Exam 2: Overview of the Financial System

An important financial institution that assists in the initial sale of securities in the primary market is the

The capital market is a financial market in which only short-term debt instruments (generally those with an original maturity of less than one year)are traded.

Which of the following statements about financial markets and securities are true?

Banks providing depositors with checking accounts that enable them to pay their bills easily is known as

Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of

In the U.S.,financial intermediaries are restricted in what they are allowed to do and what assets they can hold.

Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks,thereby reducing losses due to

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

Why is it so important for an economy to have fully developed financial markets?

Which of the following can be described as involving direct finance?

Corporations that issue new securities to raise capital now conduct more of this business in financial markets in Europe and Asia than in the U.S.

Many common stocks are traded over the counter,although a majority of the largest corporations have their shares traded at organized stock exchanges.

Fire and casualty insurance companies are what type of intermediary?

Many common stocks are traded at organized exchanges,although a majority of the largest corporations have their shares traded over the counter.

The purpose of diversification is to

Which of the following can be described as involving direct finance?

Foreign currencies that are deposited in banks outside the home country are known as

The Federal Deposit Insurance Corporation (FDIC)insures each depositor at a commercial bank,savings and loan association,or mutual savings bank up to a loss of ________ per account.

What are adverse selection and moral hazard?

The SEC restricts trading by the largest stockholders (known as ________)in corporations issuing securities.