TEST BANK For Financial Markets And Institutions 8th Edition
By Anthony Saunders
What factors are encouraging financial institutions to offer overlapping financial
services such as banking, investment banking, brokerage, etc.? - ANSWER:Regulatory
changes allowing institutions to offer more services
Technological improvements reducing the cost of providing financial services
Increasing competition from full-service global financial institutions
IBM creates and sells additional stock to the investment banker Morgan Stanley.
Morgan Stanley then resells the issue to the U.S. public.
This transaction is an example of a(n) - ANSWER:primary market transaction.
A corporation seeking to sell new equity securities to the public for the first time in
order to raise cash for capital investment would most likely - ANSWER:conduct an
IPO with the assistance of an investment banker.
The largest capital market security outstanding in 2010 measured by market value
was - ANSWER:corporate stocks.
Depository institutions include - ANSWER:banks and thrifts.
Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a
capital market security, even though the intermediary invests in risky illiquid
instruments because - ANSWER:FIs can diversify away some of their risk and closely
monitor the riskiness of their assets.
Which of the following is/are money market instrument(s)? - ANSWER:Negotiable
CDs
The Securities Exchange Commission (SEC) does - ANSWER:decide whether a firm
making a public issue has provided enough information for investors to decide
whether the issue is fairly priced.
require exchanges to monitor trading to prevent insider trading.
attempt to reduce excessive price fluctuations.
monitor the major securities exchanges.
The most diversified type of depository institutions is - ANSWER:commercial banks.
Money markets trade securities that - ANSWER:mature in one year or less.
have little chance of loss of principal.
,Which of the following are capital market instruments? - ANSWER:10-year corporate
bonds
30-year mortgages
20-year Treasury bonds
15-year U.S. government agency bonds
Commercial paper is - ANSWER:a short-term unsecured promissory note issued by a
company to raise funds for a short time period.
A negotiable CD is - ANSWER:a marketable bank issued time deposit that specifies
the interest rate earned and a fixed maturity date.
You go to the Wall Street Journal and notice that yields on almost all corporate and
Treasury bonds have decreased. The yield decreases may be explained by which one
of the following? - ANSWER:A decrease in U.S. inflationary expectations
Of the following, the most likely effect of an increase in income tax rates would be to
- ANSWER:decrease the savings rate.
decrease the supply of loanable funds.
increase interest rates.
An investor wants to be able to buy 4 percent more goods and services in the future
in order to induce her to invest today. During the investment period prices are
expected to rise by 2 percent. Which statement(s) below is/are true? - ANSWER:4
percent is the desired real risk-free interest rate.
6 percent is the approximate nominal rate of interest required
2 percent is the expected inflation rate over the period.
An investor requires a 3 percent increase in purchasing power in order to induce her
to lend. She expects inflation to be 2 percent next year. The nominal rate she must
charge is about - ANSWER:5 percent.
The term structure of interest rates is upward sloping for all bond types. A certain
AAA rated non-callable 10-year corporate bond has been issued at a 6.15 percent
promised yield. Which one of the following bonds probably has a higher promised
yield? - ANSWER:A callable AAA rated corporate bond with a 15-year maturity.
Which of the following bond types pays interest that is exempt from federal
taxation? - ANSWER:Municipal bonds
The relationship between maturity and yield to maturity is called the
__________________. - ANSWER:term structure
, Duration is - ANSWER:the weighted average time to maturity of the bond's cash
flows.
A security has an expected return less than its required return. This security is -
ANSWER:selling for more than its PV.
A 10-year annual payment corporate coupon bond has an expected return of 11
percent and a required return of 10 percent. The bond's market price is -
ANSWER:less than its PV.
Convexity arises because - ANSWER:present values are a nonlinear function of
interest rates.
The duration of a 180-day T-Bill is (in years) - ANSWER:0.493.
180/365
The interest rate used to find the present value of a financial security is the -
ANSWER:required rate of return.
You would want to purchase a security if P ____________ PV or E(r) ____________ r.
- ANSWER:≤; ≥
A decrease in interest rates will - ANSWER:increase the bond's duration.
For large interest rate increases, duration _____________ the fall in security prices,
and for large interest rate decreases, duration ______________ the rise in security
prices. - ANSWER:overpredicts; underpredicts
The primary policy tool used by the Fed to meet its monetary policy goals is -
ANSWER:open market operations.
The Federal Reserve System is charged with - ANSWER:conducting monetary policy
and providing payment and other services to a variety of institutions.
The _______________ is a nationwide network jointly operated by the Fed and
private institutions that electronically process credit and debit transfers of funds. -
ANSWER:ACH
Which of the following is the major monetary policy making body of the U.S. Federal
Reserve System? - ANSWER:FOMC
The major liability of the Federal Reserve is - ANSWER:depository institution
reserves.
The major asset of the Federal Reserve is - ANSWER:U.S. Treasury securities.
By Anthony Saunders
What factors are encouraging financial institutions to offer overlapping financial
services such as banking, investment banking, brokerage, etc.? - ANSWER:Regulatory
changes allowing institutions to offer more services
Technological improvements reducing the cost of providing financial services
Increasing competition from full-service global financial institutions
IBM creates and sells additional stock to the investment banker Morgan Stanley.
Morgan Stanley then resells the issue to the U.S. public.
This transaction is an example of a(n) - ANSWER:primary market transaction.
A corporation seeking to sell new equity securities to the public for the first time in
order to raise cash for capital investment would most likely - ANSWER:conduct an
IPO with the assistance of an investment banker.
The largest capital market security outstanding in 2010 measured by market value
was - ANSWER:corporate stocks.
Depository institutions include - ANSWER:banks and thrifts.
Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a
capital market security, even though the intermediary invests in risky illiquid
instruments because - ANSWER:FIs can diversify away some of their risk and closely
monitor the riskiness of their assets.
Which of the following is/are money market instrument(s)? - ANSWER:Negotiable
CDs
The Securities Exchange Commission (SEC) does - ANSWER:decide whether a firm
making a public issue has provided enough information for investors to decide
whether the issue is fairly priced.
require exchanges to monitor trading to prevent insider trading.
attempt to reduce excessive price fluctuations.
monitor the major securities exchanges.
The most diversified type of depository institutions is - ANSWER:commercial banks.
Money markets trade securities that - ANSWER:mature in one year or less.
have little chance of loss of principal.
,Which of the following are capital market instruments? - ANSWER:10-year corporate
bonds
30-year mortgages
20-year Treasury bonds
15-year U.S. government agency bonds
Commercial paper is - ANSWER:a short-term unsecured promissory note issued by a
company to raise funds for a short time period.
A negotiable CD is - ANSWER:a marketable bank issued time deposit that specifies
the interest rate earned and a fixed maturity date.
You go to the Wall Street Journal and notice that yields on almost all corporate and
Treasury bonds have decreased. The yield decreases may be explained by which one
of the following? - ANSWER:A decrease in U.S. inflationary expectations
Of the following, the most likely effect of an increase in income tax rates would be to
- ANSWER:decrease the savings rate.
decrease the supply of loanable funds.
increase interest rates.
An investor wants to be able to buy 4 percent more goods and services in the future
in order to induce her to invest today. During the investment period prices are
expected to rise by 2 percent. Which statement(s) below is/are true? - ANSWER:4
percent is the desired real risk-free interest rate.
6 percent is the approximate nominal rate of interest required
2 percent is the expected inflation rate over the period.
An investor requires a 3 percent increase in purchasing power in order to induce her
to lend. She expects inflation to be 2 percent next year. The nominal rate she must
charge is about - ANSWER:5 percent.
The term structure of interest rates is upward sloping for all bond types. A certain
AAA rated non-callable 10-year corporate bond has been issued at a 6.15 percent
promised yield. Which one of the following bonds probably has a higher promised
yield? - ANSWER:A callable AAA rated corporate bond with a 15-year maturity.
Which of the following bond types pays interest that is exempt from federal
taxation? - ANSWER:Municipal bonds
The relationship between maturity and yield to maturity is called the
__________________. - ANSWER:term structure
, Duration is - ANSWER:the weighted average time to maturity of the bond's cash
flows.
A security has an expected return less than its required return. This security is -
ANSWER:selling for more than its PV.
A 10-year annual payment corporate coupon bond has an expected return of 11
percent and a required return of 10 percent. The bond's market price is -
ANSWER:less than its PV.
Convexity arises because - ANSWER:present values are a nonlinear function of
interest rates.
The duration of a 180-day T-Bill is (in years) - ANSWER:0.493.
180/365
The interest rate used to find the present value of a financial security is the -
ANSWER:required rate of return.
You would want to purchase a security if P ____________ PV or E(r) ____________ r.
- ANSWER:≤; ≥
A decrease in interest rates will - ANSWER:increase the bond's duration.
For large interest rate increases, duration _____________ the fall in security prices,
and for large interest rate decreases, duration ______________ the rise in security
prices. - ANSWER:overpredicts; underpredicts
The primary policy tool used by the Fed to meet its monetary policy goals is -
ANSWER:open market operations.
The Federal Reserve System is charged with - ANSWER:conducting monetary policy
and providing payment and other services to a variety of institutions.
The _______________ is a nationwide network jointly operated by the Fed and
private institutions that electronically process credit and debit transfers of funds. -
ANSWER:ACH
Which of the following is the major monetary policy making body of the U.S. Federal
Reserve System? - ANSWER:FOMC
The major liability of the Federal Reserve is - ANSWER:depository institution
reserves.
The major asset of the Federal Reserve is - ANSWER:U.S. Treasury securities.
