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Test Bank for Economics of Money, Banking & Financial Markets, 7th edition by Mishkin A+
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Created By: A SolutionTest Bank for Economics of Money, Banking & Financial
Markets, 7e (Mishkin) A+
Chapter 2 An Overview of the Financial System:
2.1 Function of Financial Markets
1) Every financial market has which of the following characteristics?
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.
Answer: D
Diff: 1 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
2) 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
Answer: A
Diff: 1 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
3) 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
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,Created By: A Solution
D) eliminate the need for indirect finance
Answer: B
Diff: 2 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
4) 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
Answer: D
Diff: 3 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
5) A breakdown of financial markets can result in ________.
A) financial stability
B) rapid economic growth
C) political instability
D) stable prices
Answer: C
Diff: 2 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
6) The principal lender-savers are ________.
A) governments
B) businesses
C) households
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D) foreigners
Answer: C
Diff: 1 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
7) 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.
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 2.1 Compare and contrast direct and indirect finance
8) Assume that you borrow $2000 at 10 percent 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
Answer: B
Diff: 2 Type: MC
Skill: Applied
Objective: 2.1 Compare and contrast direct and indirect finance
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, Created By: A Solution
9) 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 percent
B) 12.5 percent
C) 10 percent
D) 5 percent
Answer: D
Diff: 3 Type: MC
Skill: Applied
Objective: 2.1 Compare and contrast direct and indirect finance
10) 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.
Answer: A
Diff: 3 Type: MC
Skill: Recall
Objective: 2.1 Compare and contrast direct and indirect finance
11) 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.
Answer: D
Diff: 3 Type: MC
Skill: Applied
Objective: 2.1 Compare and contrast direct and indirect finance
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