Banking and Finance – Exam 1, 2026 – Study Material and Practice
Questions
financial markets facilitate the transfer of funds from who to who?
(c1 textbook) - ANS✔✔ surplus units to deficit units
what does the primary market allow in relation to securities?
(c1 textbook) - ANS✔✔ issuance of new securities
what does the secondary market allow?
(c1 textbook) - ANS✔✔ sale of existing securities
what are the 2 ways securities can be classified?
(c1 textbook) - ANS✔✔ money market (*short-term*) (T-Bills, CDs)
capital market (*long-term*) (i.e. bonds, mortgages, mortgage-backed securities, stocks)
what institutions help to finance the needs of deficit units?
(c1 textbook) - ANS✔✔ depository institutions
(i.e. commercial banks, savings institutions, credit unions)
,nondepository institutions
(i.e. finance companies, mutual funds, pension funds, insurance companies)
Explain the meaning of surplus units and deficit units. (Provide an example of each. Which types
of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a
deficit unit in your relationship with each financial institution.)
(c1 textbook) - ANS✔✔ surplus units have excess funds (i.e. old people)
deficit units have no excess funds and often utilize the surplus units excess funds (i.e. college
kids)
i am acting as a deficit unit in my relationship with financial institutions
Primary Markets - ANS✔✔ where the investor buys directly from the company (i.e. buying a
subaru directly from subaru)
What was the purpose of the Securities Act of 1933?
(chapter 1) - ANS✔✔ was intended to ensure complete disclosure of relevant financial info on
publicly offered securities and to prevent fraudulent practices in selling these securities.
what was the purpose of the sarbanes-oxley act?
(chapter 1) - ANS✔✔ required that firms provide more complete and accurate financial
information
,What advantages can be obtained through an international merger of financial institutions?
(chapter 1) - ANS✔✔ allows easier diversification, larger economies of scale, enhancement of
cash flows
What are the functions of insurance firms?
(chapter 1) - ANS✔✔ provide insurance policies that decrease financial burden associated with
death, illness, and damage to property.
commercial banks use of funds - ANS✔✔ primarily use their funds to transfer deposit funds to
deficit units through loans or purchase of debt securities.
What are credit unions? - ANS✔✔ credit unions are nonprofit organizations that restrict
business to credit union members with a common bond
What is the function of a mutual fund? - ANS✔✔ mutual funds sell shares to surplus units and
use the funds received to purchase a portfolio of securities
if a corporation wants to borrow funds, it can issue bonds in the ______ market - ANS✔✔
primary
Indiana Bank purchased corporate bonds with a 10-year maturity 3 years ago. If it now needs
funds, it could sell those bonds in the ______ market. - ANS✔✔ secondary market
The _______________________ required complete disclosure of relevant financial information
for publicly offered securities in the primary market. - ANS✔✔ securities act of 1933
, Classify the types of financial institutions as either depository or non-depository...
a. commercial banks
b. finance companies
c. savings and loan associations
d. insurance companies
e. pension funds
f. credit unions
g. mutual funds
h. money market funds
c1 practice problems - ANS✔✔ a. depository
b. non-depository
c. depository
d. non-depository
e. nondepository
f. depository
g. nondepository
h. nondepository
do the securities exchange acts of 1933 and 1934 prevent investors from making poor
investment decisions? - ANS✔✔ no
Which of the following is most likely to be described as a depository institution?
Questions
financial markets facilitate the transfer of funds from who to who?
(c1 textbook) - ANS✔✔ surplus units to deficit units
what does the primary market allow in relation to securities?
(c1 textbook) - ANS✔✔ issuance of new securities
what does the secondary market allow?
(c1 textbook) - ANS✔✔ sale of existing securities
what are the 2 ways securities can be classified?
(c1 textbook) - ANS✔✔ money market (*short-term*) (T-Bills, CDs)
capital market (*long-term*) (i.e. bonds, mortgages, mortgage-backed securities, stocks)
what institutions help to finance the needs of deficit units?
(c1 textbook) - ANS✔✔ depository institutions
(i.e. commercial banks, savings institutions, credit unions)
,nondepository institutions
(i.e. finance companies, mutual funds, pension funds, insurance companies)
Explain the meaning of surplus units and deficit units. (Provide an example of each. Which types
of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a
deficit unit in your relationship with each financial institution.)
(c1 textbook) - ANS✔✔ surplus units have excess funds (i.e. old people)
deficit units have no excess funds and often utilize the surplus units excess funds (i.e. college
kids)
i am acting as a deficit unit in my relationship with financial institutions
Primary Markets - ANS✔✔ where the investor buys directly from the company (i.e. buying a
subaru directly from subaru)
What was the purpose of the Securities Act of 1933?
(chapter 1) - ANS✔✔ was intended to ensure complete disclosure of relevant financial info on
publicly offered securities and to prevent fraudulent practices in selling these securities.
what was the purpose of the sarbanes-oxley act?
(chapter 1) - ANS✔✔ required that firms provide more complete and accurate financial
information
,What advantages can be obtained through an international merger of financial institutions?
(chapter 1) - ANS✔✔ allows easier diversification, larger economies of scale, enhancement of
cash flows
What are the functions of insurance firms?
(chapter 1) - ANS✔✔ provide insurance policies that decrease financial burden associated with
death, illness, and damage to property.
commercial banks use of funds - ANS✔✔ primarily use their funds to transfer deposit funds to
deficit units through loans or purchase of debt securities.
What are credit unions? - ANS✔✔ credit unions are nonprofit organizations that restrict
business to credit union members with a common bond
What is the function of a mutual fund? - ANS✔✔ mutual funds sell shares to surplus units and
use the funds received to purchase a portfolio of securities
if a corporation wants to borrow funds, it can issue bonds in the ______ market - ANS✔✔
primary
Indiana Bank purchased corporate bonds with a 10-year maturity 3 years ago. If it now needs
funds, it could sell those bonds in the ______ market. - ANS✔✔ secondary market
The _______________________ required complete disclosure of relevant financial information
for publicly offered securities in the primary market. - ANS✔✔ securities act of 1933
, Classify the types of financial institutions as either depository or non-depository...
a. commercial banks
b. finance companies
c. savings and loan associations
d. insurance companies
e. pension funds
f. credit unions
g. mutual funds
h. money market funds
c1 practice problems - ANS✔✔ a. depository
b. non-depository
c. depository
d. non-depository
e. nondepository
f. depository
g. nondepository
h. nondepository
do the securities exchange acts of 1933 and 1934 prevent investors from making poor
investment decisions? - ANS✔✔ no
Which of the following is most likely to be described as a depository institution?
