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Online Test Bank for - Financial Institutions, Markets, and Money,Kidwell
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1Test Bank for_ the’ textbook
CH. 1
T/F QUESTIONS
TRUE 1) The’ purpose of’’ the’ financial system is to bring savers an’d borrowers together.
FALSE 2. Businesses are never DSUs.
TRUE 3. A_ financial claim is an “IOU” from’ a_ deficit spending unit.
TRUE 4. Investment bankers help DSUs bring new primary security issues to market.
FALSE 5. Deposits in a_ credit union by a_ household are an example of’’ direct finance.
FALSE 6. When an SSU owns a_ financial claim created by financial intermediation, its residual claim is
against a_ DSU.
FALSE 7. Assets of’’ financial intermediaries include direct financial claims only.
FALSE 8. Finance companies take small consumer deposits an’d make large consumer loans.
TRUE 9. Liabilities of’’ financial intermediaries are indirect financial claims.
TRUE 10. Direct finance requires a_ more or less exact match of’’ preferences.
FALSE 11) There must be an equal number of’’ DSUs an’d SSUs in a_ period.
TRUE 12. Every financial claim appears on two balance sheets.
TRUE 13. Without a_ financial sector, real investment must be financed internally by the’ DSU.
TRUE 14. Depository intermediaries issue claims that’ are for_ the’ most part highly liquid.
TRUE 15. A_ household is an SSU when income for_ the’ period exceeds spending.
FALSE 16. An SSU must hold a_ claim until its scheduled maturity.
TRUE 17. Financial claims or securities are written for_ the’ mutual benefit of’’ both SSU an’d DSU.
FALSE 18. DSUs an’d SSUs always have some contact with each other in financial markets.
TRUE 19. Commercial banks lend to businesses in direct financial markets.
FALSE 20. “Futures contract” an’d “forward contract” are interchangeable terms.
TRUE 21) Mortgages are capital market debt securities.
TRUE 22. Households are the’ major source of’’ funds to the’ financial system.
FALSE 23. Secondary markets are important because they provide funds directly to DSUs.
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FALSE 24. Primary markets offer liquidity an’d ways for_ investors to alter the’ risk of’’ their portfolios.
TRUE 25. The’ New York Stock Exchange is an example of’’ an organized exchange.
TRUE 26. The’ money market provides liquidity; the’ capital market finances economic growth.
TRUE 27. Private placements are the’ simplest form of’’ direct finance.
TRUE 28. Competition among financial intermediaries tends to force interest rates downward.
TRUE 29. Money markets have a_ greater variety of’’ investors than borrowers.
FALSE 30. Every asset is someone else’s liability, but not every liability is someone else’s asset.
TRUE 31) All money market instruments are short-term debt.
TRUE 33. The’ money market is a_ dealer market, not an exchange, an’d has no specific location.
TRUE 34. Money market borrowers are small in number compared to money market lenders.
TRUE 35. The’ money market is a_ market where liquidity is bought an’d sold.
TRUE 36. Commercial banks are the’ major issuer an’d investor of’’ money market securities.
() 37. Organized exchanges are less “exclusive” than over-the’-counter markets.
FALSE 38. Dealers bring buyer an’d seller together; brokers make a_ market.
FALSE 39. OTC markets are not very important any more.
TRUE 40. When a_ stock is listed on an exchange, members may trade it on the’ floor of’’ the’ exchange.
MCQS
B 1) An SSU’s
a_ . income an’d 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
C 2. Which_ of’’ the’ following is an example of’’ indirect financing?
a_ . an SSU purchasing a_ financial claim from’ a_ DSU
b. an SSU purchasing a_ financial claim from’ a_ dealer
c. an SSU purchasing a_ financial claim from’ a_ commercial bank
d. an SSU purchasing a_ financial claim from’ an underwriter
[d] 3. Which_ of’’ the’ following does not take deposits?
a_ . commercial banks.
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b. savings an’d loan associations.
c. credit unions.
d. finance companies.
C 4. 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 an’d intermediation costs are low.
d. Lenders will have a_ limited choice of’’ financial investments.
C 5. An efficient financial system
a_ . eliminates search an’d transactions costs
b. is a_ mere theoretical possibility
c. promotes economic growth an’d social progress
d. depends on high volumes of’’ “direct” transactions
(a_ ) 6. 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
[d] 7. Financial institutions facilitate the’ flow of’’ investment funds
a_ . from’ savers to borrowers
b. from’ SSUs to DSUs
c. from’ the’ household sector to the’ business sector
d. any of’’ the’ above
[d] 8. Which_ sector has been most consistently in a_ surplus budget position?
a_ . Business
b. Government
c. Foreign
d. Household
[d] 9. Which_ of’’ the’ following are “economic units”?
a_ . households
b. businesses
c. governments
d. all of’’ the’ above
B 10. Which_ of’’ the’ following best describes the’ "two faces of’’ debt" concept?
a_ . DSUs are sometimes SSUs.
b. Every financial asset is someone else’s liability.
c. Intermediaries may own both direct an’d indirect financial assets.
d. The’ government is unable to control its federal spending.
(a_ ) 11) A_ dealer offers to buy shares of’’ IBM at 125 an’d sell to investors at 127. The’ “bid” is
a_ ) 125 b. 127 c. 2 d. none of’’ the’ preceding
[d] 12. Most financial intermediaries:
a_ . issue direct claims an’d purchase direct financial assets.
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b. issue indirect claims an’d purchase indirect financial assets.
c. purchase large amounts of’’ real, tangible assets.
d. purchase direct financial claims an’d issue indirect securities.
(a_ ) 13. 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
C 14. Denomination intermediation is best exemplified by
a_ . issuing insured deposits an’d making risky business loans.
b. bringing together investors of’’ different religions
c. issuing five 3,000 CDs an’d making one 15,000 loan.
d. promising liquidity to SSUs while investing the’ funds long-term
(a_ ) 15. All but one of’’ the’ following is comparative advantage of’’ financial intermediaries:
a_ . ability to finance businesses an’d governments.
b. ability to achieve economies of’’ scale.
c. ability to reduce transaction costs.
d. ability to find confidential information.
(a_ ) 16. 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
[d] 17. 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.
(a_ ) 18. Money market mutual funds are a_ strong competitor for_
a_ . depository institutions.
b. contractual savings institutions.
c. finance companies.
d. the’ real estate market.
[d] 19. All of’’ the’ following are terms for_ or examples of’’ financial claims except
a_ . bonds.
b. money.
c. loans.
d. commodities.
C 20. Direct finance is best exemplified by
a_ . the’ purchase of’’ mutual fund shares.
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