, TESTBANK FOR Financial Markets & Institutions 14th Edition Madura
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
Contact Email:
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
True / False
1. If financial markets are efficient, this implies that all securities should earn the same return.
a. True
b. False
ANSWER: False
2. Securities represent a claim on the issuer.
a. True
b. False
ANSWER: True
3. Debt securities represent debt (borrowed funds) incurred by the issuer.
a. True
b. False
ANSWER: True
4. When security prices fully reflect all available information, the markets for these securities are said to be efficient.
a. True
b. False
ANSWER: True
5. If markets are perfect, securities buyers and sellers do NOT have full access to information and CANNOT always
break down securities to the precise size they desire.
a. True
b. False
ANSWER: False
6. A broker executes securities transactions between two parties and charges a commission for the transaction.
a. True
b. False
ANSWER: True
7. The adoption of the euro by 20 European countries has increased business between those countries and created a
more competitive environment in Europe.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
8. In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of
scope.
a. True
b. False
ANSWER: True
9. Securities represent a claim on the provider of funds.
a. True
b. False
ANSWER: False
10. Debt securities include commercial paper, Treasury bonds, and corporate bonds.
a. True
b. False
ANSWER: True
11. Common types of capital market securities include Treasury bills and commercial paper.
a. True
b. False
ANSWER: False
12. Common types of money market securities include negotiable certificates of deposit and Treasury bills.
a. True
b. False
ANSWER: True
13. Money market securities are commonly issued to finance the purchase of assets such as buildings, equipment, or
machinery.
a. True
b. False
ANSWER: False
14. The total asset value of savings institutions is larger than that of commercial banks.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
15. An asymmetric information problem arises when one party to a transaction has information that is not available to
the other party, as when a corporation fails to tell investors the full extent of its losses.
a. True
b. False
ANSWER: True
16. Systemic risk is the risk that a large decline in one stock’s price could cause investors to sell their stock in other
companies.
a. True
b. False
ANSWER: False
17. The Sarbanes-Oxley Act requires firms to provide complete and accurate financial information and imposes
penalties on key executives of the firm if financial fraud is detected.
a. True
b. False
ANSWER: True
18. Capital market securities are commonly issued in order to finance the purchase of assets such as buildings,
equipment, or machinery.
a. True
b. False
ANSWER: True
19. Commercial banks in aggregate have more assets than credit unions.
a. True
b. False
ANSWER: True
20. The credit crisis in the 2008–2009 period was caused by weak economies in Asia.
a. True
b. False
ANSWER: False
21. Financial markets that facilitate the flow of short-term funds (with maturities of less than one year) are known as
capital markets, while those that facilitate the flow of long-term funds are known as money markets.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
22. Bonds commonly have maturities of one to three years.
a. True
b. False
ANSWER: False
23. As markets are efficient, institutional and individual investors should ignore the various investment instruments
available.
a. True
b. False
ANSWER: False
24. Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns
than speculating in the underlying asset itself.
a. True
b. False
ANSWER: True
25. When security prices fully reflect all available information, the markets for these securities are said to be perfect.
a. True
b. False
ANSWER: False
26. Securities that are not as safe and liquid as other securities are never considered for investment by anyone.
a. True
b. False
ANSWER: False
27. By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions.
a. True
b. False
ANSWER: False
28. When a depository institution offers a loan, it is acting as a creditor.
a. True
b. False
ANSWER: True
29. Savings institutions are a type of nondepository institution.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
30. Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.
a. True
b. False
ANSWER: False
31. Institutional investors provide financial support to companies and also exercise some degree of corporate control
over them.
a. True
b. False
ANSWER: True
32. Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific
payments at regular intervals.
a. True
b. False
ANSWER: False
33. Most funds that insurance companies receive from premiums are invested in short-run money market securities.
a. True
b. False
ANSWER: False
Multiple Choice
34. Financial market participants who provide funds are called
a. deficit units.
b. surplus units.
c. primary units.
d. secondary units.
ANSWER: b
35. Which of the following is NOT an issuer of bonds?
a. Households
b. Corporations
c. The U.S. Treasury
d. Government agencies
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
36. Behavioral finance
a. applies concepts from sociology and anthropology to the behavior of market participants.
b. studies the behavior of financial markets in response to changes in Federal Reserve policy.
c. applies psychology to financial decision making.
d. explains why markets are efficient.
ANSWER: c
37. Financial markets that facilitate the flow of short-term funds are known as
a. money markets.
b. capital markets.
c. primary markets.
d. secondary markets.
ANSWER: a
38. Funds are provided to the initial issuer of securities in the
a. secondary market.
b. primary market.
c. deficit market.
d. surplus market.
ANSWER: b
39. Which of the following is a capital market instrument?
a. Six-month certificate of deposit
b. Three-month Treasury bill
c. Ten-year bond
d. Agreement for a bank to loan funds directly to a company for nine months
ANSWER: c
40. Which of the following is a money market security?
a. Treasury note
b. Municipal bond
c. Mortgage
d. Commercial paper
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
41. The creditors in the federal funds market are
a. households.
b. depository institutions.
c. firms.
d. government agencies.
ANSWER: b
42. Investors in equity securities may earn a return from
a. coupon payments and the return of principal at the maturity date.
b. coupon payments and a capital gain when they sell the securities.
c. quarterly dividends (if paid) and a capital gain when they sell the securities.
d. quarterly dividends (if paid) and the return of principal at the maturity date.
ANSWER: c
43. Money market securities generally have
a. relatively low liquidity, low expected return, and a high degree of credit risk.
b. relatively high liquidity, high expected return, and a high degree of credit risk.
c. relatively low liquidity, high expected return, and a low degree of credit risk.
d. relatively high liquidity, low expected return, and a low degree of credit risk.
ANSWER: d
44. If security prices fully reflect all available information, the markets for these securities are
a. efficient.
b. primary.
c. overvalued.
d. undervalued.
ANSWER: a
45. When investors can use available information ignored by the market to earn abnormally high returns, markets are
said to be
a. perfect.
b. active.
c. inefficient.
d. in equilibrium.
ANSWER: c
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
46. Which of the following is true of the Securities Act of 1933?
a. It required complete disclosure of relevant financial information for publicly offered securities in the primary
market.
b. It declared trading strategies to manipulate the prices of public secondary securities illegal.
c. It imposed heavy penalties for insider trading.
d. It required complete disclosure of relevant financial information for securities traded in the secondary market.
ANSWER: a
47. The Securities and Exchange Commission (SEC) was established by the
a. Federal Reserve Act.
b. McFadden Act.
c. Securities Exchange Act of 1934.
d. Glass-Steagall Act.
e. None of these are correct.
ANSWER: c
48. Stock issued by a corporation is an example of a(n)
a. debt security.
b. money market security.
c. equity security.
d. debt security and a money market security.
ANSWER: c
49. All information about any securities for sale in primary and secondary markets would be continuously and freely
available to investors if financial markets were considered
a. efficient.
b. inefficient.
c. perfect.
d. imperfect.
ANSWER: c
50. Which of the following is NOT a typical function of securities firms?
a. Providing brokerage services
b. Providing underwriting services
c. Accepting deposits that are insured by the federal government and using the funds to provide loans to
corporations
d. Offering advice on mergers and other corporate restructurings
ANSWER: c
Copyright Cengage Learning. Powered by Cognero. Page 8
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
Contact Email:
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
True / False
1. If financial markets are efficient, this implies that all securities should earn the same return.
a. True
b. False
ANSWER: False
2. Securities represent a claim on the issuer.
a. True
b. False
ANSWER: True
3. Debt securities represent debt (borrowed funds) incurred by the issuer.
a. True
b. False
ANSWER: True
4. When security prices fully reflect all available information, the markets for these securities are said to be efficient.
a. True
b. False
ANSWER: True
5. If markets are perfect, securities buyers and sellers do NOT have full access to information and CANNOT always
break down securities to the precise size they desire.
a. True
b. False
ANSWER: False
6. A broker executes securities transactions between two parties and charges a commission for the transaction.
a. True
b. False
ANSWER: True
7. The adoption of the euro by 20 European countries has increased business between those countries and created a
more competitive environment in Europe.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
8. In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of
scope.
a. True
b. False
ANSWER: True
9. Securities represent a claim on the provider of funds.
a. True
b. False
ANSWER: False
10. Debt securities include commercial paper, Treasury bonds, and corporate bonds.
a. True
b. False
ANSWER: True
11. Common types of capital market securities include Treasury bills and commercial paper.
a. True
b. False
ANSWER: False
12. Common types of money market securities include negotiable certificates of deposit and Treasury bills.
a. True
b. False
ANSWER: True
13. Money market securities are commonly issued to finance the purchase of assets such as buildings, equipment, or
machinery.
a. True
b. False
ANSWER: False
14. The total asset value of savings institutions is larger than that of commercial banks.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
15. An asymmetric information problem arises when one party to a transaction has information that is not available to
the other party, as when a corporation fails to tell investors the full extent of its losses.
a. True
b. False
ANSWER: True
16. Systemic risk is the risk that a large decline in one stock’s price could cause investors to sell their stock in other
companies.
a. True
b. False
ANSWER: False
17. The Sarbanes-Oxley Act requires firms to provide complete and accurate financial information and imposes
penalties on key executives of the firm if financial fraud is detected.
a. True
b. False
ANSWER: True
18. Capital market securities are commonly issued in order to finance the purchase of assets such as buildings,
equipment, or machinery.
a. True
b. False
ANSWER: True
19. Commercial banks in aggregate have more assets than credit unions.
a. True
b. False
ANSWER: True
20. The credit crisis in the 2008–2009 period was caused by weak economies in Asia.
a. True
b. False
ANSWER: False
21. Financial markets that facilitate the flow of short-term funds (with maturities of less than one year) are known as
capital markets, while those that facilitate the flow of long-term funds are known as money markets.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
22. Bonds commonly have maturities of one to three years.
a. True
b. False
ANSWER: False
23. As markets are efficient, institutional and individual investors should ignore the various investment instruments
available.
a. True
b. False
ANSWER: False
24. Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns
than speculating in the underlying asset itself.
a. True
b. False
ANSWER: True
25. When security prices fully reflect all available information, the markets for these securities are said to be perfect.
a. True
b. False
ANSWER: False
26. Securities that are not as safe and liquid as other securities are never considered for investment by anyone.
a. True
b. False
ANSWER: False
27. By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions.
a. True
b. False
ANSWER: False
28. When a depository institution offers a loan, it is acting as a creditor.
a. True
b. False
ANSWER: True
29. Savings institutions are a type of nondepository institution.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
30. Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.
a. True
b. False
ANSWER: False
31. Institutional investors provide financial support to companies and also exercise some degree of corporate control
over them.
a. True
b. False
ANSWER: True
32. Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific
payments at regular intervals.
a. True
b. False
ANSWER: False
33. Most funds that insurance companies receive from premiums are invested in short-run money market securities.
a. True
b. False
ANSWER: False
Multiple Choice
34. Financial market participants who provide funds are called
a. deficit units.
b. surplus units.
c. primary units.
d. secondary units.
ANSWER: b
35. Which of the following is NOT an issuer of bonds?
a. Households
b. Corporations
c. The U.S. Treasury
d. Government agencies
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
36. Behavioral finance
a. applies concepts from sociology and anthropology to the behavior of market participants.
b. studies the behavior of financial markets in response to changes in Federal Reserve policy.
c. applies psychology to financial decision making.
d. explains why markets are efficient.
ANSWER: c
37. Financial markets that facilitate the flow of short-term funds are known as
a. money markets.
b. capital markets.
c. primary markets.
d. secondary markets.
ANSWER: a
38. Funds are provided to the initial issuer of securities in the
a. secondary market.
b. primary market.
c. deficit market.
d. surplus market.
ANSWER: b
39. Which of the following is a capital market instrument?
a. Six-month certificate of deposit
b. Three-month Treasury bill
c. Ten-year bond
d. Agreement for a bank to loan funds directly to a company for nine months
ANSWER: c
40. Which of the following is a money market security?
a. Treasury note
b. Municipal bond
c. Mortgage
d. Commercial paper
ANSWER: d
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
41. The creditors in the federal funds market are
a. households.
b. depository institutions.
c. firms.
d. government agencies.
ANSWER: b
42. Investors in equity securities may earn a return from
a. coupon payments and the return of principal at the maturity date.
b. coupon payments and a capital gain when they sell the securities.
c. quarterly dividends (if paid) and a capital gain when they sell the securities.
d. quarterly dividends (if paid) and the return of principal at the maturity date.
ANSWER: c
43. Money market securities generally have
a. relatively low liquidity, low expected return, and a high degree of credit risk.
b. relatively high liquidity, high expected return, and a high degree of credit risk.
c. relatively low liquidity, high expected return, and a low degree of credit risk.
d. relatively high liquidity, low expected return, and a low degree of credit risk.
ANSWER: d
44. If security prices fully reflect all available information, the markets for these securities are
a. efficient.
b. primary.
c. overvalued.
d. undervalued.
ANSWER: a
45. When investors can use available information ignored by the market to earn abnormally high returns, markets are
said to be
a. perfect.
b. active.
c. inefficient.
d. in equilibrium.
ANSWER: c
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
Chapter_01_Role_of_Financial_Markets_and_Institutions
46. Which of the following is true of the Securities Act of 1933?
a. It required complete disclosure of relevant financial information for publicly offered securities in the primary
market.
b. It declared trading strategies to manipulate the prices of public secondary securities illegal.
c. It imposed heavy penalties for insider trading.
d. It required complete disclosure of relevant financial information for securities traded in the secondary market.
ANSWER: a
47. The Securities and Exchange Commission (SEC) was established by the
a. Federal Reserve Act.
b. McFadden Act.
c. Securities Exchange Act of 1934.
d. Glass-Steagall Act.
e. None of these are correct.
ANSWER: c
48. Stock issued by a corporation is an example of a(n)
a. debt security.
b. money market security.
c. equity security.
d. debt security and a money market security.
ANSWER: c
49. All information about any securities for sale in primary and secondary markets would be continuously and freely
available to investors if financial markets were considered
a. efficient.
b. inefficient.
c. perfect.
d. imperfect.
ANSWER: c
50. Which of the following is NOT a typical function of securities firms?
a. Providing brokerage services
b. Providing underwriting services
c. Accepting deposits that are insured by the federal government and using the funds to provide loans to
corporations
d. Offering advice on mergers and other corporate restructurings
ANSWER: c
Copyright Cengage Learning. Powered by Cognero. Page 8
