Question 1

Many financial instruments are standardized because:

Accepted Answer

A) It is believed that most parties to a contract do not read them anyway 
B) Complexity is costly, the more complex a contract, the more it costs to create 
C) The standardization of contracts makes them harder to understand 
D) It is required by the government 
A) It is believed that most parties to a contract do not read them anyway 
B) Complexity is costly, the more complex a contract, the more it costs to create 
C) The standardization of contracts makes them harder to understand 
D) It is required by the government

Question 2

Stacy needs $5,000 to help with her tuition fees this semester.She is considering two ways to raise the funds she needs.First, she is considering going to her parents for the loan.Second, she could go to a bank for the loan.Discuss these options in the context of direct versus indirect finance.In what sense might her parents pay for the loan either way?

Accepted Answer

If Stacy receives a loan from her parent

Question 3

Asymmetric information in financial markets is a potential problem usually resulting from:

Accepted Answer

A) Borrowers having more information than the lenders, and not disclosing this information 
B) Lenders having more information than borrowers and not disclosing this information 
C) The fact that people are basically dishonest 
D) The uncertainty about Federal Reserve monetary policy 
A) Borrowers having more information than the lenders, and not disclosing this information 
B) Lenders having more information than borrowers and not disclosing this information 
C) The fact that people are basically dishonest 
D) The uncertainty about Federal Reserve monetary policy

Question 4

Consider a typical individual who owns the following financial instruments: A life insurance policy for $250,000; a certificate of deposit for $10,000; homeowner's and auto insurance policies; $50,000 in a mutual fund, and $150,000 in her pension fund at work.Which of these are instruments used primarily as stores of value and which are being used to transfer risk?

Accepted Answer

The life insurance policy, the homeowner

Question 5

Why didn't the over-the-counter (OTC) exchanges suffer the disruption of service that the New York Stock Exchange did after the terrorist attacks of September 11, 2001?

Accepted Answer

The New York Stock Exchange is a central

Question 6

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 7

Money markets are where trades occur for:

Accepted Answer

A) Stocks 
B) Bonds of all maturities 
C) Derivatives 
D) Bonds issued by both the government and private companies 
A) Stocks 
B) Bonds of all maturities 
C) Derivatives 
D) Bonds issued by both the government and private companies

Question 8

Financial instruments used primarily as stores of value include each of the following, except:

Accepted Answer

A) Bonds 
B) Futures contracts 
C) Stocks 
D) Home mortgages 
A) Bonds 
B) Futures contracts 
C) Stocks 
D) Home mortgages

Question 9

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 10

Which of the following is not true of over-the-counter markets?

Accepted Answer

A) Traders are linked by computer 
B) Dealers buy and sell only for their customers 
C) Trading does not take place in one physical location 
D) Traders are willing to buy and sell stocks and bonds at posted prices 
A) Traders are linked by computer 
B) Dealers buy and sell only for their customers 
C) Trading does not take place in one physical location 
D) Traders are willing to buy and sell stocks and bonds at posted prices

Question 11

The pool of information collected by financial markets is usually:

Accepted Answer

A) Only available to lenders 
B) Summarized in the form of a price 
C) Valuable and not made available until the parties pay for it 
D) More than a borrower needs to make a loan 
A) Only available to lenders 
B) Summarized in the form of a price 
C) Valuable and not made available until the parties pay for it 
D) More than a borrower needs to make a loan

Question 12

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 13

Which of the following is not considered to be a shadow bank?

Accepted Answer

A) Credit unions 
B) Brokerages 
C) Insurers 
D) Money-market mutual funds 
A) Credit unions 
B) Brokerages 
C) Insurers 
D) Money-market mutual funds

Question 14

Is the obtaining of a car loan a primary or secondary market transaction?

Accepted Answer

The obtaining of a car loan is

Question 15

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 16

How do financial markets contribute to the process of risk transfer?

Accepted Answer

Financial instruments can be used to tra

Question 17

How do financial markets pool and communicate the information regarding issuers of financial instruments in a convenient way?

Accepted Answer

Financial markets pool and communicate i

Question 18

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 19

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 20

Loans made between borrowers and lenders:

Accepted Answer

A) Are liabilities to the lenders and assets to the borrowers since the borrower obtains the funds 
B) Are assets to the lenders and liabilities of the borrowers since the promises are made to the lenders 
C) Are not part of either parties' assets or liabilities until the loans are repaid 
D) Are liabilities to both the lenders and the borrowers 
A) Are liabilities to the lenders and assets to the borrowers since the borrower obtains the funds 
B) Are assets to the lenders and liabilities of the borrowers since the promises are made to the lenders 
C) Are not part of either parties' assets or liabilities until the loans are repaid 
D) Are liabilities to both the lenders and the borrowers

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

Many financial instruments are standardized because:

Asymmetric information in financial markets is a potential problem usually resulting from:

Why didn't the over-the-counter (OTC) exchanges suffer the disruption of service that the New York Stock Exchange did after the terrorist attacks of September 11, 2001?

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

Money markets are where trades occur for:

Financial instruments used primarily as stores of value include each of the following, except:

All of the following are depository institutions, except:

Which of the following is not true of over-the-counter markets?

The pool of information collected by financial markets is usually:

The information concerning the issuer of a financial instrument:

Which of the following is not considered to be a shadow bank?

Is the obtaining of a car loan a primary or secondary market transaction?

Which of the following statements is most correct?

How do financial markets contribute to the process of risk transfer?

How do financial markets pool and communicate the information regarding issuers of financial instruments in a convenient way?

Which of the following are depository institutions?

A derivative instrument:

Loans made between borrowers and lenders:

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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