Financial Markets & Institutions – Chapter 1 Exam Review, 2026 – Study Material
and Practice Questions
Financial markets and institutions
A) involve the movement of huge quantities of money.
B) affect the profits of businesses.
C) affect the types of goods and services produced in an economy.
D) do all of the above.
E) do only A and B. - correct answer ✔✔ D) do all of the above
Financial market activities affect
A) personal wealth
B) spending decisions by individuals and business firms.
C) the economy's location in the business cycle.
D) all of the above. - correct answer ✔✔ D) all of the above
Markets in which funds are transferred from those who have excess funds available to those
who have a shortage of available funds are called
A) commodity markets
B) funds market
C) derivative exchange markets
D) financial markets - correct answer ✔✔ D) financial markets
The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental
of $100 per year) is commonly referred to as the
A) inflation rate
B) exchange rate
, C) interest rate
D) aggregate price level - correct answer ✔✔ C) interest rate
The bond markets are important because
A) they are easily the most widely followed financial markets in the US
B) they are markets where interest rates are determined
C) they are the markets where foreign exchange rates are determined
D) all of the above - correct answer ✔✔ B) they are markets where interest rates are
determined
Interest rates are important to financial institutions since an interest rate ___________ the cost
of acquiring funds and ___________ the income from assets.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases - correct answer ✔✔ B) increases; increases
Typically, increasing interest rates
A) discourage individuals from saving
B) discourages corporate investments
C) encourages corporate expansion
D) encourages corporate borrowing
E) none of the above - correct answer ✔✔ B) discourages corporate investments
Compared to interest rates on long-term US government bonds, interest rates on ____________
fluctuate more and are lower on average.
A) medium-quality corporate bonds
and Practice Questions
Financial markets and institutions
A) involve the movement of huge quantities of money.
B) affect the profits of businesses.
C) affect the types of goods and services produced in an economy.
D) do all of the above.
E) do only A and B. - correct answer ✔✔ D) do all of the above
Financial market activities affect
A) personal wealth
B) spending decisions by individuals and business firms.
C) the economy's location in the business cycle.
D) all of the above. - correct answer ✔✔ D) all of the above
Markets in which funds are transferred from those who have excess funds available to those
who have a shortage of available funds are called
A) commodity markets
B) funds market
C) derivative exchange markets
D) financial markets - correct answer ✔✔ D) financial markets
The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental
of $100 per year) is commonly referred to as the
A) inflation rate
B) exchange rate
, C) interest rate
D) aggregate price level - correct answer ✔✔ C) interest rate
The bond markets are important because
A) they are easily the most widely followed financial markets in the US
B) they are markets where interest rates are determined
C) they are the markets where foreign exchange rates are determined
D) all of the above - correct answer ✔✔ B) they are markets where interest rates are
determined
Interest rates are important to financial institutions since an interest rate ___________ the cost
of acquiring funds and ___________ the income from assets.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases - correct answer ✔✔ B) increases; increases
Typically, increasing interest rates
A) discourage individuals from saving
B) discourages corporate investments
C) encourages corporate expansion
D) encourages corporate borrowing
E) none of the above - correct answer ✔✔ B) discourages corporate investments
Compared to interest rates on long-term US government bonds, interest rates on ____________
fluctuate more and are lower on average.
A) medium-quality corporate bonds
