Chapter 1 m
Role of Financial Markets and Institutions
m m m m m
1. Financialmmarketmparticipantsmwho mprovide mfundsmaremcalled
A) deficitmunits.
B) surplusmunits.
C) primary munits.
D) secondary munits.
2. Themmain mprovider(s)mof mfundsmto mthemU.S.mTreasury mism(are)
A) householdsmandmbusinesses.
B) foreign mfinancialminstitutions.
C) themFederalmReserve mSystem.
D) foreign mnonfinancialmsectors.
3. Themlargestmdeficitmunitmism(are)
A) householdsmand mbusinesses.
B) foreign mfinancialminstitutions.
C) themU.S.mTreasury.
D) foreign mnonfinancialmsectors.
4. Those mfinancialmmarketsmthatmfacilitatemthemflowmof mshort-termmfundsmaremknown mas
A) money mmarkets.
B) capitalmmarkets.
C) primary mmarkets.
D) secondary mmarkets.
5. Fundsmaremprovided mto mtheminitialmissuermof msecuritiesmin mthe
A) secondary mmarket.
B) primary mmarket.
C) deficitmmarket.
D) surplusmmarket.
6. Which mof mthemfollowingmismamcapitalmmarketminstrument?
A) amsix-month mCD
B) amthree-month mTreasury mbill
C) a mten-yearmbond
D) an magreementmformambank mto mloan mfundsmdirectly mto mamcompany mformninemmonths.
7. Which mof mthemfollowingmismammoney mmarketmsecurity?
A) Treasury mnote
B) municipalmbond
C) mortgage
D) commercialmpaper
8. Themmostmcommon minvestorsmin mFederalmfundsmare
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
, Rolemof mFinancialmMarketsmandmInstitutionsm❖m2
A) households.
B) depository minstitutions.
C) firms.
D) governmentmagencies.
9. Equity msecuritiesmhave mam mexpected mreturn mthan mmostmlong-
termmdebtmsecurities,mandmtheymexhibitmammdegreemof mrisk.
A) higher;mhigher
B) lower;mlower
C) lower;mhigher
D) higher;mlower
10. Money mmarketmsecuritiesmgenerally mhavem
.m Capitalmmarketmsecuritiesmaremtypically mexpected mto mhavema .
A) lessmliquidity;mhighermannualized mreturn
B) moremliquidity;mlowermannualized mreturn
C) lessmliquidity;mlowermannualized mreturn
D) more mliquidity;mhighermannualizedmreturn
11. If msecurity mpricesmfully mreflectmallmavailable minformation, mthemmarketsmformthesemsecuritiesmare
A) efficient.
B) primary.
C) overvalued.
D) undervalued.
12. If mmarketsmare
,minvestorsmcouldmusemavailableminformation mignoredmbymthemmarketmto me
arn mabnormally mhigh mreturns.
A) perfect
B) active
C) inefficient
D) in mequilibrium
13. If m financialmmarketsmaremefficient,mthismimpliesmthatminvestorsmcanmignoremthemvariousminvestm
entminstrumentsmavailable.
➔m False
14. ThemSecuritiesmActmof m1933
A) requiredmcompletemdisclosuremofmrelevantmfinancialminformationmformpubliclymofferedmsecurit
iesminmthemprimary mmarket.
B) declared mtradingmstrategiesmto mmanipulate mthempricesmof mpublicmsecondary msecuritiesmillegal.
C) declared mmisleadingmfinancialmstatementsmformpublicmprimary msecuritiesmillegal.
D) required mcompletemdisclosuremofmrelevantmfinancialminformationmformsecuritiesmtradedmin m
themsecondary mmarket.
E) allmof mthemabove
15. ThemSecuritiesmExchange mCommission m(SEC)mwasmestablished mby mthe
A) FederalmReserve mAct.
B) McFadden mAct.
C) SecuritiesmExchange mActmofm1934.
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
, Rolemof mFinancialmMarketsmandmInstitutionsm❖m3
D) Glass-SteagallmAct.
E) nonemof mthemabove
16. Common mstock misman mexample mof ma(n)
A) debtmsecurity.
B) money mmarketmsecurity.
C) equity msecurity.
D) Amand mB
17. If m financialmmarketsmwerem
,mallminformation maboutmanymsecuritiesmformsalemin mprimary mandmsecondary mmarketsmwouldmbem
continuously mand mfreely mavailable mto minvestors.
A) efficient
B) inefficient
C) perfect
D) imperfect
18. Themtypicalmrolemof mamsecuritiesmfirmmin mampublicmofferingmof msecuritiesmismto
A) purchase mthementiremissuemformitsmown minvestment.
B) place mthementiremissuemwith mamsinglemlargeminvestor.
C) spreadmthemissuemacrossmseveralminvestorsmuntilmthementiremissuemismsold.
D) provide mallmlargeminvestorsmwith mloansmso mthatmthey mcan minvestmin mthemoffering.
19. Withoutmthemparticipation mof mfinancialmintermediariesmin mfinancialmmarketmtransactions,
A) information mand mtransaction mcostsmwould mbemlower.
B) transaction mcostsmwould mbemhighermbutminformation mcostsmwould mbemunchanged.
C) information mcostsmwould mbemhighermbutmtransaction mcostsmwould mbemunchanged.
D) informationmandmtransactionmcostsmwouldmbemhigher.
20. Which mof mthemfollowingmismmostmlikely mto mbemdescribed masmamdepository minstitution?
A) finance mcompanies
B) securitiesmfirms
C) creditmunions
D) pension mfunds
E) insurance mcompanies
21. In maggregate,m maremthemmostmdominantmdepository minstitution.
A) commercialmbanks
B) savingsmbanks
C) creditmunions
D) S&Ls
22. Which mof mthemfollowingmismamnondepository mfinancialminstitution?
A) savingsmbanks
B) commercialmbanks
C) savingsmand mloan massociations
D) mutualmfunds
23. Which mofmthemfollowingmdistinguishesmcreditmunionsmfrommcommercialmbanksmand msavingsminstitutions?
A) Creditmunionsmaremnon-profit
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
, Rolemof mFinancialmMarketsmandmInstitutionsm❖m4
B) Creditmunionsmacceptmdepositsmbutmdo mnotmmakemloans
C) Creditmunionsmmakemloansmbutmdo mnotmacceptmdeposits
D) Savingsminstitutionsmrestrictmtheirmbusinessmto mmembersmwho msharemamcommon mbond
24. When mamsecuritiesmfirmmactsmasmambroker,mit
A) guaranteesmthemissuermamspecific mpricemformnewly missued msecurities.
B) makesmammarketmin mspecific msecuritiesmby madjustingmitsmown minventory.
C) executesmtransactionsmbetweenmtwo mparties.
D) purchasesmsecuritiesmformitsmown maccount.
25. When mamsecuritiesmfirmmactsmasma(n)m ,mitmmaintainsmamposition min msecurities.
A) adviser
B) dealer
C) broker
D) nonemof mthemabove
26. obtain mfundsmbymissuingmsecurities,mthenmlend mthemfundsmto mindividualsmand msmallmbusinesses.
m
A) Financemcompanies
B) Securitiesmfirms
C) Mutualmfunds
D) Insurance mcompanies
27. Householdsmwith m mare mserved mby m .
A) deficientmfunds;mdepository minstitutionsmandmfinancemcompanies
B) deficientmfunds;mfinance mcompaniesmonly
C) savings;mfinance mcompaniesmonly
D) savings;mpension mfundsmand mfinance mcompanies
28. mconcentrate mon mmortgage mloans.
A) Finance mcompanies
B) Commercialmbanks
C) Savingsminstitutions
D) Creditmunions
29. msecurities mhave ma mmaturity mof mone myearmormless;m msecurities mare mgenerally mmore mliquid.
A) Money mmarket;mcapitalmmarket
B) Money mmarket;mmoney mmarket
C) Capitalmmarket;mmoney mmarket
D) Capitalmmarket;mcapitalmmarket
30. Which mof mthemfollowingmismnotmammajorminvestormin mstocks?
A) commercialmbanks
B) insurance mcompanies
C) mutualmfunds
D) pension mfunds
31. Which mof mthemfollowingmfinancialmintermediariesmcommonly minvestsmin mstocksmand mbonds?
A) pension mfunds
B) insurance mcompanies
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
Role of Financial Markets and Institutions
m m m m m
1. Financialmmarketmparticipantsmwho mprovide mfundsmaremcalled
A) deficitmunits.
B) surplusmunits.
C) primary munits.
D) secondary munits.
2. Themmain mprovider(s)mof mfundsmto mthemU.S.mTreasury mism(are)
A) householdsmandmbusinesses.
B) foreign mfinancialminstitutions.
C) themFederalmReserve mSystem.
D) foreign mnonfinancialmsectors.
3. Themlargestmdeficitmunitmism(are)
A) householdsmand mbusinesses.
B) foreign mfinancialminstitutions.
C) themU.S.mTreasury.
D) foreign mnonfinancialmsectors.
4. Those mfinancialmmarketsmthatmfacilitatemthemflowmof mshort-termmfundsmaremknown mas
A) money mmarkets.
B) capitalmmarkets.
C) primary mmarkets.
D) secondary mmarkets.
5. Fundsmaremprovided mto mtheminitialmissuermof msecuritiesmin mthe
A) secondary mmarket.
B) primary mmarket.
C) deficitmmarket.
D) surplusmmarket.
6. Which mof mthemfollowingmismamcapitalmmarketminstrument?
A) amsix-month mCD
B) amthree-month mTreasury mbill
C) a mten-yearmbond
D) an magreementmformambank mto mloan mfundsmdirectly mto mamcompany mformninemmonths.
7. Which mof mthemfollowingmismammoney mmarketmsecurity?
A) Treasury mnote
B) municipalmbond
C) mortgage
D) commercialmpaper
8. Themmostmcommon minvestorsmin mFederalmfundsmare
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
, Rolemof mFinancialmMarketsmandmInstitutionsm❖m2
A) households.
B) depository minstitutions.
C) firms.
D) governmentmagencies.
9. Equity msecuritiesmhave mam mexpected mreturn mthan mmostmlong-
termmdebtmsecurities,mandmtheymexhibitmammdegreemof mrisk.
A) higher;mhigher
B) lower;mlower
C) lower;mhigher
D) higher;mlower
10. Money mmarketmsecuritiesmgenerally mhavem
.m Capitalmmarketmsecuritiesmaremtypically mexpected mto mhavema .
A) lessmliquidity;mhighermannualized mreturn
B) moremliquidity;mlowermannualized mreturn
C) lessmliquidity;mlowermannualized mreturn
D) more mliquidity;mhighermannualizedmreturn
11. If msecurity mpricesmfully mreflectmallmavailable minformation, mthemmarketsmformthesemsecuritiesmare
A) efficient.
B) primary.
C) overvalued.
D) undervalued.
12. If mmarketsmare
,minvestorsmcouldmusemavailableminformation mignoredmbymthemmarketmto me
arn mabnormally mhigh mreturns.
A) perfect
B) active
C) inefficient
D) in mequilibrium
13. If m financialmmarketsmaremefficient,mthismimpliesmthatminvestorsmcanmignoremthemvariousminvestm
entminstrumentsmavailable.
➔m False
14. ThemSecuritiesmActmof m1933
A) requiredmcompletemdisclosuremofmrelevantmfinancialminformationmformpubliclymofferedmsecurit
iesminmthemprimary mmarket.
B) declared mtradingmstrategiesmto mmanipulate mthempricesmof mpublicmsecondary msecuritiesmillegal.
C) declared mmisleadingmfinancialmstatementsmformpublicmprimary msecuritiesmillegal.
D) required mcompletemdisclosuremofmrelevantmfinancialminformationmformsecuritiesmtradedmin m
themsecondary mmarket.
E) allmof mthemabove
15. ThemSecuritiesmExchange mCommission m(SEC)mwasmestablished mby mthe
A) FederalmReserve mAct.
B) McFadden mAct.
C) SecuritiesmExchange mActmofm1934.
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
, Rolemof mFinancialmMarketsmandmInstitutionsm❖m3
D) Glass-SteagallmAct.
E) nonemof mthemabove
16. Common mstock misman mexample mof ma(n)
A) debtmsecurity.
B) money mmarketmsecurity.
C) equity msecurity.
D) Amand mB
17. If m financialmmarketsmwerem
,mallminformation maboutmanymsecuritiesmformsalemin mprimary mandmsecondary mmarketsmwouldmbem
continuously mand mfreely mavailable mto minvestors.
A) efficient
B) inefficient
C) perfect
D) imperfect
18. Themtypicalmrolemof mamsecuritiesmfirmmin mampublicmofferingmof msecuritiesmismto
A) purchase mthementiremissuemformitsmown minvestment.
B) place mthementiremissuemwith mamsinglemlargeminvestor.
C) spreadmthemissuemacrossmseveralminvestorsmuntilmthementiremissuemismsold.
D) provide mallmlargeminvestorsmwith mloansmso mthatmthey mcan minvestmin mthemoffering.
19. Withoutmthemparticipation mof mfinancialmintermediariesmin mfinancialmmarketmtransactions,
A) information mand mtransaction mcostsmwould mbemlower.
B) transaction mcostsmwould mbemhighermbutminformation mcostsmwould mbemunchanged.
C) information mcostsmwould mbemhighermbutmtransaction mcostsmwould mbemunchanged.
D) informationmandmtransactionmcostsmwouldmbemhigher.
20. Which mof mthemfollowingmismmostmlikely mto mbemdescribed masmamdepository minstitution?
A) finance mcompanies
B) securitiesmfirms
C) creditmunions
D) pension mfunds
E) insurance mcompanies
21. In maggregate,m maremthemmostmdominantmdepository minstitution.
A) commercialmbanks
B) savingsmbanks
C) creditmunions
D) S&Ls
22. Which mof mthemfollowingmismamnondepository mfinancialminstitution?
A) savingsmbanks
B) commercialmbanks
C) savingsmand mloan massociations
D) mutualmfunds
23. Which mofmthemfollowingmdistinguishesmcreditmunionsmfrommcommercialmbanksmand msavingsminstitutions?
A) Creditmunionsmaremnon-profit
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
, Rolemof mFinancialmMarketsmandmInstitutionsm❖m4
B) Creditmunionsmacceptmdepositsmbutmdo mnotmmakemloans
C) Creditmunionsmmakemloansmbutmdo mnotmacceptmdeposits
D) Savingsminstitutionsmrestrictmtheirmbusinessmto mmembersmwho msharemamcommon mbond
24. When mamsecuritiesmfirmmactsmasmambroker,mit
A) guaranteesmthemissuermamspecific mpricemformnewly missued msecurities.
B) makesmammarketmin mspecific msecuritiesmby madjustingmitsmown minventory.
C) executesmtransactionsmbetweenmtwo mparties.
D) purchasesmsecuritiesmformitsmown maccount.
25. When mamsecuritiesmfirmmactsmasma(n)m ,mitmmaintainsmamposition min msecurities.
A) adviser
B) dealer
C) broker
D) nonemof mthemabove
26. obtain mfundsmbymissuingmsecurities,mthenmlend mthemfundsmto mindividualsmand msmallmbusinesses.
m
A) Financemcompanies
B) Securitiesmfirms
C) Mutualmfunds
D) Insurance mcompanies
27. Householdsmwith m mare mserved mby m .
A) deficientmfunds;mdepository minstitutionsmandmfinancemcompanies
B) deficientmfunds;mfinance mcompaniesmonly
C) savings;mfinance mcompaniesmonly
D) savings;mpension mfundsmand mfinance mcompanies
28. mconcentrate mon mmortgage mloans.
A) Finance mcompanies
B) Commercialmbanks
C) Savingsminstitutions
D) Creditmunions
29. msecurities mhave ma mmaturity mof mone myearmormless;m msecurities mare mgenerally mmore mliquid.
A) Money mmarket;mcapitalmmarket
B) Money mmarket;mmoney mmarket
C) Capitalmmarket;mmoney mmarket
D) Capitalmmarket;mcapitalmmarket
30. Which mof mthemfollowingmismnotmammajorminvestormin mstocks?
A) commercialmbanks
B) insurance mcompanies
C) mutualmfunds
D) pension mfunds
31. Which mof mthemfollowingmfinancialmintermediariesmcommonly minvestsmin mstocksmand mbonds?
A) pension mfunds
B) insurance mcompanies
©m2010 mCengagemLearning.mAllmRights mReserved.mThismedition mismintended mformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd
ifferentmfromm themU.S.mEdition.mMaymnotmbemscanned, mcopied,mduplicated,mormpostedmto mampubliclymaccessiblemwebsite,minmwho
lemor min mpart.
