CHAPTER 1
TRUE/FALSE QUESTIONS
(T) 1. The purpose of the financial system is to bring savers and borrowers together.
(F) 2. Businesses are never deficit spending units (DSUs).
(T) 3. A financial claim is an “IOU” from a deficit spending unit.
(T) 4. Investment bankers help deficit spending units (DSUs) bring new primary
security issues to market.
(F) 5. Deposits in a credit union by a household are an example of direct finance.
(F) 6. When a surplus spending units (SSU) owns a financial claim created by financial
intermediation, its residual claim is against a deficit spending units (DSU).
(F) 7. Assets of financial intermediaries include direct financial claims only.
(F) 8. Finance companies take small consumer deposits and make large consumer
loans.
(T) 9. Liabilities of financial intermediaries are indirect financial claims.
(T) 10. Direct finance requires a more or less exact match of preferences.
,(F) 11. There must be an equal number of DSUs and surplus spending units ( SSUs) in
a period.
(T) 12. Every financial claim appears on two balance sheets.
(T) 13. Without a financial sector, real investment must be financed internally by the
deficit spending unit.
(T) 14. Depository intermediaries issue claims that are for the most part highly liquid.
(T) 15. A household is a surplus spending units when income for the period exceeds
spending.
(F) 16. A surplus spending units surplus spending unit (SSU) must hold a claim until its
scheduled maturity.
(T) 17. Financial claims or securities are written for the mutual benefit of both SSU and
DSU.
(F) 18. Deficit spending units (DSUs) and surplus spending units (SSUs) always have
some contact with each other in financial markets.
(T) 19. Commercial banks lend to businesses in direct financial markets.
(F) 20. “Futures contract” and “forward contract” are interchangeable terms.
(T) 21. Mortgages are capital market debt securities.
(T) 22. Households are the major source of funds to the financial system.
,(F) 23. Secondary markets are important because they provide funds directly to deficit
spending units (DSUs).
(F) 24. Primary markets offer liquidity and ways for investors to alter the risk of their
portfolios.
(T) 25. The New York Stock Exchange is an example of an organized exchange.
(T) 26. The money market provides short-term liquidity; the capital market finances
long-term corporate growth.
(T) 27. Private placements are the simplest form of direct finance.
(T) 28. Competition among financial intermediaries tends to force interest rates
downward.
(T) 29. Money markets have a greater variety of investors than borrowers.
(F) 30. Every asset is someone else’s liability, but not every liability is someone else’s asset.
(T) 31. All money market instruments are short-term debt.
(T) 33. The money market is a dealer market, not an exchange, and has no specific
location.
(T) 34. Money market borrowers are small in number compared to money market
lenders.
, (T) 35. The money market is a market where liquidity is bought and sold.
(T) 36. Commercial banks are the major issuer and investor of money market securities.
(F) 37. Federal funds are the funds provided by the Federal Government for domestic
corporations for long-term growth.
(F) 38. Dealers bring buyer and seller together; brokers make a market.
(F) 39. OTC markets are not very important any more.
(T) 40. When a stock is listed on an exchange, members may trade it on the floor of the
exchange.
(T) 41. Primary markets are markets where users of funds raise cash by selling securities
to funds suppliers.
(F) 42. Privately placed securities are usually sold to one or more investment bankers
and then resold to the general public.
(T) 43. Financial institutions such as commercial banks typically have assets that are riskier than
their liabilities.
TRUE/FALSE QUESTIONS
(T) 1. The purpose of the financial system is to bring savers and borrowers together.
(F) 2. Businesses are never deficit spending units (DSUs).
(T) 3. A financial claim is an “IOU” from a deficit spending unit.
(T) 4. Investment bankers help deficit spending units (DSUs) bring new primary
security issues to market.
(F) 5. Deposits in a credit union by a household are an example of direct finance.
(F) 6. When a surplus spending units (SSU) owns a financial claim created by financial
intermediation, its residual claim is against a deficit spending units (DSU).
(F) 7. Assets of financial intermediaries include direct financial claims only.
(F) 8. Finance companies take small consumer deposits and make large consumer
loans.
(T) 9. Liabilities of financial intermediaries are indirect financial claims.
(T) 10. Direct finance requires a more or less exact match of preferences.
,(F) 11. There must be an equal number of DSUs and surplus spending units ( SSUs) in
a period.
(T) 12. Every financial claim appears on two balance sheets.
(T) 13. Without a financial sector, real investment must be financed internally by the
deficit spending unit.
(T) 14. Depository intermediaries issue claims that are for the most part highly liquid.
(T) 15. A household is a surplus spending units when income for the period exceeds
spending.
(F) 16. A surplus spending units surplus spending unit (SSU) must hold a claim until its
scheduled maturity.
(T) 17. Financial claims or securities are written for the mutual benefit of both SSU and
DSU.
(F) 18. Deficit spending units (DSUs) and surplus spending units (SSUs) always have
some contact with each other in financial markets.
(T) 19. Commercial banks lend to businesses in direct financial markets.
(F) 20. “Futures contract” and “forward contract” are interchangeable terms.
(T) 21. Mortgages are capital market debt securities.
(T) 22. Households are the major source of funds to the financial system.
,(F) 23. Secondary markets are important because they provide funds directly to deficit
spending units (DSUs).
(F) 24. Primary markets offer liquidity and ways for investors to alter the risk of their
portfolios.
(T) 25. The New York Stock Exchange is an example of an organized exchange.
(T) 26. The money market provides short-term liquidity; the capital market finances
long-term corporate growth.
(T) 27. Private placements are the simplest form of direct finance.
(T) 28. Competition among financial intermediaries tends to force interest rates
downward.
(T) 29. Money markets have a greater variety of investors than borrowers.
(F) 30. Every asset is someone else’s liability, but not every liability is someone else’s asset.
(T) 31. All money market instruments are short-term debt.
(T) 33. The money market is a dealer market, not an exchange, and has no specific
location.
(T) 34. Money market borrowers are small in number compared to money market
lenders.
, (T) 35. The money market is a market where liquidity is bought and sold.
(T) 36. Commercial banks are the major issuer and investor of money market securities.
(F) 37. Federal funds are the funds provided by the Federal Government for domestic
corporations for long-term growth.
(F) 38. Dealers bring buyer and seller together; brokers make a market.
(F) 39. OTC markets are not very important any more.
(T) 40. When a stock is listed on an exchange, members may trade it on the floor of the
exchange.
(T) 41. Primary markets are markets where users of funds raise cash by selling securities
to funds suppliers.
(F) 42. Privately placed securities are usually sold to one or more investment bankers
and then resold to the general public.
(T) 43. Financial institutions such as commercial banks typically have assets that are riskier than
their liabilities.
