Role of Financial Markets and Institutions

Financial Institutions and Markets

Business
84
Questions
30
True/False
54
Choices
0
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Questions

Q1
Free

Financial market participants who provide funds are called

Multiple Choice
expand_more
A) deficit units.
B) surplus units.
C) primary units.
D) secondary units.
Answer:
B) surplus units.
Q2
Free

The main provider(s) of funds to the U.S. Treasury is (are)

Multiple Choice
expand_more
A) households and businesses.
B) foreign financial institutions.
C) the Federal Reserve System.
D) foreign nonfinancial sectors.
Answer:
A) households and businesses.
Q3
Free

The largest deficit unit is (are)

Multiple Choice
expand_more
A) households and businesses.
B) foreign financial institutions.
C) the U.S. Treasury.
D) foreign nonfinancial sectors.
Answer:
C) the U.S. Treasury.
Q4

Those financial markets that facilitate the flow of short-term funds are known as

Multiple Choice
expand_more
A) money markets.
B) capital markets.
C) primary markets.
D) secondary markets.
Answer:

A) You need to subscribe to get the answer.

Q5

Funds are provided to the initial issuer of securities in the

Multiple Choice
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A) secondary market.
B) primary market.
C) deficit market.
D) surplus market.
Answer:

A) You need to subscribe to get the answer.

Q6

Which of the following is a capital market instrument?

Multiple Choice
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A) a six‑month CD
B) a three‑month Treasury bill
C) a ten‑year bond
D) an agreement for a bank to loan funds directly to a company for nine months
Answer:

A) You need to subscribe to get the answer.

Q7

Which of the following is a money market security?

Multiple Choice
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A) Treasury note
B) municipal bond
C) mortgage
D) commercial paper
Answer:

A) You need to subscribe to get the answer.

Q8

The most common investors in Federal funds are

Multiple Choice
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A) households.
B) depository institutions.
C) firms.
D) government agencies.
Answer:

A) You need to subscribe to get the answer.

Q9

Equity securities have a ________ expected return than most long-term debt securities, and they exhibit a _________ degree of risk.

Multiple Choice
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A) higher; higher
B) lower; lower
C) lower; higher
D) higher; lower
Answer:

A) You need to subscribe to get the answer.

Q10

Money market securities generally have ______.  Capital market securities are typically expected to have a ______.

Multiple Choice
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A) less liquidity; higher annualized return
B) more liquidity; lower annualized return
C) less liquidity; lower annualized return
D) more liquidity; higher annualized return
Answer:

A) You need to subscribe to get the answer.

Q11

If security prices fully reflect all available information, the markets for these securities are

Multiple Choice
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A) efficient.
B) primary.
C) overvalued.
D) undervalued.
Answer:

A) You need to subscribe to get the answer.

Q12

If markets are ______, investors could use available infor­mation ignored by the market to earn abnormally high returns.

Multiple Choice
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A) perfect
B) active
C) inefficient
D) in equilibrium
Answer:

A) You need to subscribe to get the answer.

Q13

If financial markets are efficient, this implies that investors can ignore the various investment instruments available.

True/False
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A) True.
B) False.
Answer:

Subscribe First.

Q14

The Securities Act of 1933

Multiple Choice
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A) required complete disclosure of relevant financial information for publicly offered securities in the primary market.
B) declared trading strategies to manipulate the prices of public secondary securities illegal.
C) declared misleading financial statements for public primary securities illegal.
D) required complete disclosure of relevant financial information for securities traded in the secondary market.
E) all of the above
Answer:

A) You need to subscribe to get the answer.

Q15

The Securities Exchange Commission (SEC) was established by the

Multiple Choice
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A) Federal Reserve Act.
B) McFadden Act.
C) Securities Exchange Act of 1934.
D) Glass‑Steagall Act.
E) none of the above
Answer:

A) You need to subscribe to get the answer.

Q16

Common stock is an example of a(n)

Multiple Choice
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A) debt security.
B) money market security.
C) equity security.
D) A and B
Answer:

A) You need to subscribe to get the answer.

Q17

If financial markets were ______, all information about any securities for sale in primary and secondary markets would be continuously and freely available to investors.

Multiple Choice
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A) efficient
B) inefficient
C) perfect
D) imperfect
Answer:

A) You need to subscribe to get the answer.

Q18

The typical role of a securities firm in a public offering of securities is to

Multiple Choice
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A) purchase the entire issue for its own investment.
B) place the entire issue with a single large investor.
C) spread the issue across several investors until the entire issue is sold.
D) provide all large investors with loans so that they can invest in the offering.
Answer:

A) You need to subscribe to get the answer.

Q19

Without the participation of financial intermediaries in financial market transactions,

Multiple Choice
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A) information and transaction costs would be lower.
B) transaction costs would be higher but information costs would be unchanged.
C) information costs would be higher but transaction costs would be unchanged.
D) information and transaction costs would be higher.
Answer:

A) You need to subscribe to get the answer.

Q20

Which of the following is most likely to be described as a depository institution?

Multiple Choice
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A) finance companies
B) securities firms
C) credit unions
D) pension funds
E) insurance companies
Answer:

A) You need to subscribe to get the answer.

Q21

In aggregate, ___________ are the most dominant depository institution.

Multiple Choice
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A) commercial banks
B) savings banks
C) credit unions
D) S&Ls
Answer:

A) You need to subscribe to get the answer.

Q22

Which of the following is a nondepository financial insti­tu­tion?

Multiple Choice
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A) savings banks
B) commercial banks
C) savings and loan associations
D) mutual funds
Answer:

A) You need to subscribe to get the answer.

Q23

Which of the following distinguishes credit unions from commercial banks and savings institutions?

Multiple Choice
expand_more
A) Credit unions are non‑profit
B) Credit unions accept deposits but do not make loans
C) Credit unions make loans but do not accept deposits
D) Savings institutions restrict their business to members who share a common bond
Answer:

A) You need to subscribe to get the answer.

Q24

When a securities firm acts as a broker, it

Multiple Choice
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A) guarantees the issuer a specific price for newly issued securities.
B) makes a market in specific securities by adjusting its own inventory.
C) executes transactions between two parties.
D) purchases securities for its own account.
Answer:

A) You need to subscribe to get the answer.

Q25

When a securities firm acts as a(n) ______, it maintains a position in securities.

Multiple Choice
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A) adviser
B) dealer
C) broker
D) none of the above
Answer:

A) You need to subscribe to get the answer.

Q26

________ obtain funds by issuing securities, then lend the funds to individuals and small businesses.

Multiple Choice
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A) Finance companies
B) Securities firms
C) Mutual funds
D) Insurance companies
Answer:

A) You need to subscribe to get the answer.

Q27

Households with ______ are served by ______.

Multiple Choice
expand_more
A) deficient funds; depository institutions and finance companies
B) deficient funds; finance companies only
C) savings; finance companies only
D) savings; pension funds and finance companies
Answer:

A) You need to subscribe to get the answer.

Q28

­­­_______________ concentrate on mortgage loans.

Multiple Choice
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A) Finance companies
B) Commercial banks
C) Savings institutions
D) Credit unions
Answer:

A) You need to subscribe to get the answer.

Q29

_____ securities have a maturity of one year or less; _____ securities are generally more liquid.

Multiple Choice
expand_more
A) Money market; capital market
B) Money market; money market
C) Capital market; money market
D) Capital market; capital market
Answer:

A) You need to subscribe to get the answer.

Q30

Which of the following is not a major investor in stocks?

Multiple Choice
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A) commercial banks
B) insurance companies
C) mutual funds
D) pension funds
Answer:

A) You need to subscribe to get the answer.

Q31

Which of the following financial intermediaries commonly invests in stocks and bonds?

Multiple Choice
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A) pension funds
B) insurance companies
C) mutual funds
D) all of the above
Answer:

A) You need to subscribe to get the answer.

Q32

Securities are certificates that represent a claim on the issuer.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q33

Debt securities are certificates that represent debt (borrowed funds) by the issuer.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q34

A five-year security was purchased two years ago by an investor who plans to resell it. The security will be sold by the investor in the so-called

Multiple Choice
expand_more
A) secondary market.
B) primary market.
C) deficit market.
D) surplus market.
Answer:

A) You need to subscribe to get the answer.

Q35

When security prices fully reflect all available information, the markets for these securities are said to be efficient.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q36

If markets are perfect, securities buyers and sellers to not have full access to information and cannot always break down securities to the precise size they desire.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q37

A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q38

The euro increased business between European countries and created a more competitive environment in Europe.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q39

In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of scope.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q40

Securities are certificates that represent a claim on the provider of funds.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q41

Debt securities include commercial paper, Treasury bonds, and corporate bonds.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q42

Common types of capital market securities include Treasury bills and commercial paper.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q43

Common types of money market securities include negotiable certificates of deposit and Treasurybills.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q44

Money market securities are commonly issued in order to finance the purchase of assets such asbuildings, equipment, or machinery.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q45

Commercial banks in aggregate have a lower value of assets than savings institutions.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q46

Financial markets facilitating the flow of short-term funds with maturities of less than one year areknown as

Multiple Choice
expand_more
A) secondary markets.
B) capital markets.
C) primary markets.
D) money markets.
E) none of the above
Answer:

A) You need to subscribe to get the answer.

Q47

Which of the following transactions would not be considered a secondary market transaction?

Multiple Choice
expand_more
A) An individual investor purchases some existing shares of stock in IBM through his broker.
B) An institutional investor sells some Disney stock through its broker.
C) A firm that was privately held engages in an offering of stock to the public.
D) All of the above are secondary market transactions.
Answer:

A) You need to subscribe to get the answer.

Q48

If investors speculate in the underlying asset rather than derivative contracts on the underlying asset,they will probably achieve ________ returns, and they are exposed to relatively _________ risk.

Multiple Choice
expand_more
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
Answer:

A) You need to subscribe to get the answer.

Q49

_________________ maintain a larger amount of assets in aggregate than the other types ofdepository institutions.

Multiple Choice
expand_more
A) Credit unions
B) Commercial banks
C) Life insurance companies
D) Savings institutions
Answer:

A) You need to subscribe to get the answer.

Q50

A common use of funds for ________________ is investment in stocks.and businesses, while their main use of funds is providing loans to households and businesses.

Multiple Choice
expand_more
A) savings institutions
B) commercial banks
C) mutual funds
D) finance companies
Answer:

A) You need to subscribe to get the answer.

Q51

Long-term debt securities tend to have a ___________ expected return and _________ risk thanmoney market securities.

Multiple Choice
expand_more
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
Answer:

A) You need to subscribe to get the answer.

Q52

Common types of capital market securities include Treasury bills and commercial paper.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q53

Common types of money market securities include negotiable certificates of deposit and Treasurybills.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q54

Capital market securities are commonly issued in order to finance the purchase of assets such asbuildings, equipment, or machinery.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q55

Commercial banks in aggregate have more assets than of savings institutions.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q56

Those participants who receive more money than they spend are referred to as

Multiple Choice
expand_more
A) deficit units.
B) surplus units.
C) borrowing units.
D) government units.
Answer:

A) You need to subscribe to get the answer.

Q57

Equity securities

Multiple Choice
expand_more
A) have a maturity.
B) pay interest on a periodic basis.
C) represent ownership in the issuer.
D) repay the principal amount at maturity.
Answer:

A) You need to subscribe to get the answer.

Q58

The term ____________ involves decisions such as how much funding to obtain, and how to investthe proceeds to expand operations.

Multiple Choice
expand_more
A) corporate finance
B) investment management
C) financial markets and institutions
D) None of the above
Answer:

A) You need to subscribe to get the answer.

Q59

There is a ___________ relationship between the risk of a security and the expected return frominvesting in the security.

Multiple Choice
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A) positive
B) negative
C) indeterminable
D) none of the above
Answer:

A) You need to subscribe to get the answer.

Q60

If a security is undervalued, some investors would capitalize from this by purchasing that security.As a result, the security’s price will _______, resulting in a _______ return for those investors.

Multiple Choice
expand_more
A) rise; lower
B) fall; higher
C) fall; lower
D) rise; higher
Answer:

A) You need to subscribe to get the answer.

Q61

The credit crisis in the 2008-2009 period was caused by weak economies in Asia.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q62

Currently, _________ hold the largest amount of assets of all financial institutions.

Multiple Choice
expand_more
A) commercial banks
B) credit unions
C) finance companies
D) securities firms
Answer:

A) You need to subscribe to get the answer.

Q63

The main reason that depository institutions experienced financial problems during the credit crisiswas their investment in:

Multiple Choice
expand_more
A) mortgages.
B) money market securities.
C) stock.
D) Treasury bonds.
Answer:

A) You need to subscribe to get the answer.

Q64

Those financial markets that facilitate the flow of short-term funds (with maturities of less than oneyear) are known as capital markets, while those that facilitate the flow of long-term funds are known as money markets.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q65

Treasury bonds have a maturity of one to three years.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q66

Since markets are efficient, institutional and individual investors should ignore the various investment instruments available.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q67

Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns than speculating in the underlying asset itself.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q68

When security prices fully reflect all available information, the markets for these securities are said to be perfect.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q69

Securities that are not as safe and liquid as other securities are never considered for investment by anyone.

True/False
expand_more
A) True.
B) False.
Answer:

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Q70

By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions.

True/False
expand_more
A) True.
B) False.
Answer:

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Q71

When a depository institution offers a loan, it is acting as a creditor.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q72

Savings institutions are the most dominant financial institution.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q73

Most mutual funds obtain funds by issuing securities, then lend the funds to individuals and small businesses.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q74

Institutional investors not only provide financial support to companies but exercise some degree of corporate control over them.

True/False
expand_more
A) True.
B) False.
Answer:

Subscribe First.

Q75

Which of the following is not a reason why depository financial institutions are popular?

Multiple Choice
expand_more
A) They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units.
B) They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units.
C) They accept the risk on loans provided.
D) They use their information resources to act as a broker, executing securities transactions between two parties.
E) They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units.
Answer:

A) You need to subscribe to get the answer.

Q76

According to your text, which of the following is not considered a money market security?

Multiple Choice
expand_more
A) Treasury bills
B) Treasury notes
C) retail CD
D) banker’s acceptance
E) commercial paper
Answer:

A) You need to subscribe to get the answer.

Q77

________________ are not considered capital market securities.

Multiple Choice
expand_more
A) Repurchase agreements
B) Municipal bonds
C) Corporate bonds
D) Equity securities
E) Mortgages
Answer:

A) You need to subscribe to get the answer.

Q78

____________ are long-term debt obligations issued by corporations and government agencies to support their operations.

Multiple Choice
expand_more
A) Common stock
B) Derivative securities
C) Bonds
D) None of the above
Answer:

A) You need to subscribe to get the answer.

Q79

Equity securities should normally have a ___________ expected return and _________ risk than money market securities.

Multiple Choice
expand_more
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
Answer:

A) You need to subscribe to get the answer.

Q80

If investors speculate in derivative contracts rather than the underlying asset, they will probably achieve ____________ returns, and they are exposed to relatively ___________ risk.

Multiple Choice
expand_more
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
Answer:

A) You need to subscribe to get the answer.

Q81

When particular securities are perceived to be ______________ by the market, their prices decrease when they are sold by investors.

Multiple Choice
expand_more
A) undervalued
B) overvalued
C) fairly priced
D) efficient
E) none of the above
Answer:

A) You need to subscribe to get the answer.

Q82

Which of the following are not considered depository financial institutions?

Multiple Choice
expand_more
A) finance companies
B) commercial banks
C) savings institutions
D) credit unions
E) All of the above are depository financial institutions.
Answer:

A) You need to subscribe to get the answer.

Q83

The main source of funds for ________________ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Multiple Choice
expand_more
A) savings institutions
B) commercial banks
C) mutual funds
D) finance companies
E) pension funds
Answer:

A) You need to subscribe to get the answer.

Q84

Which of the following statements is incorrect?

Multiple Choice
expand_more
A) Financial markets attract funds from investors and channel the funds to corporations.
B) Money markets enable corporations to borrow funds on a short-term basis so that they can support their existing operations.
C) Financial institutions serve solely as intermediaries with the financial markets and never serve as investors.
D) Investors seek to invest their funds in the stock of firms that are presently undervalued and have much potential to improve.
Answer:

A) You need to subscribe to get the answer.

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