Financial Markets and Institutions, 7e (Saunders)
Chapter 1 Introduction
1) Primary markets are markets in which users of funds raise cash by selling securities to funds
suppliers.
2) Secondary markets are markets used by corporations to raise cash by issuing securities for a
short time period.
3) Corporate security issuers are always directly involved in funds transfers in the secondary
market.
4) The NYSE is an example of a secondary market.
5) Central governments sometimes indirectly intervene in foreign exchange markets by affecting
foreign exchange rates through raising or lowering interest rates.
6) Money markets are the markets for securities with an original maturity of one year or less.
7) Financial intermediaries rather than financial systems are the most common agents to channel
funds from the suppliers to the users of funds.
8) There are three types of major financial markets today: primary, secondary, and derivatives
markets. The NYSE and NASDAQ are both examples of derivatives markets.
9) Asset transformation by financial intermediaries involves increasing the risk attributes of
securities such as mortgages, bonds, and stocks.
10) One of the factors responsible for globalization of financial markets and institutions is
deregulation.
11) The average cost incurred by financial institutions to collect information is larger than that of
individuals.
12) The Volcker Rule prohibits U.S. depository institutions from engaging in proprietary trading.
13) Financial intermediation provides direct transfer of funds to the users.
14) In the United States the SEC provides deposit insurance for $250,000 per person per bank.
15) Enterprise Risk Management (ERM) system is responsible for managing the totality of a
firm's risk exposures.
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,16) What factors are encouraging financial institutions to offer overlapping financial services
such as banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full-service global financial institutions
IV. Reduction in the need to manage risk at financial institutions
A) I only
B) II and III only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV
17) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public through its mutual funds. This transaction is an
example of a(n)
A) primary market transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction.
18) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public through its mutual funds.
Morgan Stanley is acting as a(n)
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader.
19) A corporation seeking to sell new equity securities to the public for the first time in order to
raise cash for capital investment would most likely
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market sale of equity.
C) conduct a private placement to a large number of potential buyers.
D) place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E) issue bonds with the assistance of a dealer.
20) The largest capital market security outstanding in 2016 measured by market value was
A) securitized mortgages.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
E) corporate stocks.
2
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, 21) The diagram below is a diagram of the
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
22) ________ and ________ allow a financial intermediary to offer safe liquid liabilities such as
deposits while investing the depositors' money in riskier illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
23) Depository institutions include
A) banks.
B) thrifts.
C) finance companies.
D) all of these choices are correct.
E) banks and thrifts.
24) Match the intermediary with the characteristic that best describes its function.
I. Provide protection from adverse events.
II. Pool funds of small savers and invest in either money or capital markets.
III. Provide consumer loans and real estate loans funded by deposits.
IV. Accumulate and transfer wealth from work period to retirement period.
V. Underwrite and trade securities and provide brokerage services.
1. Thrifts
2. Insurers
3. Pension funds
4. Securities firms and investment banks
5. Mutual funds
A) 1, 3, 2, 5, 4
B) 4, 2, 3, 5, 1
C) 2, 5, 1, 3, 4
D) 2, 4, 5, 3, 1
E) 5, 1, 3, 2, 4
3
Copyright ©2019 McGraw-Hill
Chapter 1 Introduction
1) Primary markets are markets in which users of funds raise cash by selling securities to funds
suppliers.
2) Secondary markets are markets used by corporations to raise cash by issuing securities for a
short time period.
3) Corporate security issuers are always directly involved in funds transfers in the secondary
market.
4) The NYSE is an example of a secondary market.
5) Central governments sometimes indirectly intervene in foreign exchange markets by affecting
foreign exchange rates through raising or lowering interest rates.
6) Money markets are the markets for securities with an original maturity of one year or less.
7) Financial intermediaries rather than financial systems are the most common agents to channel
funds from the suppliers to the users of funds.
8) There are three types of major financial markets today: primary, secondary, and derivatives
markets. The NYSE and NASDAQ are both examples of derivatives markets.
9) Asset transformation by financial intermediaries involves increasing the risk attributes of
securities such as mortgages, bonds, and stocks.
10) One of the factors responsible for globalization of financial markets and institutions is
deregulation.
11) The average cost incurred by financial institutions to collect information is larger than that of
individuals.
12) The Volcker Rule prohibits U.S. depository institutions from engaging in proprietary trading.
13) Financial intermediation provides direct transfer of funds to the users.
14) In the United States the SEC provides deposit insurance for $250,000 per person per bank.
15) Enterprise Risk Management (ERM) system is responsible for managing the totality of a
firm's risk exposures.
1
Copyright ©2019 McGraw-Hill
,16) What factors are encouraging financial institutions to offer overlapping financial services
such as banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full-service global financial institutions
IV. Reduction in the need to manage risk at financial institutions
A) I only
B) II and III only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV
17) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public through its mutual funds. This transaction is an
example of a(n)
A) primary market transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction.
18) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public through its mutual funds.
Morgan Stanley is acting as a(n)
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader.
19) A corporation seeking to sell new equity securities to the public for the first time in order to
raise cash for capital investment would most likely
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market sale of equity.
C) conduct a private placement to a large number of potential buyers.
D) place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E) issue bonds with the assistance of a dealer.
20) The largest capital market security outstanding in 2016 measured by market value was
A) securitized mortgages.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
E) corporate stocks.
2
Copyright ©2019 McGraw-Hill
, 21) The diagram below is a diagram of the
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
22) ________ and ________ allow a financial intermediary to offer safe liquid liabilities such as
deposits while investing the depositors' money in riskier illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
23) Depository institutions include
A) banks.
B) thrifts.
C) finance companies.
D) all of these choices are correct.
E) banks and thrifts.
24) Match the intermediary with the characteristic that best describes its function.
I. Provide protection from adverse events.
II. Pool funds of small savers and invest in either money or capital markets.
III. Provide consumer loans and real estate loans funded by deposits.
IV. Accumulate and transfer wealth from work period to retirement period.
V. Underwrite and trade securities and provide brokerage services.
1. Thrifts
2. Insurers
3. Pension funds
4. Securities firms and investment banks
5. Mutual funds
A) 1, 3, 2, 5, 4
B) 4, 2, 3, 5, 1
C) 2, 5, 1, 3, 4
D) 2, 4, 5, 3, 1
E) 5, 1, 3, 2, 4
3
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