Question 1

Which of the following financial intermediaries are depository institutions?

Accepted Answer

A) A savings and loan association 
B) A commercial bank 
C) A credit union 
D) All of the above 
E) Only A and C of the above 
A) A savings and loan association 
B) A commercial bank 
C) A credit union 
D) All of the above 
E) Only A and C of the above

Question 2

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

Accepted Answer

A) poorly informed consumers. 
B) standardization. 
C) economies of scale. 
D) their market power. 
A) poorly informed consumers. 
B) standardization. 
C) economies of scale. 
D) their market power.

Question 3

When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the

Accepted Answer

A) moral hazard problem. 
B) adverse selection problem. 
C) shirking problem. 
D) free-rider problem. 
E) principal-agent problem. 
A) moral hazard problem. 
B) adverse selection problem. 
C) shirking problem. 
D) free-rider problem. 
E) principal-agent problem.

Question 4

When the lender and the borrower have different amounts of information regarding a transaction, ________ 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 5

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

Accepted Answer

A) liquidity services. 
B) asset transformation. 
C) risk sharing. 
D) transaction costs. 
A) liquidity services. 
B) asset transformation. 
C) risk sharing. 
D) transaction costs.

Question 6

Intermediaries who link buyers and sellers by buying and selling securities at stated prices 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 7

The process of financial intermediation is also known as direct finance.

Accepted Answer

A) True 
 B)False

Question 8

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

Accepted Answer

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

Question 9

Distinguish between primary markets and secondary markets.

Accepted Answer

The answer of Distinguish between primary markets and secondary markets....

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Discuss the differences between depository institutions, contractual savings institutions, and investment intermediaries.

Accepted Answer

Depository institutions, contractual sav

Question 12

A country whose financial markets function poorly is likely to

Accepted Answer

A) efficiently allocate its capital resources. 
B) enjoy high productivity. 
C) experience economic hardship and financial crises. 
D) increase its standard of living. 
A) efficiently allocate its capital resources. 
B) enjoy high productivity. 
C) experience economic hardship and financial crises. 
D) increase its standard of living.

Question 13

Describe how over-the-counter markets work.

Accepted Answer

The answer of Describe how over-the-counter markets work....

Question 14

Distinguish between money markets and capital markets.

Accepted Answer

The answer of Distinguish between money markets and capital markets....

Question 15

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 16

Adverse selection is a problem associated with equity and debt contracts arising from

Accepted Answer

A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. 
B) the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. 
C) the borrower's lack of incentive to seek a loan for highly risky investments. 
D) none of the above. 
A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. 
B) the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. 
C) the borrower's lack of incentive to seek a loan for highly risky investments. 
D) none of the above.

Question 17

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) People buy shares in a mutual fund. 
C) A pension fund manager buys commercial paper in the secondary market. 
D) An insurance company buys shares of common stock in the over-the-counter markets. 
E) None of the above. 
A) A corporation's stock is traded in an over-the-counter market. 
B) People buy shares in a mutual fund. 
C) A pension fund manager buys commercial paper in the secondary market. 
D) An insurance company buys shares of common stock in the over-the-counter markets. 
E) None of the above.

Question 18

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 19

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 20

The presence of transaction costs in financial markets explains, in part, why

Accepted Answer

A) financial intermediaries and indirect finance play such an important role in financial markets. 
B) equity and bond financing play such an important role in financial markets. 
C) corporations get more funds through equity financing than they get from financial intermediaries. 
D) direct financing is more important than indirect financing as a source of funds. 
A) financial intermediaries and indirect finance play such an important role in financial markets. 
B) equity and bond financing play such an important role in financial markets. 
C) corporations get more funds through equity financing than they get from financial intermediaries. 
D) direct financing is more important than indirect financing as a source of funds.

Exam 2: Overview of the Financial System

Which of the following financial intermediaries are depository institutions?

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

When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the

When the lender and the borrower have different amounts of information regarding a transaction, ________ is said to exist.

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

Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called

The process of financial intermediation is also known as direct finance.

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

Distinguish between primary markets and secondary markets.

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

Discuss the differences between depository institutions, contractual savings institutions, and investment intermediaries.

A country whose financial markets function poorly is likely to

Describe how over-the-counter markets work.

Distinguish between money markets and capital markets.

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

Adverse selection is a problem associated with equity and debt contracts arising from

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

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

The presence of transaction costs in financial markets explains, in part, why

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

Filters