Chapter 1 Why Study Financial Institutions?Study Questions with
Answers
Financial markets - correct answersMarkets in which funds are transferred from people who have an
excess of available funds to people who have a shortage
Security - correct answers(Also, financial instrument) a claim on the issuer's income or assets
Assets - correct answersAny financial claim or piece of property that is subject to ownership
Bond - correct answersA debt security that promises to make payments periodically for a specified
period of time.
Debt markets - correct answers(Also, bond market) the place where interest rates are determined; they
are especially important to economic activity because they enable corporations and governments to
borrow in order to finance their activities
Interest rate - correct answersThe cost of borrowing or the price paid for the rental of funds (usually
expressed as a percentage of the rental of $100 per year)
Stock - correct answers(Also, common stock) represents a share of ownership in a corporation; a
security that is a claim on the earnings and assets of the corporation
Foreign exchange market - correct answersThe place where funds are transferred from one country to
another; these funds have to be converted from the currency in the country of origin into the currency
of the country they are going to
Foreign exchange rate - correct answersThe price of one country's currency in terms of another's
Financial intermediaries - correct answersInstitutions such as commercial banks, savings and loan
associations, mutual savings banks, credit unions, insurance companies, mutual funds, pension funds,
and finance companies that borrow funds from people who have saved and in turn make loads to others
Answers
Financial markets - correct answersMarkets in which funds are transferred from people who have an
excess of available funds to people who have a shortage
Security - correct answers(Also, financial instrument) a claim on the issuer's income or assets
Assets - correct answersAny financial claim or piece of property that is subject to ownership
Bond - correct answersA debt security that promises to make payments periodically for a specified
period of time.
Debt markets - correct answers(Also, bond market) the place where interest rates are determined; they
are especially important to economic activity because they enable corporations and governments to
borrow in order to finance their activities
Interest rate - correct answersThe cost of borrowing or the price paid for the rental of funds (usually
expressed as a percentage of the rental of $100 per year)
Stock - correct answers(Also, common stock) represents a share of ownership in a corporation; a
security that is a claim on the earnings and assets of the corporation
Foreign exchange market - correct answersThe place where funds are transferred from one country to
another; these funds have to be converted from the currency in the country of origin into the currency
of the country they are going to
Foreign exchange rate - correct answersThe price of one country's currency in terms of another's
Financial intermediaries - correct answersInstitutions such as commercial banks, savings and loan
associations, mutual savings banks, credit unions, insurance companies, mutual funds, pension funds,
and finance companies that borrow funds from people who have saved and in turn make loads to others
