Financial Markets and Institutions – Exam 1 Review, Course 3647,
2026 – Study Material and Practice Questions
6 parts of the financial system - correct answer ✔✔ 1. Money
2. Financial Instruments
3. Financial Markets
4. Financial Institutions
5. Regulatory Agencies
6. Central Banks
Financial markets - correct answer ✔✔ Markets where financial securities, such as stocks and bonds, are bought
and sold
Regulatory agency - correct answer ✔✔ Executive agency responsible for enforcing laws pertaining to a certain
industry, the agency writes guidelines for the industry, such as safety codes, and enforces them through methods
such as inspection
5 Principles of financial markets - correct answer ✔✔ 1. Time Value of money
2. Risk requires return
3 .Information
4. Market determines price and allocation
5. Stability creates wealth
M1 money supply - correct answer ✔✔ Currency that rests outside of the bank (currency in motion)
M2 money supply - correct answer ✔✔ Includes all of M1 money supply plus everything held in financial
institutions
(NBFC) Non-banking financial institution - correct answer ✔✔ No banking license required.
-Doesn't accept deposits from the public
-Usually faster to get a loan vs. bank
-Usually use collateral (EX. paystub or an asset)
-Not subject to usury rate, can charge any interest rate they want
, Capital Gain - correct answer ✔✔ Selling stock for more than you paid for it
financial instruments - correct answer ✔✔ The written legal obligation of one party to transfer something of value
(normally money).
-Enforcement is very important (hard to break contract)
- 5 categories (Bank loans, Bonds, Mortgage, Stocks, Asset back securities)
5 categories of Financial Instruments - correct answer ✔✔ 1. Bank loans (obligations)
2. Bonds (share of debt, safer than stocks)
3. Mortgage
4. Stocks (Equity Investment)
5. Asset back securities (backed by something you own)-same as covered loan
Centralized Market - correct answer ✔✔ market in which all traders have access to the same trading opportunities
and all trades are made at publicly announced prices
Over The Counter market - correct answer ✔✔ Decentralized secondary market where dealers are ready to buy
stocks/bonds electronically
Debt and Equity in markets - correct answer ✔✔ Financial claims are bought and sold for immediate cash payment
Derivative - correct answer ✔✔ Claims based on underlying asset(s) at a future time
Federal Reserve System - correct answer ✔✔ The central bank of the United States
-12 geographic bank districts
-1913
Federal Reserve balance sheet - correct answer ✔✔ Assets
-Securities
-Loans to commercial banks
=
Liabilities
2026 – Study Material and Practice Questions
6 parts of the financial system - correct answer ✔✔ 1. Money
2. Financial Instruments
3. Financial Markets
4. Financial Institutions
5. Regulatory Agencies
6. Central Banks
Financial markets - correct answer ✔✔ Markets where financial securities, such as stocks and bonds, are bought
and sold
Regulatory agency - correct answer ✔✔ Executive agency responsible for enforcing laws pertaining to a certain
industry, the agency writes guidelines for the industry, such as safety codes, and enforces them through methods
such as inspection
5 Principles of financial markets - correct answer ✔✔ 1. Time Value of money
2. Risk requires return
3 .Information
4. Market determines price and allocation
5. Stability creates wealth
M1 money supply - correct answer ✔✔ Currency that rests outside of the bank (currency in motion)
M2 money supply - correct answer ✔✔ Includes all of M1 money supply plus everything held in financial
institutions
(NBFC) Non-banking financial institution - correct answer ✔✔ No banking license required.
-Doesn't accept deposits from the public
-Usually faster to get a loan vs. bank
-Usually use collateral (EX. paystub or an asset)
-Not subject to usury rate, can charge any interest rate they want
, Capital Gain - correct answer ✔✔ Selling stock for more than you paid for it
financial instruments - correct answer ✔✔ The written legal obligation of one party to transfer something of value
(normally money).
-Enforcement is very important (hard to break contract)
- 5 categories (Bank loans, Bonds, Mortgage, Stocks, Asset back securities)
5 categories of Financial Instruments - correct answer ✔✔ 1. Bank loans (obligations)
2. Bonds (share of debt, safer than stocks)
3. Mortgage
4. Stocks (Equity Investment)
5. Asset back securities (backed by something you own)-same as covered loan
Centralized Market - correct answer ✔✔ market in which all traders have access to the same trading opportunities
and all trades are made at publicly announced prices
Over The Counter market - correct answer ✔✔ Decentralized secondary market where dealers are ready to buy
stocks/bonds electronically
Debt and Equity in markets - correct answer ✔✔ Financial claims are bought and sold for immediate cash payment
Derivative - correct answer ✔✔ Claims based on underlying asset(s) at a future time
Federal Reserve System - correct answer ✔✔ The central bank of the United States
-12 geographic bank districts
-1913
Federal Reserve balance sheet - correct answer ✔✔ Assets
-Securities
-Loans to commercial banks
=
Liabilities
