Test Bank for Financial Markets and Institutions 13th Edition Madura / All Chapters 1 - 26 / Fully Completed

Test Bank for Financial Markets and Institutions 13th Edition Madura /
All Chapters 1 - 26 / Fully Completed



Wickyaplus stuvia

,TABLE OF CONTENTS
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 Chapter 1 – Role of Financial Markets and Institutions
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 Chapter 2 – Determination of Interest Rates
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 Chapter 3 – Efficiency of Financial Markets
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 Chapter 4 – Functions of the Federal Reserve
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 Chapter 5 – Monetary Policy
x x x x




 Chapter 6 – Money Markets
x x x x




 Chapter 7 – Bond Markets
x x x x




 Chapter 8 – Mortgage Markets
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 Chapter 9 – Stock Valuation and Risk
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 Chapter 10 – Stock Offerings and Investor Monitoring
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 Chapter 11 – Stock Market Structure
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 Chapter 12 – Market Microstructure and Strategies
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 Chapter 13 – Financial Futures Markets
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 Chapter 14 – Options Markets
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 Chapter 15 – Interest Rate Swaps
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 Chapter 16 – Credit Derivatives
x x x x




 Chapter 17 – Commercial Bank Operations
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 Chapter 18 – Regulation of Banks
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 Chapter 19 – Nonbank Operations
x x x x




 Chapter 20 – Credit Union Operations
x x x x x




 Chapter 21 – Thrift Operations
x x x x




 Chapter 22 – Finance Operations
x x x x




 Chapter 23 – Mutual Fund Operations
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 Chapter 24 – Securities Operations
x x x x




 Chapter 25 – Insurance and Pension Fund Operations
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, Chapter 1 x




Role of Financial Markets and Institutions
x x x x x




Q1.

Which participants in financial markets are considered deficit units?
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A) Households that save x x


B) Businesses issuing bonds x x


C) Commercial banks accepting deposits x x x


D) Mutual funds pooling investors’ funds
x x x x




Answer: B) Businesses issuing bonds
x x x x


Rationale: Deficit units are those who spend more than they save and thus require external
x x x x x x x x x x x x x x


financing. Businesses issuing bonds are borrowing from surplus units, making them deficit units.
x x x x x x x x x x x x x


Households and mutual funds typically act as surplus units by supplying funds, while banks act as
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intermediaries.
x




Q2.

Which of the following transactions takes place in the primary market?
x x x x x x x x x x


A) Investor A sells shares of Tesla to Investor B
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B) A company issues new bonds for the first time
x x x x x x x x


C) A hedge fund trades derivatives on existing stock
x x x x x x x


D) A bank resells mortgage-backed securities
x x x x




Answer: B) A company issues new bonds for the first time
x x x x x x x x x x


Rationale: The primary market deals with newly issued securities directly from the issuer to
x x x x x x x x x x x x x


investors. All other choices describe secondary market or derivative transactions.
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Q3.

What is the main function of financial markets?
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A) Eliminate investment risk x x


B) Facilitate the flow of funds from surplus units to deficit units
x x x x x x x x x x


C) Guarantee high returns for all investors x x x x x


D) Regulate interest rates and monetary supply
x x x x x




Answer: B) Facilitate the flow of funds from surplus units to deficit units
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Rationale: The key role of financial markets is channeling funds from those with extra savings
x x x x x x x x x x x x x x


(surplus units) to those needing capital (deficit units). Risk elimination and guaranteed returns are
x x x x x x x x x x x x x x


impossible; monetary policy is handled by central banks, not markets themselves.
x x x x x x x x x x x

, Q4.

Which of the following best describes money markets?
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A) They trade long-term securities with maturities greater than one year.
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B) They facilitate trading of short-term debt instruments such as Treasury bills.
x x x x x x x x x x


C) They provide permanent equity financing for corporations.
x x x x x x


D) They are exclusively regulated by the SEC.
x x x x x x




Answer: B) They facilitate trading of short-term debt instruments such as Treasury bills.
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Rationale: Money markets are designed for short-term, highly liquid instruments like T-bills, CDs,
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and commercial paper. Long-term securities are traded in capital markets.
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Q5.

Which statement about capital market securities is TRUE?
x x x x x x x


A) They usually mature in less than one year.
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B) They are less risky than money market securities.
x x x x x x x


C) They are used to finance long-term investments like buildings and equipment.
x x x x x x x x x x


D) They are always more liquid than money market securities.
x x x x x x x x




Answer: C) They are used to finance long-term investments like buildings and equipment.
x x x x x x x x x x x x


Rationale: Capital market instruments include bonds, stocks, and mortgages that fund long-term
x x x x x x x x x x x x


projects. They generally carry higher risk and lower liquidity compared to money market securities.
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Q6.

An investor buying shares of Apple stock on the NASDAQ is participating in the:
x x x x x x x x x x x x x


A) Primary market x


B) Secondary market x


C) Money market x


D) Capital inflow market x x




Answer: B) Secondary market x x x


Rationale: The investor is purchasing existing shares from another investor, not directly from
x x x x x x x x x x x x


Apple. That makes it a secondary market transaction.
x x x x x x x x




Q7.

Which U.S. law established the Securities and Exchange Commission (SEC) to enforce fair
x x x x x x x x x x x x


securities trading?
x x


A) Glass-Steagall Act of 1933 x x x


B) Securities Act of 1933 x x x


C) Securities Exchange Act of 1934 x x x x


D) Federal Reserve Act of 1913 x x x x




Answer: C) Securities Exchange Act of 1934
x x x x x x


Rationale: The 1933 Act required disclosure in primary markets, while the 1934 Act created the
x x x x x x x x x x x x x x


SEC to regulate secondary market activities and prevent fraud.
x x x x x x x x x