1
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.
A) getting people with funds to lend together with people who want to borrow funds.
A breakdown of financial markets can result in
A) financial stability.
B) rapid economic growth.
C) political instability.
D) stable prices.
C) political instability.
The principal lender-savers are
A) governments.
B) businesses.
C) households.
D) foreigners
C) households
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.
B) You borrow $2500 from a friend
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
A) A corporation issues new shares of stock.
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
D) stock
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.
A) investment bank
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
B) a sixty-month car loan
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.
B) they allow consumers to time their purchase better.
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
A) underwrites
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.
A) exchange
A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called
A) commercial paper.
B) a certificate of deposit.
C) a municipal bond.
D) federal funds.
B) a certificate of deposit.
Collateral is ________ the lender receives if the borrower does not pay back the loan.
A) a liability
B) an asset
C) a present
D) an offering
B) an asset
A financial market in which only short-term debt instruments are traded is called the ________ market.
A) bond
B) money
C) capital
D) stock
B) money
U.S. Treasury bills are considered the safest of all money market instruments because there is a low probability of
A) defeat.
B) default.
C) desertion.
D) demarcation
B) default.
If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
A) Eurobond.
B) foreign bond.
C) British bond.
D) currency bond
B) foreign bond.
Prices of money market instruments undergo the least price fluctuations because of
A) the short terms to maturity for the securities.
B) the heavy regulations in the industry.
C) the price ceiling imposed by government regulators.
D) the lack of competition in the market
A) the short terms to maturity for the securities.
Which of the following instruments are traded in a money market?
A) bank commercial loans
B) commercial paper
C) state and local government bonds
D) residential mortgages
B) commercial paper
The most liquid securities traded in the capital market are
A) corporate bonds.
B) municipal bonds.
C) U.S. Treasury bonds.
D) mortgage-backed securities
C) U.S. Treasury bonds.
Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as
A) foreign bonds.
B) Eurobonds.
C) equity bonds.
D) country bonds.
A) foreign bonds.