Q&A Hero

Q: Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the ________ securities to earn interest on temporary surplus funds. A) money market B) capital market C) bond market D) stock market

Q: Equity instruments are traded in the ________ market. A) money B) bond C) capital D) commodities

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) Because of their short-terms to maturity, the prices of money market instruments tend to fluctuate wildly.

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 benefit 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 thirty-year mortgage. B) A sixty-month car loan. C) A six month loan from a finance company. D) A 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. D) A corporation buys a short-term security issued by another corporation in the primary market.

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. 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) produce an efficient allocation of capital.

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) 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: 2.1 Function of Financial Markets

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 B) real C) inflated 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 1998 is $50,000, and prices increase by 50% between 1998 and 2011, then to have the same real income, your nominal income in 2011 must be A) $50,000. B) $75,000. C) $100,000. D) $150,000.

Q: If your nominal income in 2002 was $50,000, and prices doubled between 2002 and 2011, to have the same real income, your nominal income in 2011 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: From 1980-1985, the dollar strengthened in value against other currencies. Who was helped and who was hurt by this strong dollar?

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.

Q: If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything else held constant, A) a European vacation becomes less expensive. B) a European vacation becomes more expensive. C) the cost of a European vacation is not affected. D) foreign travel becomes impossible.

Q: American farmers who sell beef to Europe 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 European ban on imports of American beef.

Q: Everything else held constant, a decrease in the value of the dollar relative to all foreign currencies means that the price of foreign goods purchased by Americans A) increases B) decreases. C) remains unchanged. D) either increases, decreases, or remains unchanged.

Q: When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost 100 British pounds would have cost $130. With a weaker dollar, the same Shetland sweater would have cost A) less than $130. B) more than $130. C) $130, since the exchange rate does not affect the prices that American consumers pay for foreign goods. D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in price due to the stronger dollar.

Q: From 1980 to 1985 the dollar appreciated relative to the British pound. Holding everything else constant, one would expect that, when compared to 1980, A) fewer Britons traveled to the United States in 1985. B) Britons imported more wine from California in 1985. C) Americans exported more wheat to England in 1985. D) more Britons traveled to the United States in 1985.

Q: From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________. A) appreciated; consumers B) appreciated, businesses C) depreciated; consumers D) depreciated, businesses

Q: Everything else held constant, a stronger dollar benefits ________ and hurts ________. A) American businesses; American consumers B) American businesses; foreign businesses C) American consumers; American businesses D) foreign businesses; American consumers

Q: Everything else held constant, a weaker dollar will likely hurt A) textile exporters in South Carolina. B) wheat farmers in Montana that sell domestically. C) automobile manufacturers in Michigan that use domestically produced inputs. D) furniture importers in California.

Q: Which of the following is most likely to result from a stronger dollar? A) U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them. B) U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy more of them. C) U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them. D) Americans will purchase fewer foreign goods.

Q: Everything else constant, a stronger dollar will mean that A) vacationing in England becomes more expensive. B) vacationing in England becomes less expensive. C) French cheese becomes more expensive. D) Japanese cars become more expensive.

Q: The market where one currency is converted into another currency is called the ________ market. A) stock B) bond C) derivatives D) foreign exchange

Q: The price of one country's currency in terms of another country's currency is called the A) exchange rate. B) interest rate. C) Dow Jones industrial average. D) prime rate.