Q&A Hero

Q: A financial market in which only short-term debt instruments are traded is called the ________ market. A. bond B. money C. capital D. stock

Q: Which of the following statements about financial markets and securities is TRUE? A. Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. B. As a corporation gets a share of the broker's commission, a corporation acquires new funds whenever its securities are sold. C. Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. D. Prices of capital market securities are usually more stable than prices of money market securities, and so are often used to hold temporary surplus funds of corporations.

Q: Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them. A. secondary stocks B. surplus stocks C. U.S. government bonds D. common stocks

Q: In a(n) ________ market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. A. exchange B. over-the-counter C. common D. barter

Q: When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n) A. exchange. B. over-the-counter market. C. common market. D. barter market.

Q: The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market. A. more; primary B. more; secondary C. less; primary D. less; secondary

Q: A liquid asset is A. an asset that can easily and quickly be sold to raise cash. B. a share of an ocean resort. C. difficult to resell. D. always sold in an over-the-counter market.

Q: Secondary markets make financial instruments more A. solid. B. vapid. C. liquid. D. risky.

Q: An important function of secondary markets is to A. make it easier to sell financial instruments to raise funds. B. raise funds for corporations through the sale of securities. C. make it easier for governments to raise taxes. D. create a market for newly constructed houses.

Q: A corporation acquires new funds only when its securities are sold in the A. secondary market by an investment bank. B. primary market by an investment bank. C. secondary market by a stock exchange broker. D. secondary market by a commercial bank.

Q: A corporation acquires new funds only when its securities are sold in the A. primary market by an investment bank. B. primary market by a stock exchange broker. C. secondary market by a securities dealer. D. secondary market by a commercial bank.

Q: ________ work in the secondary markets matching buyers with sellers of securities. A. Dealers B. Underwriters C. Brokers D. Claimants

Q: Which of the following is NOT a secondary market? A. foreign exchange market B. futures market C. options market D. IPO market

Q: When an investment bank ________ securities, it guarantees a price for a corporation's securities and then sells them to the public. A. underwrites B. undertakes C. overwrites D. overtakes

Q: An important financial institution that assists in the initial sale of securities in the primary market is the A. investment bank. B. commercial bank. C. stock exchange. D. brokerage house.

Q: A financial market in which previously issued securities can be resold is called a ________ market. A. primary B. secondary C. tertiary D. used securities

Q: Which of the following benefits directly from any increase in the corporation's profitability? A. a bond holder B. a commercial paper holder C. a shareholder D. a T-bill holder

Q: Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders. A. debtors B. brokers C. residual claimants D. underwriters

Q: When I purchase ________, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors. A. bonds B. bills C. notes D. stock

Q: Long-term debt has a maturity that is A. between one and ten years. B. less than a year. C. between five and ten years. D. ten years or longer.

Q: If the maturity of a debt instrument is less than one year, the debt is called A. short-term. B. intermediate-term. C. long-term. D. prima-term.

Q: Which of the following is an example of an intermediate-term debt? A. a fifteen-year mortgage B. a sixty-month car loan C. a six-month loan from a finance company D. a thirty-year U.S. Treasury bond

Q: Which of the following statements about financial markets and securities is TRUE? A. A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. B. A debt instrument is intermediate term if its maturity is less than one year. C. A debt instrument is intermediate term if its maturity is ten years or longer. D. The maturity of a debt instrument is the number of years (term) to that instrument's expiration date.

Q: Which of the following statements about the characteristics of debt and equities is TRUE? A. They can both be long-term financial instruments. B. Bond holders are residual claimants. C. The income from bonds is typically more variable than that from equities. D. Bonds pay dividends.

Q: Which of the following statements about the characteristics of debt and equity is FALSE? A. They can both be long-term financial instruments. B. They can both be short-term financial instruments. C. They both involve a claim on the issuer's income. D. They both enable a corporation to raise funds.

Q: Distinguish between direct finance and indirect finance. Which of these is the most important source of funds for corporations in the United States?

Q: With direct finance, funds are channeled through the financial market from the ________ directly to the ________. A. savers, spenders B. spenders, investors C. borrowers, savers D. investors, savers

Q: With ________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets. A. active B. determined C. indirect D. direct

Q: Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them. A. assets; liabilities B. liabilities; assets C. negotiable; nonnegotiable D. nonnegotiable; negotiable

Q: Which of the following can be described as involving indirect finance? A. You make a loan to your neighbor. B. You buy shares in a mutual fund. C. You buy a U.S. Treasury bill from the U.S. Treasury at Treasury Direct.gov. D. You purchase shares in an initial public offering by a corporation in the primary market. E.

Q: Which of the following can be described as involving indirect finance? A. You make a loan to your neighbor. B. A corporation buys a share of common stock issued by another corporation in the primary market. C. You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov. D. You make a deposit at a bank.

Q: Which of the following can be described as involving direct finance? A. A corporation takes out loans from a bank. B. People buy shares in a mutual fund. C. A corporation buys a short-term corporate security in a secondary market. D. People buy shares of common stock in the primary markets.

Q: Which of the following can be described as involving direct finance? A. A corporation issues new shares of stock. B. People buy shares in a mutual fund. C. A pension fund manager buys a short-term corporate security in the secondary market. D. An insurance company buys shares of common stock in the over-the-counter markets.

Q: You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is A. 25%. B. 12.5%. C. 10%. D. 5%.

Q: Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is A. $400. B. $201. C. $200. D. $199.

Q: Which of the following can be described as direct finance? A. You take out a mortgage from your local bank. B. You borrow $2500 from a friend. C. You buy shares of common stock in the secondary market. D. You buy shares in a mutual fund.

Q: The principal lender-savers are A. governments. B. businesses. C. households. D. foreigners.

Q: A breakdown of financial markets can result in A. financial stability. B. rapid economic growth. C. political instability. D. stable prices.

Q: Well-functioning financial markets A. cause inflation. B. eliminate the need for indirect finance. C. cause financial crises. D. allow the economy to operate more efficiently.

Q: Financial markets improve economic welfare because A. they channel funds from investors to savers. B. they allow consumers to time their purchase better. C. they weed out inefficient firms. D. they eliminate the need for indirect finance.

Q: Financial markets have the basic function of A) getting people with funds to lend together with people who want to borrow funds. B) assuring that the swings in the business cycle are less pronounced. C) assuring that governments need never resort to printing money. D) providing a risk-free repository of spending power.

Q: Every financial market has the following characteristic. A. It determines the level of interest rates. B. It allows common stock to be traded. C. It allows loans to be made. D. It channels funds from lenders-savers to borrowers-spenders.

Q: Everything else held constant, a decline in interest rates will cause spending on housing to A. fall. B. remain unchanged. C. either rise, fall, or remain the same. D. rise.

Q: The interest rate on Baa corporate bonds is ________, on average, than interest rates on Treasuries, and the spread between these rates became ________ in the 1970s. A. lower; smaller B. lower; larger C. higher; smaller D. higher; larger

Q: Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average. A. more; lower B. less; lower C. more; higher D. less; higher

Q: The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the A. inflation rate. B. exchange rate. C. interest rate. D. aggregate price level.

Q: The bond markets are important because they are A. easily the most widely followed financial markets in the United States. B. the markets where foreign exchange rates are determined. C. the markets where interest rates are determined. D. the markets where all borrowers get their funds.

Q: Poorly performing financial markets can be the cause of A. wealth. B. poverty. C. financial stability. D. financial expansion.

Q: ________ markets transfer funds from people who have an excess of available funds to people who have a shortage. A. Commodity B. Fund-available C. Financial D. Derivative exchange

Q: Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called A. commodity markets. B. fund-available markets. C. derivative exchange markets. D. financial markets.

Q: A key factor in producing high economic growth is A. eliminating foreign trade. B. well-functioning financial markets. C. high interest rates. D. stock market volatility.

Q: Well-functioning financial markets promote A. inflation. B. deflation. C. unemployment. D. growth.

Q: Financial markets promote greater economic efficiency by channeling funds from ________ to ________. A. investors; savers B. borrowers; savers C. savers; borrowers D. savers; lenders

Q: Financial markets promote economic efficiency by A. channeling funds from investors to savers. B. creating inflation. C. channeling funds from savers to investors. D. reducing investment.

Q: If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to 2005 is A. 20%. B. 10%. C. 0%. D. -10%.

Q: If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have increased by A. 180%. B. 80%. C. 60%. D. 50%.

Q: If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from year 1 to year 2 is A. 20%. B. 10%. C. 11%. D) 120%.

Q: If the aggregate price level at time t is denoted by Pt, the inflation rate from time t - 1 to t is defined as A. πt = (Pt - Pt - 1)/Pt - 1. B. πt = (Pt + 1 - Pt - 1)/Pt - 1. C. πt = (Pt + 1 - Pt)/Pt. D. πt = (Pt - Pt - 1)/Pt.

Q: If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP growth from 2002 to 2003 is A. 0.5%. B. 5%. C. 0%. D. -5%.

Q: If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for real GDP is A. 5%. B. 10%. C. 50%. D. 0.5%.

Q: To calculate the growth rate of a variable, you will A. calculate the percentage change from one time period to the next. B. calculate the difference between the two variables. C. add the ending value to the beginning value. D. divide the increase by the number of time periods.

Q: The measure of the aggregate price level that is frequently the focus of Federal Reserve officials is the A. consumer price index. B. producer price index. C. GDP deflator. D. PCE deflator.

Q: The measure of the aggregate price level that is most frequently reported in the media is the A. GDP deflator. B. producer price index. C. consumer price index. D. household price index.

Q: When prices are measured in terms of fixed (base-year) prices they are called ________ prices. A) nominal A. B) real B. C) inflated C. D) aggregate

Q: If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the GDP deflator price index is A. 7. B. 100. C. 150. D. 200.

Q: To convert a nominal GDP to a real GDP, you would use A. the PCE deflator. B. the CPI measure. C. the GDP deflator. D. the PPI measure.

Q: If your nominal income in 2014 is $50,000, and prices increase by 50% between 2014 and 2017, then to have the same real income, your nominal income in 2017 must be A. $50,000. B. $75,000. C. $100,000. D. $150,000.

Q: If your nominal income in 2014 was $50,000, and prices doubled between 2014 and 2017, to have the same real income, your nominal income in 2017 must be A. $50,000. B. $75,000. C. $90,000. D. $100,000.

Q: GDP measured with constant prices is referred to as A. real GDP. B. nominal GDP. C. the GDP deflator. D. industrial production.

Q: Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices. A. current; current B. current; fixed C. fixed; fixed D. fixed; current

Q: When the total value of final goods and services is calculated using current prices, the resulting measure is referred to as A. real GDP. B. the GDP deflator. C. nominal GDP. D. the index of leading indicators.

Q: If an economy has aggregate output of $20 trillion, then aggregate income is A. $10 trillion. B. $20 trillion. C. $30 trillion. D. $40 trillion.

Q: Which of the following items are NOT counted in U.S. GDP? A. your purchase of a new Ford Mustang B. your purchase of new tires for your old car C. GM's purchase of tires for new cars D. a foreign consumer's purchase of a new Ford Mustang

Q: The gross domestic product is the A. the value of all wealth in an economy. B. the value of all goods and services sold to other nations in a year. C. the market value of all final goods and services produced in an economy in a year. D. the market value of all intermediate goods and services produced in an economy in a year.

Q: The most comprehensive measure of aggregate output is A. gross domestic product. B. net national product. C. the stock value of the industrial 500. D. national income.

Q: Using a unified analytic framework to present the information in the text keeps the knowledge A. focused on theories that have little to do with actual behavior. B. theoretical and uninteresting. C. abstract and not applicable to real life. D. from becoming obsolete.

Q: The basic concepts used in the analytic framework of this text include all of the following EXCEPT A. the not-for-profit nature of most financial institutions. B. a basic supply and demand analysis to explain the behavior of financial markets. C. an approach to financial structure based on transaction costs and asymmetric information. D. the concept of equilibrium.

Q: From 1980-1985, the dollar strengthened in value against other currencies. Who was helped and who was hurt by this strong dollar?

Q: From 2000 to 2014, the dollar depreciated substantially against other currencies. This drop in value most likely benefitted A. European citizens traveling in the U.S. B. U.S. citizens traveling in Europe. C. U.S. manufacturers importing parts from abroad. D. U.S. citizens purchasing foreign-made automobiles.

Q: Everything else held constant, Americans who love French wine benefit most from A. a decrease in the dollar price of euros. B. an increase in the dollar price of euros. C. a constant dollar price for euros. D. a ban on imports from Europe.