Question 1

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) A) and E)
G) B) and D)

Question 2

The main reason that depository institutions experienced financial problems during the credit crisis was their investment in:

Accepted Answer

A)  mortgages.
B)  money market securities.
C)  stock.
D)  Treasury bonds.E) None of the above
F) C) and D)

Question 3

Which of the following is a money market security?

Accepted Answer

A)  Treasury note
B)  municipal bond
C)  mortgage
D)  commercial paperE) None of the above
F) B) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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) C) and D)
G) A) and C) D

Question 6

____ concentrate on mortgage loans.

Accepted Answer

A)  Finance companies
B)  Commercial banks
C)  Savings institutions
D)  Credit unionsE) A) and B)
F) None of the above

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The typical role of a securities firm in a public offering of securities is to

Accepted Answer

A)  purchase the entire issue for its own investment.
B)  place the entire issue with a single large investor.
C)  spread the issue across several investors until the entire issue is sold.
D)  provide all large investors with loans so that they can invest in the offering.E) B) and C)
F) C) and D)

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 the aboveF) B) and E)
G) B) and C) B

Question 10

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

Accepted Answer

A)  Credit unions
B)  Commercial banks
C)  Life insurance companies
D)  Savings institutionsE) A) and C)
F) A) and D)

Question 11

Common stock is an example of a(n)

Accepted Answer

A)  debt security.
B)  money market security.
C)  equity security.
D)  A and BE) B) and C)
F) A) and D)

Question 12

A five-year security was purchased two years ago by an investor who plans to resell it.The security will be sold by the investor in the so-called

Accepted Answer

A)  secondary market.
B)  primary market.
C)  deficit market.
D)  surplus market.E) A) and B)
F) B) and D)

Question 13

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) A) and C)

Question 14

Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns than speculating in the underlying asset itself.

Accepted Answer

A) True 
 B)False

Question 15

If security prices fully reflect all available information, the markets for these securities are

Accepted Answer

A)  efficient.
B)  primary.
C)  overvalued.
D)  undervalued.E) B) and C)
F) A) and B) A

Question 16

Commercial banks in aggregate have a lower value of assets than savings institutions.

Accepted Answer

A) True 
 B)False

Question 17

Households with ____ are served by ____.

Accepted Answer

A)  deficient funds; depository institutions and finance companies
B)  deficient funds; finance companies only
C)  savings; finance companies only
D)  savings; pension funds and finance companiesE) A) and B)
F) None of the above

Question 18

When security prices fully reflect all available information, the markets for these securities are said to be perfect.

Accepted Answer

A) True 
 B)False

Question 19

The most common investors in Federal funds are

Accepted Answer

A)  households.
B)  depository institutions.
C)  firms.
D)  government agencies.E) B) and D)
F) None of the above

Question 20

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

Accepted Answer

A)  perfect
B)  active
C)  inefficient
D)  in equilibriumE) B) and D)
F) C) and D)

Exam 1: Role of Financial Markets and Institutions

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

Correct AnswerverifiedShow Answer

The main reason that depository institutions experienced financial problems during the credit crisis was their investment in:

Correct AnswerverifiedShow Answer

Which of the following is a money market security?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 AnswerverifiedD

____ concentrate on mortgage loans.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The typical role of a securities firm in a public offering of securities is to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

Common stock is an example of a(n)

Correct AnswerverifiedShow Answer

A five-year security was purchased two years ago by an investor who plans to resell it.The security will be sold by the investor in the so-called

Correct AnswerverifiedShow Answer

Without the participation of financial intermediaries in financial market transactions,

Correct AnswerverifiedShow Answer

Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns than speculating in the underlying asset itself.

Correct AnswerverifiedShow Answer

If security prices fully reflect all available information, the markets for these securities are

Correct AnswerverifiedA

Commercial banks in aggregate have a lower value of assets than savings institutions.

Correct AnswerverifiedShow Answer

Households with ____ are served by ____.

Correct AnswerverifiedShow Answer

When security prices fully reflect all available information, the markets for these securities are said to be perfect.

Correct AnswerverifiedShow Answer

The most common investors in Federal funds are

Correct AnswerverifiedShow Answer

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

Correct AnswerverifiedShow Answer

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D

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B

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A

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Households with are served by .

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