,TESTBANK for Basic Finance An Introduction to
Financial Institutions, Investments, and
Management , 13th Edition Herbert B. Mayo
Notes
1- All Chapters are step by step.
2- We have shown you 10 pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
True / False
1. The power to create money is given by the Constitution to the federal government.
a. True
b. False
ANSWER: True
2. Since M2 excludes time deposits, M2 is a less comprehensive measure of the money supply than M1.
a. True
b. False
ANSWER: False
3. When individuals withdraw cash from checking accounts, the money supply is unaffected.
a. True
b. False
ANSWER: True
4. The yield curve relates risk and interest rates.
a. True
b. False
ANSWER: False
5. During most historical periods, the yield curve has been positively sloped.
a. True
b. False
ANSWER: True
6. What serves for money in France may not necessarily be money in another country.
a. True
b. False
ANSWER: True
7. The U.S. Treasury creates most of the nation's money supply.
a. True
b. False
ANSWER: False
8. When individuals deposit cash in a demand deposit, the money supply is reduced.
a. True
b. False
ANSWER: False
9. M1 includes savings accounts in commercial banks.
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,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
a. True
b. False
ANSWER: True
10. A financial intermediary transfers funds from borrowers to lenders by creating claims on itself.
a. True
b. False
ANSWER: False
11. When cash is deposited in a checking account, the reserves of commercial banks are increased.
a. True
b. False
ANSWER: True
12. When funds are deposited in a savings account, the excess reserves of banks are unaffected.
a. True
b. False
ANSWER: False
13. Large certificates of deposit in units of $500,000 are insured by FDIC.
a. True
b. False
ANSWER: False
14. In general, banks prefer loans that stress liquidity and safety.
a. True
b. False
ANSWER: True
15. Insurance companies are a major source of loans to individuals.
a. True
b. False
ANSWER: False
16. Money market mutual funds invest in short-term securities like U.S. Treasury bills.
a. True
b. False
ANSWER: True
17. An increase in interest rates tends to reduce the earnings of money market mutual funds.
a. True
b. False
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,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
ANSWER: False
18. A pension plan that invests in the stock of IBM or Verizon performs the function of a financial
intermediary.
a. True
b. False
ANSWER: False
19. A financial intermediary creates claims on itself when it accepts depositors' funds.
a. True
b. False
ANSWER: True
Multiple Choice
20. M1 includes coins, currency, and
a. demand deposits.
b. savings accounts.
c. certificates of deposit.
d. time deposits.
ANSWER: a
21. The power to create money is given by the Constitution to
a. state governments.
b. Congress.
c. the Federal Reserve.
d. commercial banks.
ANSWER: b
22. The term structure of interest rates relates
a. risk and yields.
b. yields and credit ratings.
c. term and yields.
d. stock and bond yields.
ANSWER: c
23. The term structure of interest rates indicates the
a. relationship between risk and yields.
b. relationship between the time and yields.
c. difference between borrowing and lending.
d. difference between the yield (interest rate) on government and corporate debt.
ANSWER: b
24. Money serves as a
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,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
a. substitute for equity.
b. precaution against inflation.
c. medium of exchange.
d. risk-free liability.
ANSWER: c
25. M2 includes coins and currency in circulation outside of banks as well as
a. demand deposits and savings accounts.
b. savings accounts and small certificates of deposit.
c. demand deposits and small certificates of deposit.
d. demand deposits, savings accounts, and small certificates of deposit.
ANSWER: d
26. Which of the following is NOT a financial intermediary?
a. New York Stock Exchange
b. Washington Savings and Loan
c. First National City Bank
d. Merchants Savings Bank
ANSWER: a
27. The assets of a typical commercial bank include
a. commercial loans.
b. demand deposits.
c. common stock.
d. equity.
ANSWER: a
28. Federally insured investments include
a. savings accounts in national commercial banks.
b. certificates of deposit in excess of $500,000.
c. life insurance policies.
d. commercial bank assets.
ANSWER: a
29. The primary assets of life insurance companies include
a. life insurance.
b. corporate securities.
c. municipal securities.
d. insurance policies.
ANSWER: b
30. A pension plan that grants mortgage loans is
a. an example of a financial intermediary.
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
b. acting in good faith as a fiduciary.
c. called a savings and loan association.
d. not a financial intermediary.
ANSWER: a
31. Money market mutual funds invest in
a. corporate bonds.
b. corporate stock.
c. federal government Treasury bills.
d. federal government Treasury bonds.
ANSWER: c
32. A financial intermediary transfers
a. savings to households.
b. savings to borrowers.
c. stocks to brokers.
d. new stock issues to buyers.
ANSWER: b
33. Which of the following statements accurately describes Treasury bills?
a. They are long-term securities issued by the federal government.
b. They are short-term securities issued by the federal government.
c. They are long-term securities issued by money market mutual funds.
d. They are short-term securities issued by money market mutual funds.
ANSWER: b
34. A family member of yours has passed away and left you a rather large inheritance. Which of the
following is an example of a direct way to transfer your funds to a user?
a. You could start your own business using the money as an initial investment.
b. You could purchase stocks directly on the over-the-counter market.
c. You could purchase stocks directly on a secondary exchange like the NYSE.
d. You could purchase money market funds.
ANSWER: a
35. As a risk-adverse individual, you are looking to place your savings in an institution that has the ability
to give higher returns with low risk while maintaining reasonable liquidity. Which of the following would
you choose?
a. A savings account at a commercial bank
b. A savings account at a thrift institution
c. A certificate of deposit from a bank
d. A stock purchase from an investment firm
ANSWER: b
36. You are working as a financial analyst for a local Savings & Loan bank. Suppose that under the
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
current law, you are required to hold a 10% required reserve. A new deposit comes in of $1,000. In order
to fulfill the requirement, you decide to purchase $150 in Treasury bills. Would this be a correct way of
fulfilling the requirement?
a. Yes, as the requirement of $100 minimum is met.
b. No, as there must be at least $100 in either cash or Federal Reserve deposits.
c. No, as the requirement is $100 and not $150.
d. No, as money market securities are forbidden in any type of reserve.
ANSWER: b
37. As a wealthy individual, you have $395,000 in liquid cash assets in your checking account. The bank
that is holding your funds took some very risky positions in the assets that it held and, due to investment
loss, has now become insolvent. It has filed for bankruptcy. Fortunately, your account was FDIC-insured.
What is the likely result of this?
a. You will lose all of the funds, as checking accounts are covered under the FDIC.
b. You will be fully reimbursed, as FDIC covers up to $500,000.
c. You will not be fully reimbursed, as FDIC covers only up to $250,000.
d. You will be fully reimbursed, as FDIC covers up to $1,000,000.
ANSWER: c
Subjective Short Answer
38. As a relationship builder for the bank at which you work, it is important for you to competitively
attempt to obtain investments and funds from other institutions. Why is this vital to your business model?
ANSWER: Because commercial banks are only able to lend out what has been lent to them, in order to
write interest-bearing loans, it is necessary to have the funds to do so.
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter 03: Investment Banking
True / False
1. The market in which securities are initially sold to the general public is the secondary market.
a. True
b. False
ANSWER: False
2. An investment banker specializes in corporate loans.
a. True
b. False
ANSWER: False
3. In an underwriting, the firm selling (issuing) the securities forms the syndicate.
a. True
b. False
ANSWER: False
4. The underwriting of an issue of securities guarantees the firm issuing the securities a specified amount
of money.
a. True
b. False
ANSWER: True
5. The risk associated with an underwriting rests with the investment bankers.
a. True
b. False
ANSWER: True
6. The price of a new issue is established through the registration process with the SEC.
a. True
b. False
ANSWER: False
7. In a best efforts agreement to sell new securities, the firm issuing the securities agrees to make the best
effort to sell the securities.
a. True
b. False
ANSWER: False
8. Firms whose securities are already publicly held may file a shelf registration for possible future sales of
stocks and bonds.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
, Name: Class: Date:
Chapter 03: Investment Banking
9. If a company went public at $10 per share and the shares immediately upon reaching the public sell for
$13, the $3 windfall gain goes to the underwriter.
a. True
b. False
ANSWER: False
10. If an investment banker makes a best efforts agreement to sell 1,200,000 shares at $10 a share, the
investment banker must sell at least 200,000 shares.
a. True
b. False
ANSWER: False
11. A prospectus gives estimates of a firm's prospective earnings for five years.
a. True
b. False
ANSWER: False
12. The larger the dollar value of an underwriting, the smaller is the underwriting discount as a percentage
of the offer price.
a. True
b. False
ANSWER: True
13. In an underwriting, the managing house forms the syndicate.
a. True
b. False
ANSWER: True
14. If an issue of securities is overpriced, the underwriters may let the price fall to sell the securities.
a. True
b. False
ANSWER: True
15. The SEC establishes a price for a new issue of securities.
a. True
b. False
ANSWER: False
Multiple Choice
16. A firm that guarantees the proceeds from the sale of a new issue of securities is the
a. brokerage firm.
b. syndicate.
Copyright Cengage Learning. Powered by Cognero. Page 2
Financial Institutions, Investments, and
Management , 13th Edition Herbert B. Mayo
Notes
1- All Chapters are step by step.
2- We have shown you 10 pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
True / False
1. The power to create money is given by the Constitution to the federal government.
a. True
b. False
ANSWER: True
2. Since M2 excludes time deposits, M2 is a less comprehensive measure of the money supply than M1.
a. True
b. False
ANSWER: False
3. When individuals withdraw cash from checking accounts, the money supply is unaffected.
a. True
b. False
ANSWER: True
4. The yield curve relates risk and interest rates.
a. True
b. False
ANSWER: False
5. During most historical periods, the yield curve has been positively sloped.
a. True
b. False
ANSWER: True
6. What serves for money in France may not necessarily be money in another country.
a. True
b. False
ANSWER: True
7. The U.S. Treasury creates most of the nation's money supply.
a. True
b. False
ANSWER: False
8. When individuals deposit cash in a demand deposit, the money supply is reduced.
a. True
b. False
ANSWER: False
9. M1 includes savings accounts in commercial banks.
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
a. True
b. False
ANSWER: True
10. A financial intermediary transfers funds from borrowers to lenders by creating claims on itself.
a. True
b. False
ANSWER: False
11. When cash is deposited in a checking account, the reserves of commercial banks are increased.
a. True
b. False
ANSWER: True
12. When funds are deposited in a savings account, the excess reserves of banks are unaffected.
a. True
b. False
ANSWER: False
13. Large certificates of deposit in units of $500,000 are insured by FDIC.
a. True
b. False
ANSWER: False
14. In general, banks prefer loans that stress liquidity and safety.
a. True
b. False
ANSWER: True
15. Insurance companies are a major source of loans to individuals.
a. True
b. False
ANSWER: False
16. Money market mutual funds invest in short-term securities like U.S. Treasury bills.
a. True
b. False
ANSWER: True
17. An increase in interest rates tends to reduce the earnings of money market mutual funds.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
ANSWER: False
18. A pension plan that invests in the stock of IBM or Verizon performs the function of a financial
intermediary.
a. True
b. False
ANSWER: False
19. A financial intermediary creates claims on itself when it accepts depositors' funds.
a. True
b. False
ANSWER: True
Multiple Choice
20. M1 includes coins, currency, and
a. demand deposits.
b. savings accounts.
c. certificates of deposit.
d. time deposits.
ANSWER: a
21. The power to create money is given by the Constitution to
a. state governments.
b. Congress.
c. the Federal Reserve.
d. commercial banks.
ANSWER: b
22. The term structure of interest rates relates
a. risk and yields.
b. yields and credit ratings.
c. term and yields.
d. stock and bond yields.
ANSWER: c
23. The term structure of interest rates indicates the
a. relationship between risk and yields.
b. relationship between the time and yields.
c. difference between borrowing and lending.
d. difference between the yield (interest rate) on government and corporate debt.
ANSWER: b
24. Money serves as a
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
a. substitute for equity.
b. precaution against inflation.
c. medium of exchange.
d. risk-free liability.
ANSWER: c
25. M2 includes coins and currency in circulation outside of banks as well as
a. demand deposits and savings accounts.
b. savings accounts and small certificates of deposit.
c. demand deposits and small certificates of deposit.
d. demand deposits, savings accounts, and small certificates of deposit.
ANSWER: d
26. Which of the following is NOT a financial intermediary?
a. New York Stock Exchange
b. Washington Savings and Loan
c. First National City Bank
d. Merchants Savings Bank
ANSWER: a
27. The assets of a typical commercial bank include
a. commercial loans.
b. demand deposits.
c. common stock.
d. equity.
ANSWER: a
28. Federally insured investments include
a. savings accounts in national commercial banks.
b. certificates of deposit in excess of $500,000.
c. life insurance policies.
d. commercial bank assets.
ANSWER: a
29. The primary assets of life insurance companies include
a. life insurance.
b. corporate securities.
c. municipal securities.
d. insurance policies.
ANSWER: b
30. A pension plan that grants mortgage loans is
a. an example of a financial intermediary.
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
b. acting in good faith as a fiduciary.
c. called a savings and loan association.
d. not a financial intermediary.
ANSWER: a
31. Money market mutual funds invest in
a. corporate bonds.
b. corporate stock.
c. federal government Treasury bills.
d. federal government Treasury bonds.
ANSWER: c
32. A financial intermediary transfers
a. savings to households.
b. savings to borrowers.
c. stocks to brokers.
d. new stock issues to buyers.
ANSWER: b
33. Which of the following statements accurately describes Treasury bills?
a. They are long-term securities issued by the federal government.
b. They are short-term securities issued by the federal government.
c. They are long-term securities issued by money market mutual funds.
d. They are short-term securities issued by money market mutual funds.
ANSWER: b
34. A family member of yours has passed away and left you a rather large inheritance. Which of the
following is an example of a direct way to transfer your funds to a user?
a. You could start your own business using the money as an initial investment.
b. You could purchase stocks directly on the over-the-counter market.
c. You could purchase stocks directly on a secondary exchange like the NYSE.
d. You could purchase money market funds.
ANSWER: a
35. As a risk-adverse individual, you are looking to place your savings in an institution that has the ability
to give higher returns with low risk while maintaining reasonable liquidity. Which of the following would
you choose?
a. A savings account at a commercial bank
b. A savings account at a thrift institution
c. A certificate of deposit from a bank
d. A stock purchase from an investment firm
ANSWER: b
36. You are working as a financial analyst for a local Savings & Loan bank. Suppose that under the
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter 02: The Role of Financial Markets and Financial Intermediaries
current law, you are required to hold a 10% required reserve. A new deposit comes in of $1,000. In order
to fulfill the requirement, you decide to purchase $150 in Treasury bills. Would this be a correct way of
fulfilling the requirement?
a. Yes, as the requirement of $100 minimum is met.
b. No, as there must be at least $100 in either cash or Federal Reserve deposits.
c. No, as the requirement is $100 and not $150.
d. No, as money market securities are forbidden in any type of reserve.
ANSWER: b
37. As a wealthy individual, you have $395,000 in liquid cash assets in your checking account. The bank
that is holding your funds took some very risky positions in the assets that it held and, due to investment
loss, has now become insolvent. It has filed for bankruptcy. Fortunately, your account was FDIC-insured.
What is the likely result of this?
a. You will lose all of the funds, as checking accounts are covered under the FDIC.
b. You will be fully reimbursed, as FDIC covers up to $500,000.
c. You will not be fully reimbursed, as FDIC covers only up to $250,000.
d. You will be fully reimbursed, as FDIC covers up to $1,000,000.
ANSWER: c
Subjective Short Answer
38. As a relationship builder for the bank at which you work, it is important for you to competitively
attempt to obtain investments and funds from other institutions. Why is this vital to your business model?
ANSWER: Because commercial banks are only able to lend out what has been lent to them, in order to
write interest-bearing loans, it is necessary to have the funds to do so.
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter 03: Investment Banking
True / False
1. The market in which securities are initially sold to the general public is the secondary market.
a. True
b. False
ANSWER: False
2. An investment banker specializes in corporate loans.
a. True
b. False
ANSWER: False
3. In an underwriting, the firm selling (issuing) the securities forms the syndicate.
a. True
b. False
ANSWER: False
4. The underwriting of an issue of securities guarantees the firm issuing the securities a specified amount
of money.
a. True
b. False
ANSWER: True
5. The risk associated with an underwriting rests with the investment bankers.
a. True
b. False
ANSWER: True
6. The price of a new issue is established through the registration process with the SEC.
a. True
b. False
ANSWER: False
7. In a best efforts agreement to sell new securities, the firm issuing the securities agrees to make the best
effort to sell the securities.
a. True
b. False
ANSWER: False
8. Firms whose securities are already publicly held may file a shelf registration for possible future sales of
stocks and bonds.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
, Name: Class: Date:
Chapter 03: Investment Banking
9. If a company went public at $10 per share and the shares immediately upon reaching the public sell for
$13, the $3 windfall gain goes to the underwriter.
a. True
b. False
ANSWER: False
10. If an investment banker makes a best efforts agreement to sell 1,200,000 shares at $10 a share, the
investment banker must sell at least 200,000 shares.
a. True
b. False
ANSWER: False
11. A prospectus gives estimates of a firm's prospective earnings for five years.
a. True
b. False
ANSWER: False
12. The larger the dollar value of an underwriting, the smaller is the underwriting discount as a percentage
of the offer price.
a. True
b. False
ANSWER: True
13. In an underwriting, the managing house forms the syndicate.
a. True
b. False
ANSWER: True
14. If an issue of securities is overpriced, the underwriters may let the price fall to sell the securities.
a. True
b. False
ANSWER: True
15. The SEC establishes a price for a new issue of securities.
a. True
b. False
ANSWER: False
Multiple Choice
16. A firm that guarantees the proceeds from the sale of a new issue of securities is the
a. brokerage firm.
b. syndicate.
Copyright Cengage Learning. Powered by Cognero. Page 2
