Question 1

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist.

Accepted Answer

A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud 
A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud B

Question 2

Which of the following are not investment intermediaries?

Accepted Answer

A) A life insurance company 
B) A pension fund 
C) A mutual fund 
D) Only A and B of the above 
A) A life insurance company 
B) A pension fund 
C) A mutual fund 
D) Only A and B of the above D

Question 3

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

Accepted Answer

A) A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. 
B) A debt instrument is intermediate term if its maturity is less than one year. 
C) A debt instrument is long term if its maturity is ten years or longer. 
D) The maturity of a debt instrument is the time (term)that has elapsed since it was issued. 
A) A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. 
B) A debt instrument is intermediate term if its maturity is less than one year. 
C) A debt instrument is long term if its maturity is ten years or longer. 
D) The maturity of a debt instrument is the time (term)that has elapsed since it was issued. C

Question 4

Which of the following are investment intermediaries?

Accepted Answer

A) Finance companies 
B) Mutual funds 
C) Pension funds 
D) All of the above 
E) Only A and B of the above 
A) Finance companies 
B) Mutual funds 
C) Pension funds 
D) All of the above 
E) Only A and B of the above

Question 5

Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a

Accepted Answer

A) bank holiday. 
B) financial panic. 
C) financial disintermediation. 
D) financial collapse. 
A) bank holiday. 
B) financial panic. 
C) financial disintermediation. 
D) financial collapse.

Question 6

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

Accepted Answer

A) A corporation takes out loans from a bank. 
B) People buy shares in a mutual fund. 
C) A corporation buys commercial paper in a secondary market. 
D) All of the above. 
E) Only A and B of the above. 
A) A corporation takes out loans from a bank. 
B) People buy shares in a mutual fund. 
C) A corporation buys commercial paper in a secondary market. 
D) All of the above. 
E) Only A and B of the above.

Question 7

Which of the following are securities?

Accepted Answer

A) A certificate of deposit 
B) A share of Texaco common stock 
C) A Treasury bill 
D) All of the above 
E) Only A and B of the above 
A) A certificate of deposit 
B) A share of Texaco common stock 
C) A Treasury bill 
D) All of the above 
E) Only A and B of the above

Question 8

American investors pay attention to only the Dow Jones Industrial Average.

Accepted Answer

A) True 
 B)False

Question 9

A bond denominated in euros and issued in a country that uses the euro as its currency is an example of a Eurobond.

Accepted Answer

A) True 
 B)False

Question 10

Intermediaries who are agents of investors and match buyers with sellers of securities are called

Accepted Answer

A) investment bankers. 
B) traders. 
C) brokers. 
D) dealers. 
E) none of the above. 
A) investment bankers. 
B) traders. 
C) brokers. 
D) dealers. 
E) none of the above.

Question 11

Equity represents an ownership interest in a firm and entitles the holder to the residual cash flows.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) moral hazard. 
B) adverse selection. 
C) bad luck. 
D) financial panics. 
A) moral hazard. 
B) adverse selection. 
C) bad luck. 
D) financial panics.

Question 13

The concept of adverse selection helps to explain

Accepted Answer

A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. 
B) why indirect finance is more important than direct finance as a source of business finance. 
C) why direct finance is more important than indirect finance as a source of business finance. 
D) only A and B of the above. 
E) only A and C of the above. 
A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. 
B) why indirect finance is more important than direct finance as a source of business finance. 
C) why direct finance is more important than indirect finance as a source of business finance. 
D) only A and B of the above. 
E) only A and C of the above.

Question 14

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

Accepted Answer

A) foreign bonds. 
B) Eurobond. 
C) Eurocurrencies. 
D) Eurodollars. 
A) foreign bonds. 
B) Eurobond. 
C) Eurocurrencies. 
D) Eurodollars.

Question 15

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

Accepted Answer

A) A corporation's stock is traded in an over-the-counter market. 
B) A corporation buys commercial paper issued by another corporation. 
C) A pension fund manager buys commercial paper from the issuing corporation. 
D) Both A and B of the above. 
E) Both B and C of the above. 
A) A corporation's stock is traded in an over-the-counter market. 
B) A corporation buys commercial paper issued by another corporation. 
C) A pension fund manager buys commercial paper from the issuing corporation. 
D) Both A and B of the above. 
E) Both B and C of the above.

Question 16

The country whose banks are the most restricted in the range of assets they may hold is

Accepted Answer

A) Japan. 
B) Canada. 
C) Germany. 
D) the United States. 
A) Japan. 
B) Canada. 
C) Germany. 
D) the United States.

Question 17

The main sources of financing for businesses, in order of importance, are

Accepted Answer

A) financial intermediaries, issuing bonds, issuing stocks. 
B) issuing bonds, issuing stocks, financial intermediaries. 
C) issuing stocks, issuing bonds, financial intermediaries. 
D) issuing stocks, financial intermediaries, issuing bonds. 
A) financial intermediaries, issuing bonds, issuing stocks. 
B) issuing bonds, issuing stocks, financial intermediaries. 
C) issuing stocks, issuing bonds, financial intermediaries. 
D) issuing stocks, financial intermediaries, issuing bonds.

Question 18

U.S. dollars deposited in foreign banks outside the United States or in foreign branches of U.S. are referred to as

Accepted Answer

A) Eurodollars. 
B) Eurocurrencies. 
C) Eurobonds. 
D) foreign bonds. 
A) Eurodollars. 
B) Eurocurrencies. 
C) Eurobonds. 
D) foreign bonds.

Question 19

When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist.

Accepted Answer

A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud 
A) asymmetric information 
B) adverse selection 
C) moral hazard 
D) fraud

Question 20

Which of the following statements about the characteristics of debt and equity are true?

Accepted Answer

A) They both can be long-term financial instruments. 
B) They both involve a claim on the issuer's income. 
C) They both enable a corporation to raise funds. 
D) All of the above. 
E) Only A and B of the above. 
A) They both can be long-term financial instruments. 
B) They both involve a claim on the issuer's income. 
C) They both enable a corporation to raise funds. 
D) All of the above. 
E) Only A and B of the above.

Exam 2: Overview of the Financial System

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist.

Which of the following are not investment intermediaries?

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

Which of the following are investment intermediaries?

Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a

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

Which of the following are securities?

American investors pay attention to only the Dow Jones Industrial Average.

A bond denominated in euros and issued in a country that uses the euro as its currency is an example of a Eurobond.

Intermediaries who are agents of investors and match buyers with sellers of securities are called

Equity represents an ownership interest in a firm and entitles the holder to the residual cash flows.

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 concept of adverse selection helps to explain

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

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

The country whose banks are the most restricted in the range of assets they may hold is

The main sources of financing for businesses, in order of importance, are

U.S. dollars deposited in foreign banks outside the United States or in foreign branches of U.S. are referred to as

When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist.

Which of the following statements about the characteristics of debt and equity are true?

Why Study Financial Markets and Institutions

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

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