Question 1

The total asset value of savings institutions is larger than that of commercial banks.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  lower; lower
B)  lower; higher
C)  higher; lower
D)  higher; higherE) None of the above
F) A) and D)

Question 3

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

Accepted Answer

A)  secondary markets.
B)  capital markets.
C)  primary markets.
D)  money markets.
E)  none of the aboveF) A) and E)
G) A) and C)

Question 4

Commercial banks in aggregate have more assets than credit unions.

Accepted Answer

A) True 
 B)False

Question 5

Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.

Accepted Answer

A)   a. liquid; many
B)   a. liquid; not many
C)   a. illiquid; not many
D)   a. illiquid; manyE) None of the above
F) A) and D)

Question 6

Common stock is an example of a(n)

Accepted Answer

A)  debt security.
B)  money market security.
C)  equity security.
D)  A and BE) All of the above
F) B) and D)

Question 7

Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific payments at regular intervals.

Accepted Answer

A) True 
 B)False

Question 8

The creditors in the federal funds market are

Accepted Answer

A)  households.
B)  depository institutions.
C)  firms.
D)  government agencies.E) None of the above
F) C) and D)

Question 9

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

Accepted Answer

A)  efficient
B)  inefficient
C)  perfect
D)  imperfectE) A) and D)
F) All of the above

Question 10

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

Accepted Answer

A)  lower; lower
B)  lower; higher
C)  higher; lower
D)  higher; higherE) B) and D)
F) C) and D)

Question 11

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

Accepted Answer

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.E) None of the above
F) B) and C)

Question 12

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.

Accepted Answer

A)  lower; lower
B)  lower; higher
C)  higher; lower
D)  higher; higherE) None of the above
F) C) and D)

Question 13

____ concentrate on mortgage loans.

Accepted Answer

A)  Finance companies
B)  Commercial banks
C)  Savings institutions
D)  Credit unionsE) B) and C)
F) A) and D)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

The risk that financial problems could spread among financial institutions and across financial markets, causing a collapse of the financial system, is known as:

Accepted Answer

A)   a. systemic risk.
B)   a. leverage risk.
C)   a. financial meltdown risk.
D)   a. credit risk.E) C) and D)
F) B) and D)

Question 19

Which of the following is a capital market instrument?

Accepted Answer

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 monthsE) A) and D)
F) B) and D)

Question 20

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

Accepted Answer

A)  efficient.
B)  primary.
C)  overvalued.
D)  undervalued.E) B) and C)
F) A) and D)

Exam 1: Role of Financial Markets and Institutions

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

Correct AnswerverifiedShow Answer

The total asset value of savings institutions is larger than that of commercial banks.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Commercial banks in aggregate have more assets than credit unions.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Common stock is an example of a(n)

Correct AnswerverifiedShow Answer

Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

____ concentrate on mortgage loans.

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Which of the following is a capital market instrument?

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

Correct AnswerverifiedShow Answer

The risk that financial problems could spread among financial institutions and across financial markets, causing a collapse of the financial system, is known as:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific payments at regular intervals.

Correct AnswerverifiedShow Answer

The creditors in the federal funds market are

Correct AnswerverifiedShow Answer

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Debt securities issued by a small firm may be __, meaning that _ investors want to invest in those securities.

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

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

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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.

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