial instrument is always the:

What are the four characteristics of a financial instrument?

Secondary financial markets:

Why are options referred to as derivative instruments?

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

A derivative instrument:

Which of the following statements is most correct?

A bank is a financial intermediary.Which of the following statements is most accurate?

All of the following are depository institutions, except:

A primary financial market is:

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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