TEST BANK FOR
Financial Markets and Institutions, 10th Edition By Jeff Madura
Chapter 1-25
Chapter 1—Role of Financial Markets and Institutions
1. Financial market participants who provide funds are called
a. deficit units.
b. surplus units.
c. primary units.
d. secondary units.
ANS: B PTS: 1
2. The main provider(s) of funds to the U.S. Treasury is (are)
a. households and businesses.
b. foreign financial institutions.
c. the Federal Reserve System.
d. foreign nonfinancial sectors.
ANS: A PTS: 1
3. The largest deficit unit is (are)
a. households and businesses.
b. foreign financial institutions.
c. the U.S. Treasury.
d. foreign nonfinancial sectors.
ANS: C PTS: 1
,4. Those 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.
ANS: A PTS: 1
5. Funds are provided to the initial issuer of securities in the
a. secondary market.
b. primary market.
c. deficit market.
d. surplus market.
ANS: B PTS: 1
6. Which of the following is a capital market instrument?
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 months
ANS: C PTS: 1
7. Which of the following is a money market security?
a. Treasury note
b. municipal bond
c. mortgage
d. commercial paper
ANS: D PTS: 1
, 8. The creditors in the federal funds market are
a. households.
b. depository institutions.
c. firms.
d. government agencies.
ANS: B PTS: 1
9. Equity securities have a ____ expected return than most long-term debt securities, and they
exhibit a ____ degree of risk.
a. higher; higher
b. lower; lower
c. lower; higher
d. higher; lower
ANS: A PTS: 1
10. Money market securities generally have ____. Capital market securities are typically expected to
have a ____.
a. less liquidity; higher annualized return
b. more liquidity; lower annualized return
c. less liquidity; lower annualized return
d. more liquidity; higher annualized return
ANS: D PTS: 1
11. If security prices fully reflect all available information, the markets for these securities are
a. efficient.
b. primary.
c. overvalued.
d. undervalued.
, ANS: A PTS: 1
12. If markets are ____, investors could use available information ignored by the market to earn
abnormally high returns.
a. perfect
b. active
c. inefficient
d. in equilibrium
ANS: C PTS: 1
13. If financial markets are efficient, this implies that all securities should earn the same return.
a. True
b. False
ANS: F PTS: 1
14. The Securities Act of 1933
a. required complete disclosure of relevant financial information for publicly offered
securities in the primary market.
b. declared trading strategies to manipulate the prices of public secondary securities
illegal.
c. declared misleading financial statements for public primary securities illegal.
d. required complete disclosure of relevant financial information for securities traded
in the secondary market.
e. all of the above
ANS: A PTS: 1
15. The Securities Exchange Commission (SEC) was established by the
a. Federal Reserve Act.
Financial Markets and Institutions, 10th Edition By Jeff Madura
Chapter 1-25
Chapter 1—Role of Financial Markets and Institutions
1. Financial market participants who provide funds are called
a. deficit units.
b. surplus units.
c. primary units.
d. secondary units.
ANS: B PTS: 1
2. The main provider(s) of funds to the U.S. Treasury is (are)
a. households and businesses.
b. foreign financial institutions.
c. the Federal Reserve System.
d. foreign nonfinancial sectors.
ANS: A PTS: 1
3. The largest deficit unit is (are)
a. households and businesses.
b. foreign financial institutions.
c. the U.S. Treasury.
d. foreign nonfinancial sectors.
ANS: C PTS: 1
,4. Those 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.
ANS: A PTS: 1
5. Funds are provided to the initial issuer of securities in the
a. secondary market.
b. primary market.
c. deficit market.
d. surplus market.
ANS: B PTS: 1
6. Which of the following is a capital market instrument?
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 months
ANS: C PTS: 1
7. Which of the following is a money market security?
a. Treasury note
b. municipal bond
c. mortgage
d. commercial paper
ANS: D PTS: 1
, 8. The creditors in the federal funds market are
a. households.
b. depository institutions.
c. firms.
d. government agencies.
ANS: B PTS: 1
9. Equity securities have a ____ expected return than most long-term debt securities, and they
exhibit a ____ degree of risk.
a. higher; higher
b. lower; lower
c. lower; higher
d. higher; lower
ANS: A PTS: 1
10. Money market securities generally have ____. Capital market securities are typically expected to
have a ____.
a. less liquidity; higher annualized return
b. more liquidity; lower annualized return
c. less liquidity; lower annualized return
d. more liquidity; higher annualized return
ANS: D PTS: 1
11. If security prices fully reflect all available information, the markets for these securities are
a. efficient.
b. primary.
c. overvalued.
d. undervalued.
, ANS: A PTS: 1
12. If markets are ____, investors could use available information ignored by the market to earn
abnormally high returns.
a. perfect
b. active
c. inefficient
d. in equilibrium
ANS: C PTS: 1
13. If financial markets are efficient, this implies that all securities should earn the same return.
a. True
b. False
ANS: F PTS: 1
14. The Securities Act of 1933
a. required complete disclosure of relevant financial information for publicly offered
securities in the primary market.
b. declared trading strategies to manipulate the prices of public secondary securities
illegal.
c. declared misleading financial statements for public primary securities illegal.
d. required complete disclosure of relevant financial information for securities traded
in the secondary market.
e. all of the above
ANS: A PTS: 1
15. The Securities Exchange Commission (SEC) was established by the
a. Federal Reserve Act.
