Question 1

If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire.

Accepted Answer

A) True 
 B)False  False

Question 2

The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Accepted Answer

A)  savings institutions
B)  commercial banks
C)  mutual funds
D)  finance companies
E)  pension fundsF) All of the above
G) D) and E)

Question 3

The Securities Act of 1933

Accepted Answer

A)  required complete disclosure of relevant financial information for publicly offered securities in the primary market.
B)  declared trading strategies to manipulate the prices of public secondary securities illegal.
C)  imposed heavy penalties for insider trading.
D)  required complete disclosure of relevant financial information for securities traded in the secondary market.
E)  All of these are correct.F) A) and B)
G) A) and C)

Question 4

Financial markets facilitating the flow of short-term debt securities with maturities of one year or less are known as

Accepted Answer

A)  secondary markets.
B)  capital markets.
C)  primary markets.
D)  money markets.
E)  None of these are correct.F) D) and E)
G) C) and D)

Question 5

Those participants who receive more money than they spend are referred to as

Accepted Answer

A)  deficit units.
B)  surplus units.
C)  borrowing units.
D)  government units.E) A) and C)
F) B) and D)

Question 6

Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.

Accepted Answer

A)  liquid; many
B)  liquid; not many
C)  illiquid; not many
D)  illiquid; manyE) B) and C)
F) A) and D)

Question 7

Without the participation of financial intermediaries in financial market transactions,

Accepted Answer

A)  information and transaction costs would be lower.
B)  transaction costs would be higher but information costs would be unchanged.
C)  information costs would be higher but transaction costs would be unchanged.
D)  information and transaction costs would be higher.E) A) and B)
F) C) and D)

Question 8

The Securities and Exchange Commission (SEC) was established by the

Accepted Answer

A)  Federal Reserve Act.
B)  McFadden Act.
C)  Securities Exchange Act of 1934.
D)  Glass-Steagall Act.
E)  None of these are correct.F) A) and D)
G) A) and C)

Question 9

When particular securities are perceived to be ____ by the market, their prices decrease when they are sold by investors.

Accepted Answer

A)  undervalued
B)  overvalued
C)  fairly priced
D)  efficient
E)  None of these are correct.F) A) and B)
G) C) and D)

Question 10

When a securities firm acts as a broker, it

Accepted Answer

A)  guarantees the issuer a specific price for newly issued securities.
B)  makes a market in specific securities by adjusting its own inventory.
C)  executes securities transactions between two parties.
D)  purchases securities for its own account.E) None of the above
F) B) and C)

Question 11

Debt securities represent debt (borrowed funds)incurred by the issuer.

Accepted Answer

A) True 
 B)False

Question 12

____ maintain a larger amount of assets in aggregate than the other types of nondepository institutions.

Accepted Answer

A)  Finance companies
B)  Mutual funds
C)  Life insurance companies
D)  Securities firmsE) All of the above
F) B) and C)

Question 13

Which of the following are NOT considered depository financial institutions?

Accepted Answer

A)  finance companies
B)  commercial banks
C)  savings institutions
D)  credit unions
E)  All of these are depository financial institutions.F) A) and D)
G) None of the above

Question 14

Which of the following is an example of an asymmetric information problem?

Accepted Answer

A)  A corporation releases toxic wastes into a river.
B)  A corporation relocates to Ireland to take advantage of lower corporate tax rates.
C)  A stock analyst rates a stock higher than it deserves because the securities firm she works for wants to obtain business from the corporation that issued the stock.
D)  A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China.E) None of the above
F) A) and B)

Question 15

Which of the following is most likely to be described as a depository institution?

Accepted Answer

A)  finance companies
B)  securities firms
C)  credit unions
D)  pension funds
E)  insurance companiesF) B) and E)
G) B) and D) C

Question 16

If a depository institution is experiencing more deposits than it needs to make loans or invest in securities, it can lend its excess funds to another depository institution through the

Accepted Answer

A)  Federal Reserve's trading desk.
B)  options market.
C)  federal funds market.
D)  federal exchange market.E) A) and D)
F) B) and C)

Question 17

____ are not considered capital market securities.

Accepted Answer

A)  Derivative securities
B)  Treasury bonds
C)  Corporate bonds
D)  Equity securities
E)  MortgagesF) D) and E)
G) B) and E)

Question 18

Common types of money market securities include negotiable certificates of deposit and Treasury bills.

Accepted Answer

A) True 
 B)False

Question 19

Systemic risk exists because

Accepted Answer

A)  there is no government regulation of financial markets.
B)  financial institutions invest in similar securities and therefore are similarly exposed to large declines in prices of those securities.
C)  financial institutions borrow using long-term debt securities but lend their funds for short-term periods.
D)  financial institutions invest heavily in Treasury securities and therefore are exposed to the possibility that the government will default on its debts.E) B) and D)
F) B) and C) B

Question 20

Since markets are efficient, institutional and individual investors should ignore the various investment instruments available.

Accepted Answer

A) True 
 B)False

Exam 1: Role of Financial Markets and Institutions

If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire.

Correct AnswerverifiedFalse

The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.

Correct AnswerverifiedShow Answer

The Securities Act of 1933

Correct AnswerverifiedShow Answer

Financial markets facilitating the flow of short-term debt securities with maturities of one year or less are known as

Correct AnswerverifiedShow Answer

Those participants who receive more money than they spend are referred to as

Correct AnswerverifiedShow Answer

Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.

Correct AnswerverifiedShow Answer

Without the participation of financial intermediaries in financial market transactions,

Correct AnswerverifiedShow Answer

The Securities and Exchange Commission (SEC) was established by the

Correct AnswerverifiedShow Answer

When particular securities are perceived to be ____ by the market, their prices decrease when they are sold by investors.

Correct AnswerverifiedShow Answer

When a securities firm acts as a broker, it

Correct AnswerverifiedShow Answer

Debt securities represent debt (borrowed funds)incurred by the issuer.

Correct AnswerverifiedShow Answer

____ maintain a larger amount of assets in aggregate than the other types of nondepository institutions.

Correct AnswerverifiedShow Answer

Which of the following are NOT considered depository financial institutions?

Correct AnswerverifiedShow Answer

Which of the following is an example of an asymmetric information problem?

Correct AnswerverifiedShow Answer

Which of the following is most likely to be described as a depository institution?

Correct AnswerverifiedC

If a depository institution is experiencing more deposits than it needs to make loans or invest in securities, it can lend its excess funds to another depository institution through the

Correct AnswerverifiedShow Answer

____ are not considered capital market securities.

Correct AnswerverifiedShow Answer

Common types of money market securities include negotiable certificates of deposit and Treasury bills.

Correct AnswerverifiedShow Answer

Systemic risk exists because

Correct AnswerverifiedB

Since markets are efficient, institutional and individual investors should ignore the various investment instruments available.

Correct AnswerverifiedShow Answer

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False

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Debt securities issued by a small firm may be __, meaning that _ investors want to invest in those securities.

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C

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B

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