Chapter 1 b
Role of Financial Markets and Institutions
b b b b b
1. Financialbmarketbparticipantsbwhobprovidebfundsbarebcalled
A) deficitbunits.
B) surplusbunits.
C) primarybunits.
D) secondarybunits.
2. Thebmainbprovider(s)bofbfundsbtobthebU.S.bTreasurybisb(are)
A) householdsbandbbusinesses.
B) foreignbfinancialbinstitutions.
C) thebFederalbReservebSystem.
D) foreignbnonfinancialbsectors.
3. Theblargestbdeficitbunitbisb(are)
A) householdsbandbbusinesses.
B) foreignbfinancialbinstitutions.
C) thebU.S.bTreasury.
D) foreignbnonfinancialbsectors.
4. Thosebfinancialbmarketsbthatbfacilitatebthebflowbofbshort-termbfundsbarebknownbas
A) moneybmarkets.
B) capitalbmarkets.
C) primarybmarkets.
D) secondarybmarkets.
5. Fundsbarebprovidedbtobthebinitialbissuerbofbsecuritiesbinbthe
A) secondarybmarket.
B) primarybmarket.
C) deficitbmarket.
D) surplusbmarket.
6. Whichbofbthebfollowingbisbabcapitalbmarketbinstrument?
A) absix-monthbCD
B) abthree-monthbTreasurybbill
C) abten-yearbbond
D) anbagreementbforbabbankbtobloanbfundsbdirectlybtobabcompanybforbninebmonths.
7. Whichbofbthebfollowingbisbabmoneybmarketbsecurity?
A) Treasurybnote
B) municipalbbond
C) mortgage
D) commercialbpaper
8. ThebmostbcommonbinvestorsbinbFederalbfundsbare
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
, RolebofbFinancialbMarketsbandbInstitutionsb❖b2
A) households.
B) depositorybinstitutions.
C) firms.
D) governmentbagencies.
9. Equitybsecuritiesbhavebab bexpectedbreturnbthanbmostblong-
termbdebtbsecurities,bandbtheybexhibitbab bdegreebofbrisk.
A) higher;bhigher
B) lower;blower
C) lower;bhigher
D) higher;blower
10. Moneybmarketbsecuritiesbgenerallybhaveb
.b Capitalbmarketbsecuritiesbarebtypicallybexpectedbtobhaveba .
A) lessbliquidity;bhigherbannualizedbreturn
B) morebliquidity;blowerbannualizedbreturn
C) lessbliquidity;blowerbannualizedbreturn
D) morebliquidity;bhigherbannualizedbreturn
11. Ifbsecuritybpricesbfullybreflectballbavailablebinformation,bthebmarketsbforbthesebsecuritiesbare
A) efficient.
B) primary.
C) overvalued.
D) undervalued.
12. Ifbmarketsbare
,binvestorsbcouldbusebavailablebinformationbignoredbbybthebmarketbtobearnb
abnormallybhighbreturns.
A) perfect
B) active
C) inefficient
D) inbequilibrium
13. Ifb financialbmarketsbarebefficient,bthisbimpliesbthatbinvestorsbcanbignorebthebvariousbinvestmentb
instrumentsbavailable.
➔b False
14. ThebSecuritiesbActbofb1933
A) requiredbcompletebdisclosurebofbrelevantbfinancialbinformationbforbpubliclybofferedbsecurities
binbthebprimarybmarket.
B) declaredbtradingbstrategiesbtobmanipulatebthebpricesbofbpublicbsecondarybsecuritiesbillegal.
C) declaredbmisleadingbfinancialbstatementsbforbpublicbprimarybsecuritiesbillegal.
D) requiredbcompletebdisclosurebofbrelevantbfinancialbinformationbforbsecuritiesbtradedbinbtheb
secondarybmarket.
E) allbofbthebabove
15. ThebSecuritiesbExchangebCommissionb(SEC)bwasbestablishedbbybthe
A) FederalbReservebAct.
B) McFaddenbAct.
C) SecuritiesbExchangebActbofb1934.
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
, RolebofbFinancialbMarketsbandbInstitutionsb❖b3
D) Glass-SteagallbAct.
E) nonebofbthebabove
16. Commonbstockbisbanbexamplebofba(n)
A) debtbsecurity.
B) moneybmarketbsecurity.
C) equitybsecurity.
D) AbandbB
17. Ifb financialbmarketsbwereb
,ballbinformationbaboutbanybsecuritiesbforbsalebinbprimarybandbsecondarybmarketsbwouldbbebcont
inuouslybandbfreelybavailablebtobinvestors.
A) efficient
B) inefficient
C) perfect
D) imperfect
18. Thebtypicalbrolebofbabsecuritiesbfirmbinbabpublicbofferingbofbsecuritiesbisbto
A) purchasebthebentirebissuebforbitsbownbinvestment.
B) placebthebentirebissuebwithbabsingleblargebinvestor.
C) spreadbthebissuebacrossbseveralbinvestorsbuntilbthebentirebissuebisbsold.
D) provideballblargebinvestorsbwithbloansbsobthatbtheybcanbinvestbinbtheboffering.
19. Withoutbthebparticipationbofbfinancialbintermediariesbinbfinancialbmarketbtransactions,
A) informationbandbtransactionbcostsbwouldbbeblower.
B) transactionbcostsbwouldbbebhigherbbutbinformationbcostsbwouldbbebunchanged.
C) informationbcostsbwouldbbebhigherbbutbtransactionbcostsbwouldbbebunchanged.
D) informationbandbtransactionbcostsbwouldbbebhigher.
20. Whichbofbthebfollowingbisbmostblikelybtobbebdescribedbasbabdepositorybinstitution?
A) financebcompanies
B) securitiesbfirms
C) creditbunions
D) pensionbfunds
E) insurancebcompanies
21. Inbaggregate,b barebthebmostbdominantbdepositorybinstitution.
A) commercialbbanks
B) savingsbbanks
C) creditbunions
D) S&Ls
22. Whichbofbthebfollowingbisbabnondepositorybfinancialbinstitution?
A) savingsbbanks
B) commercialbbanks
C) savingsbandbloanbassociations
D) mutualbfunds
23. Whichbofbthebfollowingbdistinguishesbcreditbunionsbfrombcommercialbbanksbandbsavingsbinstitutions?
A) Creditbunionsbarebnon-profit
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
, RolebofbFinancialbMarketsbandbInstitutionsb❖b4
B) Creditbunionsbacceptbdepositsbbutbdobnotbmakebloans
C) Creditbunionsbmakebloansbbutbdobnotbacceptbdeposits
D) Savingsbinstitutionsbrestrictbtheirbbusinessbtobmembersbwhobsharebabcommonbbond
24. Whenbabsecuritiesbfirmbactsbasbabbroker,bit
A) guaranteesbthebissuerbabspecificbpricebforbnewlybissuedbsecurities.
B) makesbabmarketbinbspecificbsecuritiesbbybadjustingbitsbownbinventory.
C) executesbtransactionsbbetweenbtwobparties.
D) purchasesbsecuritiesbforbitsbownbaccount.
25. Whenbabsecuritiesbfirmbactsbasba(n)b ,bitbmaintainsbabpositionbinbsecurities.
A) adviser
B) dealer
C) broker
D) nonebofbthebabove
26. bobtainbfundsbbybissuingbsecurities,bthenblendbthebfundsbtobindividualsbandbsmallbbusinesses.
A) Financebcompanies
B) Securitiesbfirms
C) Mutualbfunds
D) Insurancebcompanies
27. Householdsbwithb barebservedbbyb .
A) deficientbfunds;bdepositorybinstitutionsbandbfinancebcompanies
B) deficientbfunds;bfinancebcompaniesbonly
C) savings;bfinancebcompaniesbonly
D) savings;bpensionbfundsbandbfinancebcompanies
28. bconcentratebonbmortgage bloans.
A) Financebcompanies
B) Commercialbbanks
C) Savingsbinstitutions
D) Creditbunions
29. bsecuritiesbhavebabmaturitybofbonebyearborbless;b bsecuritiesbarebgenerallybmorebliquid.
A) Moneybmarket;bcapitalbmarket
B) Moneybmarket;bmoneybmarket
C) Capitalbmarket;bmoneybmarket
D) Capitalbmarket;bcapitalbmarket
30. Whichbofbthebfollowingbisbnotbabmajorbinvestorbinbstocks?
A) commercialbbanks
B) insurancebcompanies
C) mutualbfunds
D) pensionbfunds
31. Whichbofbthebfollowingbfinancialbintermediariesbcommonlybinvestsbinbstocksbandbbonds?
A) pensionbfunds
B) insurancebcompanies
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
Role of Financial Markets and Institutions
b b b b b
1. Financialbmarketbparticipantsbwhobprovidebfundsbarebcalled
A) deficitbunits.
B) surplusbunits.
C) primarybunits.
D) secondarybunits.
2. Thebmainbprovider(s)bofbfundsbtobthebU.S.bTreasurybisb(are)
A) householdsbandbbusinesses.
B) foreignbfinancialbinstitutions.
C) thebFederalbReservebSystem.
D) foreignbnonfinancialbsectors.
3. Theblargestbdeficitbunitbisb(are)
A) householdsbandbbusinesses.
B) foreignbfinancialbinstitutions.
C) thebU.S.bTreasury.
D) foreignbnonfinancialbsectors.
4. Thosebfinancialbmarketsbthatbfacilitatebthebflowbofbshort-termbfundsbarebknownbas
A) moneybmarkets.
B) capitalbmarkets.
C) primarybmarkets.
D) secondarybmarkets.
5. Fundsbarebprovidedbtobthebinitialbissuerbofbsecuritiesbinbthe
A) secondarybmarket.
B) primarybmarket.
C) deficitbmarket.
D) surplusbmarket.
6. Whichbofbthebfollowingbisbabcapitalbmarketbinstrument?
A) absix-monthbCD
B) abthree-monthbTreasurybbill
C) abten-yearbbond
D) anbagreementbforbabbankbtobloanbfundsbdirectlybtobabcompanybforbninebmonths.
7. Whichbofbthebfollowingbisbabmoneybmarketbsecurity?
A) Treasurybnote
B) municipalbbond
C) mortgage
D) commercialbpaper
8. ThebmostbcommonbinvestorsbinbFederalbfundsbare
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
, RolebofbFinancialbMarketsbandbInstitutionsb❖b2
A) households.
B) depositorybinstitutions.
C) firms.
D) governmentbagencies.
9. Equitybsecuritiesbhavebab bexpectedbreturnbthanbmostblong-
termbdebtbsecurities,bandbtheybexhibitbab bdegreebofbrisk.
A) higher;bhigher
B) lower;blower
C) lower;bhigher
D) higher;blower
10. Moneybmarketbsecuritiesbgenerallybhaveb
.b Capitalbmarketbsecuritiesbarebtypicallybexpectedbtobhaveba .
A) lessbliquidity;bhigherbannualizedbreturn
B) morebliquidity;blowerbannualizedbreturn
C) lessbliquidity;blowerbannualizedbreturn
D) morebliquidity;bhigherbannualizedbreturn
11. Ifbsecuritybpricesbfullybreflectballbavailablebinformation,bthebmarketsbforbthesebsecuritiesbare
A) efficient.
B) primary.
C) overvalued.
D) undervalued.
12. Ifbmarketsbare
,binvestorsbcouldbusebavailablebinformationbignoredbbybthebmarketbtobearnb
abnormallybhighbreturns.
A) perfect
B) active
C) inefficient
D) inbequilibrium
13. Ifb financialbmarketsbarebefficient,bthisbimpliesbthatbinvestorsbcanbignorebthebvariousbinvestmentb
instrumentsbavailable.
➔b False
14. ThebSecuritiesbActbofb1933
A) requiredbcompletebdisclosurebofbrelevantbfinancialbinformationbforbpubliclybofferedbsecurities
binbthebprimarybmarket.
B) declaredbtradingbstrategiesbtobmanipulatebthebpricesbofbpublicbsecondarybsecuritiesbillegal.
C) declaredbmisleadingbfinancialbstatementsbforbpublicbprimarybsecuritiesbillegal.
D) requiredbcompletebdisclosurebofbrelevantbfinancialbinformationbforbsecuritiesbtradedbinbtheb
secondarybmarket.
E) allbofbthebabove
15. ThebSecuritiesbExchangebCommissionb(SEC)bwasbestablishedbbybthe
A) FederalbReservebAct.
B) McFaddenbAct.
C) SecuritiesbExchangebActbofb1934.
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
, RolebofbFinancialbMarketsbandbInstitutionsb❖b3
D) Glass-SteagallbAct.
E) nonebofbthebabove
16. Commonbstockbisbanbexamplebofba(n)
A) debtbsecurity.
B) moneybmarketbsecurity.
C) equitybsecurity.
D) AbandbB
17. Ifb financialbmarketsbwereb
,ballbinformationbaboutbanybsecuritiesbforbsalebinbprimarybandbsecondarybmarketsbwouldbbebcont
inuouslybandbfreelybavailablebtobinvestors.
A) efficient
B) inefficient
C) perfect
D) imperfect
18. Thebtypicalbrolebofbabsecuritiesbfirmbinbabpublicbofferingbofbsecuritiesbisbto
A) purchasebthebentirebissuebforbitsbownbinvestment.
B) placebthebentirebissuebwithbabsingleblargebinvestor.
C) spreadbthebissuebacrossbseveralbinvestorsbuntilbthebentirebissuebisbsold.
D) provideballblargebinvestorsbwithbloansbsobthatbtheybcanbinvestbinbtheboffering.
19. Withoutbthebparticipationbofbfinancialbintermediariesbinbfinancialbmarketbtransactions,
A) informationbandbtransactionbcostsbwouldbbeblower.
B) transactionbcostsbwouldbbebhigherbbutbinformationbcostsbwouldbbebunchanged.
C) informationbcostsbwouldbbebhigherbbutbtransactionbcostsbwouldbbebunchanged.
D) informationbandbtransactionbcostsbwouldbbebhigher.
20. Whichbofbthebfollowingbisbmostblikelybtobbebdescribedbasbabdepositorybinstitution?
A) financebcompanies
B) securitiesbfirms
C) creditbunions
D) pensionbfunds
E) insurancebcompanies
21. Inbaggregate,b barebthebmostbdominantbdepositorybinstitution.
A) commercialbbanks
B) savingsbbanks
C) creditbunions
D) S&Ls
22. Whichbofbthebfollowingbisbabnondepositorybfinancialbinstitution?
A) savingsbbanks
B) commercialbbanks
C) savingsbandbloanbassociations
D) mutualbfunds
23. Whichbofbthebfollowingbdistinguishesbcreditbunionsbfrombcommercialbbanksbandbsavingsbinstitutions?
A) Creditbunionsbarebnon-profit
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
, RolebofbFinancialbMarketsbandbInstitutionsb❖b4
B) Creditbunionsbacceptbdepositsbbutbdobnotbmakebloans
C) Creditbunionsbmakebloansbbutbdobnotbacceptbdeposits
D) Savingsbinstitutionsbrestrictbtheirbbusinessbtobmembersbwhobsharebabcommonbbond
24. Whenbabsecuritiesbfirmbactsbasbabbroker,bit
A) guaranteesbthebissuerbabspecificbpricebforbnewlybissuedbsecurities.
B) makesbabmarketbinbspecificbsecuritiesbbybadjustingbitsbownbinventory.
C) executesbtransactionsbbetweenbtwobparties.
D) purchasesbsecuritiesbforbitsbownbaccount.
25. Whenbabsecuritiesbfirmbactsbasba(n)b ,bitbmaintainsbabpositionbinbsecurities.
A) adviser
B) dealer
C) broker
D) nonebofbthebabove
26. bobtainbfundsbbybissuingbsecurities,bthenblendbthebfundsbtobindividualsbandbsmallbbusinesses.
A) Financebcompanies
B) Securitiesbfirms
C) Mutualbfunds
D) Insurancebcompanies
27. Householdsbwithb barebservedbbyb .
A) deficientbfunds;bdepositorybinstitutionsbandbfinancebcompanies
B) deficientbfunds;bfinancebcompaniesbonly
C) savings;bfinancebcompaniesbonly
D) savings;bpensionbfundsbandbfinancebcompanies
28. bconcentratebonbmortgage bloans.
A) Financebcompanies
B) Commercialbbanks
C) Savingsbinstitutions
D) Creditbunions
29. bsecuritiesbhavebabmaturitybofbonebyearborbless;b bsecuritiesbarebgenerallybmorebliquid.
A) Moneybmarket;bcapitalbmarket
B) Moneybmarket;bmoneybmarket
C) Capitalbmarket;bmoneybmarket
D) Capitalbmarket;bcapitalbmarket
30. Whichbofbthebfollowingbisbnotbabmajorbinvestorbinbstocks?
A) commercialbbanks
B) insurancebcompanies
C) mutualbfunds
D) pensionbfunds
31. Whichbofbthebfollowingbfinancialbintermediariesbcommonlybinvestsbinbstocksbandbbonds?
A) pensionbfunds
B) insurancebcompanies
©b2010bCengagebLearning.bAllbRightsbReserved.bThisbeditionbisbintendedbforbuseboutsidebofbthebU.S.bonly,bwithbcontentbthatbmaybbebdifferentbfr
omb thebU.S.bEdition.bMaybnotbbebscanned,bcopied,bduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpart.
