Chapter 1 g
RolegofgFinancialgMarketsgandgInstitutions
1. Financialgmarketgparticipantsgwhogprovidegfundsgaregcalled
A) deficitgunits.
B) surplusgunits.
C) primarygunits.
D) secondarygunits.
2. Thegmaingprovider(s)gofgfundsgtogthegU.S.gTreasurygisg(are)
A) householdsgandgbusinesses.
B) foreigngfinancialginstitutions.
C) thegFederalgReservegSystem.
D) foreigngnonfinancialgsectors.
3. Theglargestgdeficitgunitgisg(are)
A) householdsgandgbusinesses.
B) foreigngfinancialginstitutions.
C) thegU.S.gTreasury.
D) foreigngnonfinancialgsectors.
4. Thosegfinancialgmarketsgthatgfacilitategthegflowgofgshort-termgfundsgaregknowngas
A) moneygmarkets.
B) capitalgmarkets.
C) primarygmarkets.
D) secondarygmarkets.
5. Fundsgaregprovidedgtogtheginitialgissuergofgsecuritiesgingthe
A) secondarygmarket.
B) primarygmarket.
C) deficitgmarket.
D) surplusgmarket.
6. Whichgofgthegfollowinggisgagcapitalgmarketginstrument?
A) agsix-monthgCD
B) agthree-monthgTreasurygbill
C) agten-yeargbond
D) angagreementgforgagbankgtogloangfundsgdirectlygtogagcompanygforgninegmonths.
7. Whichgofgthegfollowinggisgagmoneygmarketgsecurity?
A) Treasurygnote
B) municipalgbond
C) mortgage
D) commercialgpaper
8. ThegmostgcommonginvestorsgingFederalgfundsgare
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
, RolegofgFinancialgMarketsgandgInstitutionsg❖g2
A) households.
B) depositoryginstitutions.
C) firms.
D) governmentgagencies.
9. Equitygsecuritiesghavegag gexpectedgreturngthangmostglong-
termgdebtgsecurities,gandgtheygexhibitgag gdegreegofgrisk.
A) higher;ghigher
B) lower;glower
C) lower;ghigher
D) higher;glower
10. Moneygmarketgsecuritiesggenerallyghaveg
.g Capitalgmarketgsecuritiesgaregtypicallygexpectedgtoghavega .
A) lessgliquidity;ghighergannualizedgreturn
B) moregliquidity;glowergannualizedgreturn
C) lessgliquidity;glowergannualizedgreturn
D) moregliquidity;ghighergannualizedgreturn
11. Ifgsecuritygpricesgfullygreflectgallgavailableginformation,gthegmarketsgforgthesegsecuritiesgare
A) efficient.
B) primary.
C) overvalued.
D) undervalued.
12. Ifgmarketsgare
,ginvestorsgcouldgusegavailableginformationgignoredgbygthegmarketgtogea
rngabnormallyghighgreturns.
A) perfect
B) active
C) inefficient
D) ingequilibrium
13. Ifg financialgmarketsgaregefficient,gthisgimpliesgthatginvestorsgcangignoregthegvariousginvestme
ntginstrumentsgavailable.
➔g False
14. ThegSecuritiesgActgofg1933
A) requiredgcompletegdisclosuregofgrelevantgfinancialginformationgforgpubliclygofferedgsecuriti
esgingthegprimarygmarket.
B) declaredgtradinggstrategiesgtogmanipulategthegpricesgofgpublicgsecondarygsecuritiesgillegal.
C) declaredgmisleadinggfinancialgstatementsgforgpublicgprimarygsecuritiesgillegal.
D) requiredgcompletegdisclosuregofgrelevantgfinancialginformationgforgsecuritiesgtradedgingt
hegsecondarygmarket.
E) allgofgthegabove
15. ThegSecuritiesgExchangegCommissiong(SEC)gwasgestablishedgbygthe
A) FederalgReservegAct.
B) McFaddengAct.
C) SecuritiesgExchangegActgofg1934.
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
, RolegofgFinancialgMarketsgandgInstitutionsg❖g3
D) Glass-SteagallgAct.
E) nonegofgthegabove
16. Commongstockgisgangexamplegofga(n)
A) debtgsecurity.
B) moneygmarketgsecurity.
C) equitygsecurity.
D) AgandgB
17. Ifg financialgmarketsgwereg
,gallginformationgaboutganygsecuritiesgforgsalegingprimarygandgsecondarygmarketsgwouldgbegc
ontinuouslygandgfreelygavailablegtoginvestors.
A) efficient
B) inefficient
C) perfect
D) imperfect
18. Thegtypicalgrolegofgagsecuritiesgfirmgingagpublicgofferinggofgsecuritiesgisgto
A) purchasegthegentiregissuegforgitsgownginvestment.
B) placegthegentiregissuegwithgagsingleglargeginvestor.
C) spreadgthegissuegacrossgseveralginvestorsguntilgthegentiregissuegisgsold.
D) providegallglargeginvestorsgwithgloansgsogthatgtheygcanginvestgingthegoffering.
19. Withoutgthegparticipationgofgfinancialgintermediariesgingfinancialgmarketgtransactions,
A) informationgandgtransactiongcostsgwouldgbeglower.
B) transactiongcostsgwouldgbeghighergbutginformationgcostsgwouldgbegunchanged.
C) informationgcostsgwouldgbeghighergbutgtransactiongcostsgwouldgbegunchanged.
D) informationgandgtransactiongcostsgwouldgbeghigher.
20. Whichgofgthegfollowinggisgmostglikelygtogbegdescribedgasgagdepositoryginstitution?
A) financegcompanies
B) securitiesgfirms
C) creditgunions
D) pensiongfunds
E) insurancegcompanies
21. Ingaggregate,g garegthegmostgdominantgdepositoryginstitution.
A) commercialgbanks
B) savingsgbanks
C) creditgunions
D) S&Ls
22. Whichgofgthegfollowinggisgagnondepositorygfinancialginstitution?
A) savingsgbanks
B) commercialgbanks
C) savingsgandgloangassociations
D) mutualgfunds
23. Whichgofgthegfollowinggdistinguishesgcreditgunionsgfromgcommercialgbanksgandgsavingsginstitutions?
A) Creditgunionsgaregnon-profit
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
, RolegofgFinancialgMarketsgandgInstitutionsg❖g4
B) Creditgunionsgacceptgdepositsgbutgdognotgmakegloans
C) Creditgunionsgmakegloansgbutgdognotgacceptgdeposits
D) Savingsginstitutionsgrestrictgtheirgbusinessgtogmembersgwhogsharegagcommongbond
24. Whengagsecuritiesgfirmgactsgasgagbroker,git
A) guaranteesgthegissuergagspecificgpricegforgnewlygissuedgsecurities.
B) makesgagmarketgingspecificgsecuritiesgbygadjustinggitsgownginventory.
C) executesgtransactionsgbetweengtwogparties.
D) purchasesgsecuritiesgforgitsgowngaccount.
25. Whengagsecuritiesgfirmgactsgasga(n)g ,gitgmaintainsgagpositiongingsecurities.
A) adviser
B) dealer
C) broker
D) nonegofgthegabove
26. gobtaingfundsgbygissuinggsecurities,gthenglendgthegfundsgtogindividualsgandgsmallgbusinesses.
A) Financegcompanies
B) Securitiesgfirms
C) Mutualgfunds
D) Insurancegcompanies
27. Householdsgwithg garegservedgbyg .
A) deficientgfunds;gdepositoryginstitutionsgandgfinancegcompanies
B) deficientgfunds;gfinancegcompaniesgonly
C) savings;gfinancegcompaniesgonly
D) savings;gpensiongfundsgandgfinancegcompanies
28. gconcentrategongmortgagegloans.
A) Financegcompanies
B) Commercialgbanks
C) Savingsginstitutions
D) Creditgunions
29. gsecuritiesghavegagmaturitygofgonegyeargorgless;g gsecuritiesgareggenerallygmoregliquid.
A) Moneygmarket;gcapitalgmarket
B) Moneygmarket;gmoneygmarket
C) Capitalgmarket;gmoneygmarket
D) Capitalgmarket;gcapitalgmarket
30. Whichgofgthegfollowinggisgnotgagmajorginvestorgingstocks?
A) commercialgbanks
B) insurancegcompanies
C) mutualgfunds
D) pensiongfunds
31. Whichgofgthegfollowinggfinancialgintermediariesgcommonlyginvestsgingstocksgandgbonds?
A) pensiongfunds
B) insurancegcompanies
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
RolegofgFinancialgMarketsgandgInstitutions
1. Financialgmarketgparticipantsgwhogprovidegfundsgaregcalled
A) deficitgunits.
B) surplusgunits.
C) primarygunits.
D) secondarygunits.
2. Thegmaingprovider(s)gofgfundsgtogthegU.S.gTreasurygisg(are)
A) householdsgandgbusinesses.
B) foreigngfinancialginstitutions.
C) thegFederalgReservegSystem.
D) foreigngnonfinancialgsectors.
3. Theglargestgdeficitgunitgisg(are)
A) householdsgandgbusinesses.
B) foreigngfinancialginstitutions.
C) thegU.S.gTreasury.
D) foreigngnonfinancialgsectors.
4. Thosegfinancialgmarketsgthatgfacilitategthegflowgofgshort-termgfundsgaregknowngas
A) moneygmarkets.
B) capitalgmarkets.
C) primarygmarkets.
D) secondarygmarkets.
5. Fundsgaregprovidedgtogtheginitialgissuergofgsecuritiesgingthe
A) secondarygmarket.
B) primarygmarket.
C) deficitgmarket.
D) surplusgmarket.
6. Whichgofgthegfollowinggisgagcapitalgmarketginstrument?
A) agsix-monthgCD
B) agthree-monthgTreasurygbill
C) agten-yeargbond
D) angagreementgforgagbankgtogloangfundsgdirectlygtogagcompanygforgninegmonths.
7. Whichgofgthegfollowinggisgagmoneygmarketgsecurity?
A) Treasurygnote
B) municipalgbond
C) mortgage
D) commercialgpaper
8. ThegmostgcommonginvestorsgingFederalgfundsgare
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
, RolegofgFinancialgMarketsgandgInstitutionsg❖g2
A) households.
B) depositoryginstitutions.
C) firms.
D) governmentgagencies.
9. Equitygsecuritiesghavegag gexpectedgreturngthangmostglong-
termgdebtgsecurities,gandgtheygexhibitgag gdegreegofgrisk.
A) higher;ghigher
B) lower;glower
C) lower;ghigher
D) higher;glower
10. Moneygmarketgsecuritiesggenerallyghaveg
.g Capitalgmarketgsecuritiesgaregtypicallygexpectedgtoghavega .
A) lessgliquidity;ghighergannualizedgreturn
B) moregliquidity;glowergannualizedgreturn
C) lessgliquidity;glowergannualizedgreturn
D) moregliquidity;ghighergannualizedgreturn
11. Ifgsecuritygpricesgfullygreflectgallgavailableginformation,gthegmarketsgforgthesegsecuritiesgare
A) efficient.
B) primary.
C) overvalued.
D) undervalued.
12. Ifgmarketsgare
,ginvestorsgcouldgusegavailableginformationgignoredgbygthegmarketgtogea
rngabnormallyghighgreturns.
A) perfect
B) active
C) inefficient
D) ingequilibrium
13. Ifg financialgmarketsgaregefficient,gthisgimpliesgthatginvestorsgcangignoregthegvariousginvestme
ntginstrumentsgavailable.
➔g False
14. ThegSecuritiesgActgofg1933
A) requiredgcompletegdisclosuregofgrelevantgfinancialginformationgforgpubliclygofferedgsecuriti
esgingthegprimarygmarket.
B) declaredgtradinggstrategiesgtogmanipulategthegpricesgofgpublicgsecondarygsecuritiesgillegal.
C) declaredgmisleadinggfinancialgstatementsgforgpublicgprimarygsecuritiesgillegal.
D) requiredgcompletegdisclosuregofgrelevantgfinancialginformationgforgsecuritiesgtradedgingt
hegsecondarygmarket.
E) allgofgthegabove
15. ThegSecuritiesgExchangegCommissiong(SEC)gwasgestablishedgbygthe
A) FederalgReservegAct.
B) McFaddengAct.
C) SecuritiesgExchangegActgofg1934.
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
, RolegofgFinancialgMarketsgandgInstitutionsg❖g3
D) Glass-SteagallgAct.
E) nonegofgthegabove
16. Commongstockgisgangexamplegofga(n)
A) debtgsecurity.
B) moneygmarketgsecurity.
C) equitygsecurity.
D) AgandgB
17. Ifg financialgmarketsgwereg
,gallginformationgaboutganygsecuritiesgforgsalegingprimarygandgsecondarygmarketsgwouldgbegc
ontinuouslygandgfreelygavailablegtoginvestors.
A) efficient
B) inefficient
C) perfect
D) imperfect
18. Thegtypicalgrolegofgagsecuritiesgfirmgingagpublicgofferinggofgsecuritiesgisgto
A) purchasegthegentiregissuegforgitsgownginvestment.
B) placegthegentiregissuegwithgagsingleglargeginvestor.
C) spreadgthegissuegacrossgseveralginvestorsguntilgthegentiregissuegisgsold.
D) providegallglargeginvestorsgwithgloansgsogthatgtheygcanginvestgingthegoffering.
19. Withoutgthegparticipationgofgfinancialgintermediariesgingfinancialgmarketgtransactions,
A) informationgandgtransactiongcostsgwouldgbeglower.
B) transactiongcostsgwouldgbeghighergbutginformationgcostsgwouldgbegunchanged.
C) informationgcostsgwouldgbeghighergbutgtransactiongcostsgwouldgbegunchanged.
D) informationgandgtransactiongcostsgwouldgbeghigher.
20. Whichgofgthegfollowinggisgmostglikelygtogbegdescribedgasgagdepositoryginstitution?
A) financegcompanies
B) securitiesgfirms
C) creditgunions
D) pensiongfunds
E) insurancegcompanies
21. Ingaggregate,g garegthegmostgdominantgdepositoryginstitution.
A) commercialgbanks
B) savingsgbanks
C) creditgunions
D) S&Ls
22. Whichgofgthegfollowinggisgagnondepositorygfinancialginstitution?
A) savingsgbanks
B) commercialgbanks
C) savingsgandgloangassociations
D) mutualgfunds
23. Whichgofgthegfollowinggdistinguishesgcreditgunionsgfromgcommercialgbanksgandgsavingsginstitutions?
A) Creditgunionsgaregnon-profit
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
, RolegofgFinancialgMarketsgandgInstitutionsg❖g4
B) Creditgunionsgacceptgdepositsgbutgdognotgmakegloans
C) Creditgunionsgmakegloansgbutgdognotgacceptgdeposits
D) Savingsginstitutionsgrestrictgtheirgbusinessgtogmembersgwhogsharegagcommongbond
24. Whengagsecuritiesgfirmgactsgasgagbroker,git
A) guaranteesgthegissuergagspecificgpricegforgnewlygissuedgsecurities.
B) makesgagmarketgingspecificgsecuritiesgbygadjustinggitsgownginventory.
C) executesgtransactionsgbetweengtwogparties.
D) purchasesgsecuritiesgforgitsgowngaccount.
25. Whengagsecuritiesgfirmgactsgasga(n)g ,gitgmaintainsgagpositiongingsecurities.
A) adviser
B) dealer
C) broker
D) nonegofgthegabove
26. gobtaingfundsgbygissuinggsecurities,gthenglendgthegfundsgtogindividualsgandgsmallgbusinesses.
A) Financegcompanies
B) Securitiesgfirms
C) Mutualgfunds
D) Insurancegcompanies
27. Householdsgwithg garegservedgbyg .
A) deficientgfunds;gdepositoryginstitutionsgandgfinancegcompanies
B) deficientgfunds;gfinancegcompaniesgonly
C) savings;gfinancegcompaniesgonly
D) savings;gpensiongfundsgandgfinancegcompanies
28. gconcentrategongmortgagegloans.
A) Financegcompanies
B) Commercialgbanks
C) Savingsginstitutions
D) Creditgunions
29. gsecuritiesghavegagmaturitygofgonegyeargorgless;g gsecuritiesgareggenerallygmoregliquid.
A) Moneygmarket;gcapitalgmarket
B) Moneygmarket;gmoneygmarket
C) Capitalgmarket;gmoneygmarket
D) Capitalgmarket;gcapitalgmarket
30. Whichgofgthegfollowinggisgnotgagmajorginvestorgingstocks?
A) commercialgbanks
B) insurancegcompanies
C) mutualgfunds
D) pensiongfunds
31. Whichgofgthegfollowinggfinancialgintermediariesgcommonlyginvestsgingstocksgandgbonds?
A) pensiongfunds
B) insurancegcompanies
©g2010gCengagegLearning.gAllgRightsgReserved.gThisgeditiongisgintendedgforgusegoutsidegofgthegU.S.gonly,gwithgcontentgthatgmaygbegdiff
erentgfromg thegU.S.gEdition.gMaygnotgbegscanned,gcopied,gduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholego
rgingpart.
