Question 1

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

Question 2

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 3

Financial institutions typically own assets equal to about 10 times their actual worth.During the financial crisis of 2007-2009 some important financial firms were leveraged by more than:

Accepted Answer

A) 20 times their net worth 
B) 30 times their net worth 
C) 50 times their net worth 
D) 75 times their net worth 
A) 20 times their net worth 
B) 30 times their net worth 
C) 50 times their net worth 
D) 75 times their net worth

Question 4

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

Accepted Answer

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

Question 5

A primary financial market is a market:

Accepted Answer

A) Where only corporate bonds are sold 
B) Where only corporate and government bonds are sold 
C) Where newly issued securities are sold by savers to borrowers 
D) Where investment banks assist companies in raising cash 
A) Where only corporate bonds are sold 
B) Where only corporate and government bonds are sold 
C) Where newly issued securities are sold by savers to borrowers 
D) Where investment banks assist companies in raising cash

Question 6

What are the four characteristics of a financial instrument?

Accepted Answer

(1) A financial instrument is a written

Question 7

Which of the following is not a reason why interbank lending dried up during the financial crisis of 2007-2009?

Accepted Answer

A) Banks preferred to hold on to their liquid assets in case their own need for them increased 
B) Banks grew increasingly concerned about the ability of their trading partners to repay the loans 
C) The increased cost of loans 
D) The Fed grew increasingly wary of making liquidity available to banks 
A) Banks preferred to hold on to their liquid assets in case their own need for them increased 
B) Banks grew increasingly concerned about the ability of their trading partners to repay the loans 
C) The increased cost of loans 
D) The Fed grew increasingly wary of making liquidity available to banks

Question 8

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 9

Newly issued U.S.Treasury Securities are sold in:

Accepted Answer

A) The primary financial market 
B) Only to the Federal Reserve who then resells them 
C) The secondary market since bonds cannot be sold in the primary market 
D) Secondary markets but only using registered bond dealers 
A) The primary financial market 
B) Only to the Federal Reserve who then resells them 
C) The secondary market since bonds cannot be sold in the primary market 
D) Secondary markets but only using registered bond dealers

Question 10

Financial intermediaries handle a larger flow of funds than do primary markets primarily because financial intermediaries:

Accepted Answer

A) Have a government-provided monopoly 
B) Have government-regulated prices, so there is little competition 
C) Can lower transaction costs and increase liquidity for savers 
D) Do not have to worry about information asymmetry 
A) Have a government-provided monopoly 
B) Have government-regulated prices, so there is little competition 
C) Can lower transaction costs and increase liquidity for savers 
D) Do not have to worry about information asymmetry

Question 11

Explain how the introduction of asset-backed securities has allowed investors to take advantage of higher returns from loans that most investors could never make on their own.

Accepted Answer

Asset-backed securities are instruments

Question 12

Suppose that an Internet-based program, Novus, wants to raise $10 million to expand its business operations.Describe how Novus can raise these funds directly through each of the follow options: issuing stock, issuing bonds, or obtaining a bank loan.Compare and contrast these three options.

Accepted Answer

Novus can issue new stock worth $10 mill

Question 13

Financial intermediaries pool funds of:

Accepted Answer

A) Many small savers and provide it to a few large borrowers 
B) Few large savers and provide it to many small borrowers 
C) Few large savers a few large borrowers 
D) Many small savers and provide it to many borrowers 
A) Many small savers and provide it to a few large borrowers 
B) Few large savers and provide it to many small borrowers 
C) Few large savers a few large borrowers 
D) Many small savers and provide it to many borrowers

Question 14

One benefit of centralized exchanges compared to over-the-counter (OTC) markets is that:

Accepted Answer

A) OTC markets require specialists, whereas centralized exchanges do not 
B) Mistakes in placing orders are more likely in OTC markets 
C) Centralized exchanges do not require physical access, whereas OTC markets do 
D) Centralized exchanges make use of electronic communications networks (ECNs), whereas OTC markets do not 
A) OTC markets require specialists, whereas centralized exchanges do not 
B) Mistakes in placing orders are more likely in OTC markets 
C) Centralized exchanges do not require physical access, whereas OTC markets do 
D) Centralized exchanges make use of electronic communications networks (ECNs), whereas OTC markets do not

Question 15

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 16

Why are options referred to as derivative instruments?

Accepted Answer

Unlike underlying instruments, such as s

Question 17

Explain the various ways that financial intermediaries increase the efficiency of an economy.

Accepted Answer

Financial intermediaries increase an eco

Question 18

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 19

Standard & Poor's sells information to investors; this is their primary business.Is this an example of a financial intermediary? Explain.

Accepted Answer

No.A financial intermediary is involved

Question 20

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

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

A primary financial market is:

Roles served by financial markets include the following, except:

Financial institutions typically own assets equal to about 10 times their actual worth.During the financial crisis of 2007-2009 some important financial firms were leveraged by more than:

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

A primary financial market is a market:

What are the four characteristics of a financial instrument?

Which of the following is not a reason why interbank lending dried up during the financial crisis of 2007-2009?

The process of financial intermediation:

Newly issued U.S.Treasury Securities are sold in:

Financial intermediaries handle a larger flow of funds than do primary markets primarily because financial intermediaries:

Explain how the introduction of asset-backed securities has allowed investors to take advantage of higher returns from loans that most investors could never make on their own.

Suppose that an Internet-based program, Novus, wants to raise $10 million to expand its business operations.Describe how Novus can raise these funds directly through each of the follow options: issuing stock, issuing bonds, or obtaining a bank loan.Compare and contrast these three options.

Financial intermediaries pool funds of:

One benefit of centralized exchanges compared to over-the-counter (OTC) markets is that:

Which of the following statements is most correct?

Why are options referred to as derivative instruments?

Explain the various ways that financial intermediaries increase the efficiency of an economy.

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

Standard & Poor's sells information to investors; this is their primary business.Is this an example of a financial intermediary? Explain.

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

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

Filters