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Finance
Q:
The money market is important because
a. it is the world's liquidity market.
b. it is the market in which the Fed conducts monetary policy.
c. the federal government finances most of its credit needs in the money market.
d. all of the above
Q:
Federal Funds are typically
a. Treasury deposits.
b. Federal Reserve assets.
c. commercial bank deposits at the Federal Reserve.
d. overnight loans settled in immediately available funds.
Q:
Which of the following may be a liability of a nonfinancial business?
a. commercial paper
b. Federal Funds
c. Treasury securities
d. agency securities
Q:
Which of the following statements about the money market is true?
a. The money market is a dealer market linked by efficient communications systems.
b. Money market transactions are seldom over $1 million.
c. Market transactions include more primary than secondary market trades.
d. Most money market transactions are conducted by mail.
Q:
Small investors are likely to invest in the money market through ____.
a. directly; commercial paper
b. locally; their credit union
c. indirectly; negotiable CDs
d. indirectly; money market mutual funds
Q:
Which of the following is not a characteristic of money market instruments?
a. short-term to maturity
b. small denomination
c. low default risk
d. high marketability
Q:
The deficit spending unit (DSU) receives the funds in the primary market; the surplus spending unit (SSU) sells the claim in the
a. intermediation market.
b. direct financial market.
c. federal funds market.
d. secondary market.
Q:
Money markets are associated with ; capital markets are associated with
a. liquidity; marketability.
b. spot; future.
c. liquidity; economic investment.
d. primary; secondary.
Q:
A conditional contract granting its holder the right to buy assets in the future is a:
a. put.
b. forward contract.
c. futures contract.
d. call.
Q:
A standardized, exchange-backed contract to deliver assets 3 months from today is a:
a. forward contract.
b. securitized asset.
c. futures contract.
d. option contract.
Q:
If Boeing splits its outstanding common stock 2-for-1, that is an example of
a. "primary market" activity
b. "secondary market" activity
c. "money market" activity
d. financial intermediation
Q:
The household sector is the largest surplus sector and invests in the capital market
a. directly by purchasing stocks and bonds.
b. indirectly through mutual funds.
c. indirectly through pension funds
d. all of the above
Q:
Primary capital markets are most likely to finance
a. plant and equipment
b. inventory
c. operating expenses
d. none of the above
Q:
The difference between "capital spending" and "real investment" is chiefly a difference in
a. essential nature and purpose of the assets created or acquired
b. relative cost of the assets created or acquired
c. susceptibility of the assets created or acquired to amortization or depreciation
d. semantics
Q:
Security exchanges provide a valuable function in that they
a. create interest in stocks.
b. increase the marketability of securities.
c. provide a legal way to gamble.
d. supply money to deficit spending units.
Q:
Secondary capital markets have promoted economic growth in the U.S. because
a. they have increased marketability of stocks and bonds.
b. they have increased the public's access to investment.
c. they have helped investors diversify.
d. all of the above
Q:
Which of the following isnot an example of capital market securities?
a. common stocks
b. convertible bonds
c. commercial paper
d. mortgages
Q:
Potential effects of yield fluctuations on security prices and reinvestment income represent
a. credit risk.
b. liquidity risk.
c. foreign exchange risk.
d. interest rate risk.
Q:
Money market instruments and capital market instruments differ appreciably in
a. maturity
b. liquidity
c. availability to ordinary individual investors
d. all of the above
Q:
Federal agencies issue high quality securities and invest primarily in claims issued by
a. businesses that are "too big to fail".
b. the U.S. Treasury to finance government deficits.
c. agricultural or housing-related sectors which have limited access to private credit.
d. foreign governments
Q:
Which of the following is not a debt security?
a. corporate bonds.
b. U.S. Government securities.
c. federal agency securities.
d. common stock.
Q:
The financial institution that is the largest issuer of commercial paper is
a. commercial banks.
b. finance companies.
c. property-casualty insurance companies.
d. pension funds.
Q:
Credit unions are _____ institutions; pension funds are _______ institutions.
a. depository; contractual
b. contractual; depository
c. federal ; investment
d. depository; depository
Q:
The only "deposit-type" institutions that do not operate for profit are
a. thrift institutions
b. credit unions
c. pension funds
d. commercial banks
Q:
Disintermediation is best exemplified by
a. purchase of securities.
b. sale of securities.
c. writing a broker a check to pay for a purchase of IBM stock.
d. depositing an insurance settlement with a credit union.
Q:
A commercial bank provides liquidity when it
a. pays the check written by a deposit customer.
b. redeems a savings deposit upon demand.
c. makes a loan fulfilling a loan commitment.
d. All of the above.
Q:
Currency transformation is an important service because
a. most Surplus spending units (SSUs) want to invest in more than one currency
b. all financial institutions operate internationally
c. few ordinary investors care to hold claims denominated in foreign currency
d. Deficit spending units (DSUs) can"t export unless they borrow in the currency of the importing country
Q:
Credit risk diversification occurs when
a. adding loans to the portfolio increases the variability of the loan portfolio.
b. loans from similar borrowers are combined in a portfolio.
c. adding loans to the portfolio decreases the variability of the loan portfolio.
d. combining loans with similar payment patterns in a single portfolio.
Q:
An S&L taking short-term deposits and financing local land development is engaging in
a. speculation.
b. maturity intermediation.
c. denomination intermediation.
d. currency transformation
Q:
The best synonym for "financial intermediation" is
a. direct finance
b. investment banking
c. market making
d. transformation of claims
Q:
Most of the financial claims issued by U.S. financial intermediaries are purchased by
a. the household sector.
b. the business sector.
c. the government sector.
d. the foreign sector
Q:
Hollon Securities is underwriting an issue of Llamas Unlimited, Inc. common stock. Hollon will pay LU $45.00 a share and offer the stock to the public at $48.00. The direct cost of underwriting the issue is $1.00 per share. The underwriting spread is
a. $4.00 per share.
b. $3.00 per share.
c. $2.00 per share.
d. not ascertainable from the information above.
Q:
All but one of the following is associated with investment banking:
a. Taking deposits.
b. Marketing new issues of securities.
c. Underwriting securities.
d. Completing regulatory paperwork and rendering advice.
Q:
All but one describes a dealer involved in direct financial market:
a. provides liquidity to sellers
b. buys and sells from inventory
c. earns return from bid-ask spread
d. transforms claims
Q:
Acting as matchmaker and earning a commission, the ______ is an important component in direct financial markets.
a. dealer
b. investment banker
c. broker
d. seller
Q:
The _____ price is the highest price offered by the dealer to purchase a given security.
a. market
b. ask
c. offering
d. bid
Q:
Hammond Securities holds an inventory of ABC Corp. stock, buying at $65.00 and selling at $67.50. The bid is _____; the bid-ask spread is _____.
a. $65.00; $2.50
b. $67.50; $2.50
c. lower than the ask price; higher than the bid price
d. higher than the ask price; $2.50
Q:
______ merely execute buy or sell orders for their clients; _______ "make markets".
a. dealers; brokers
b. brokers; investment bankers
c. dealers; financial institutions
d. brokers; dealers
Q:
Brokers and dealers work in direct financial markets to
a. make commissions.
b. minimize the bid-ask spread.
c. bring sellers and buyers together.
d. underwrite new issues of securities.
Q:
A sale of an entire security issue to one investor or a small group of investors is
a. a dealer arrangement.
b. a private placement.
c. an underwriting.
d. intermediation financing.
Q:
All but one is associated with direct financing:
a. single financial instrument.
b. a broker, dealer or investment banker.
c. small denominations.
d. dominance of governments and businesses as borrowers.
Q:
In direct financing the lender
a. trades a financial claim for money.
b. trades money for a financial claim issued by a financial institution.
c. trades money with a broker who owns the financial claims of a borrower.
d. trades money for the financial claim of the borrower.
Q:
Intermediation, or ____ financing, involves ___ financial claim(s) linking surplus spending unit (SSU) and deficit spending unit (DSU) .
a. indirect; two
b. direct; two
c. indirect; one
d. direct; one
Q:
The flow of funds from saving to investment through direct financing involves
a. the saver holding the lender's IOU.
b. two separate contracts.
c. the lender holding the borrower's IOU.
d. several different financial institutions.
Q:
The ease with which a financial claim can be resold is its
a. quality.
b. risk.
c. marketability.
d. perpetuity.
Q:
During 2008, Bob and Nancy Gutierrez expect total income of about $225,000 and are budgeting total expenditures of about $180,000. For this budget period, the Gutierrez family is most specifically a(n)
a. deficit spending unit (DSU)
b. business
c. surplus spending unit (SSU)
d. household
Q:
Surplus spending units (SSUs) are also called
a. lenders.
b. borrowers.
c. sellers of securities.
d. balanced budget units.
Q:
Direct finance is best exemplified by
a. the purchase of mutual fund shares.
b. depositing in a credit union.
c. borrowing from a friend or relative.
d. employee contributions to a pension fund.
Q:
All of the following are terms for or examples of financial claims except
a. bonds.
b. money.
c. loans.
d. commodities.
Q:
Money market mutual funds are a strong competitor for
a. depository institutions.
b. contractual savings institutions.
c. finance companies.
d. the real estate market.
Q:
All but one of the following is a standard characteristic of financial claims:
a. They are recognized on two balance sheets.
b. They are intangible assets.
c. They are IOU's traded for funds.
d. They represent ownership of real assets.
Q:
Which of the following would tend to hold corporate bonds in significant amounts?
a. life insurance company
b. credit union
c. mutual savings bank
d. commercial bank
Q:
All but one of the following is comparative advantage of financial intermediaries:
a. ability to finance businesses and governments.
b. ability to achieve economies of scale.
c. ability to reduce transaction costs.
d. ability to find confidential information.
Q:
Denomination intermediation is best exemplified by
a. issuing insured deposits and making risky business loans.
b. bringing together investors of different religions
c. issuing five $3,000 CDs and making one $15,000 loan.
d. promising liquidity to surplus spending units (SSUs) while investing the funds long-term
Q:
Profitability of financial intermediaries derives from all of the following except
a. government regulation of interest rates
b. economies of scale
c. ability to manage credit risk
d. control of transactions costs
Q:
Most financial intermediaries:
a. issue direct claims and purchase direct financial assets.
b. issue indirect claims and purchase indirect financial assets.
c. purchase large amounts of real, tangible assets.
d. purchase direct financial claims and issue indirect securities.
Q:
A dealer offers to buy shares of IBM at $116 and sell to investors at $118. The "bid" is
a. $116
b. $118
c. $2
d. none of the preceding
Q:
Which of the following best describes the "two faces of debt" concept?
a. Deficit spending units (DSUs) are sometimes Surplus spending units (SSUs).
b. Every financial asset is someone else's liability.
c. Intermediaries may own both direct and indirect financial assets.
d. The government is unable to control its federal spending.
Q:
Which of the following are "economic units"?
a. households
b. businesses
c. governments
d. all of the above
Q:
Which sector has been most consistently in a surplus budget position?
a. Business
b. Government
c. Foreign
d. Household
Q:
Financial institutions facilitate the flow of investment funds
a. from savers to borrowers
b. from Surplus spending units (SSUs) to deficit spending units (DSUs)
c. from the household sector to the business sector
d. any of the above
Q:
Pension funds tend to invest in
a. higher-yielding long-term securities
b. money market securities exclusively
c. government securities exclusively
d. none of the above
Q:
An efficient financial system
a. eliminates search and transactions costs
b. is a mere theoretical possibility
c. promotes economic growth and social progress
d. depends on high volumes of "direct" transactions
Q:
When the financial system has achieved a high degree of efficiency,
a. Borrowers are able to finance at the highest possible cost.
b. Surplus spending units are able to receive the lowest return on their savings.
c. Transaction and intermediation costs are low.
d. Lenders will have a limited choice of financial investments.
Q:
Which of the following does not take deposits?
a. commercial banks.
b. savings and loan associations.
c. credit unions.
d. finance companies.
Q:
Which of the following is an example of indirect financing?
a. a surplus spending unit (SSU) purchasing a financial claim from a deficit spending unit (SSU) spending unit (DSU)
b. a surplus spending unit (SSU) purchasing a financial claim from a dealer
c. a surplus spending unit (SSU) purchasing a financial claim from a commercial bank
d. a surplus spending unit (SSU) purchasing a financial claim from an underwriter
Q:
A surplus spending unit's
a. income and expenditures for the period are equal.
b. income for the period exceeds expenditures.
c. expenditures for the period exceed receipts.
d. spending is entirely financed by credit cards
Q:
Financial institutions such as commercial banks typically have assets that are riskier than their liabilities.
Q:
Privately placed securities are usually sold to one or more investment bankers and then resold to the general public.
Q:
Primary markets are markets where users of funds raise cash by selling securities to funds suppliers.
Q:
When a stock is listed on an exchange, members may trade it on the floor of the exchange.
Q:
OTC markets are not very important any more.
Q:
Dealers bring buyer and seller together; brokers make a market.
Q:
Federal funds are the funds provided by the Federal Government for domestic corporations for long-term growth.
Q:
Commercial banks are the major issuer and investor of money market securities.
Q:
The money market is a market where liquidity is bought and sold.
Q:
Money market borrowers are small in number compared to money market lenders.
Q:
The money market is a dealer market, not an exchange, and has no specific location.
Q:
All money market instruments are short-term debt.
Q:
Every asset is someone else's liability, but not every liability is someone else's asset.