TEST BANK FOR FINANCIAL
MARKETS AND INSTITUTIONS, 8TH
EDITION BY ANTHONY SAUNDERS
ALL CHAPTERS COVERED|
VERIFIED QUESTIONS & ACCURATE
SOLUTIONS FOR EXAM
PREPARATIONS| A+ GRADED
Test Bank for Financial Markets and Institutions, 8th Edition by Anthony Saunders
Chapter 1: Introduction
1) What factors are encouraging financial institutions to offer overlapping financial services such as
banking, investment banking, brokerage, etc.?
1. I. Regulatory changes allowing institutions to offer more services
2. II. Technological improvements reducing the cost of providing financial services
3. III. Increasing competition from full-service global financial institutions
4. IV. Reduction in the need to manage risk at financial institutions
A) I only
B) II and III only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV
Correct Answer: C
Rationale: Regulatory changes (I), technological improvements (II), and increasing competition from full-
service global financial institutions (III) are all factors encouraging FIs to offer overlapping services.
However, IV is incorrect because the need to manage risk has not decreased; in fact, it has become more
important as institutions offer more services.
,2) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley
then resells the issue to the U.S. public through its mutual funds. This transaction is an example of
a(n):
A) primary market transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction.
Correct Answer: A
Rationale: This is a primary market transaction because IBM is issuing new stock to raise capital for the
first time through an investment banker. Primary markets involve the sale of new securities from issuers
to initial buyers.
3) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley
then resells the issue to the U.S. public through its mutual funds. Morgan Stanley is acting as a(n):
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader.
Correct Answer: A
Rationale: Morgan Stanley is acting as an asset transformer because it purchases the stock from IBM
and resells it to the public through its mutual funds, transforming the original security into a different
form (mutual fund shares) that better suits the suppliers of funds.
4) A corporation seeking to sell new equity securities to the public for the first time in order to raise
cash for capital investment would most likely:
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market sale of equity.
C) conduct a private placement to a large number of potential buyers.
D) place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E) issue bonds with the assistance of a dealer.
Correct Answer: A
,Rationale: An Initial Public Offering (IPO) with the assistance of an investment banker is the most likely
method for a corporation selling new equity securities to the public for the first time. This is a primary
market transaction.
5) The largest capital market security outstanding in 2019 measured by market value was:
A) securitized mortgages.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
E) corporate stocks.
Correct Answer: E
Rationale: Corporate stocks represented the largest capital market security outstanding in 2019
measured by market value, reflecting the substantial market capitalization of publicly traded companies.
6) The diagram below is a diagram of the:
*Diagram showing Users of Funds → Underwriter → Suppliers of Funds+
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
Correct Answer: B
Rationale: The diagram illustrates primary markets, where users of funds (corporations) raise funds by
selling securities through underwriters to suppliers of funds (investors).
7) ___ and ___ allow a financial intermediary to offer safe liquid liabilities such as deposits while
investing the depositors' money in riskier illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
, Correct Answer: D
Rationale: Monitoring and diversification allow FIs to offer safe liquid liabilities while investing in riskier
illiquid assets. Monitoring reduces information asymmetry, and diversification reduces risk.
8) Depository institutions include:
A) banks only.
B) thrifts only.
C) finance companies only.
D) banks and thrifts.
E) All of these choices are correct.
Correct Answer: D
Rationale: Depository institutions include both banks and thrifts (savings institutions, savings banks, and
credit unions). Finance companies are not depository institutions.
9) Match the intermediary with the characteristic that best describes its function.
1. I. Provide protection from adverse events
2. II. Pool funds of small savers and invest in either money or capital markets
3. III. Provide consumer loans and real estate loans funded by deposits
4. IV. Accumulate and transfer wealth from work period to retirement period
5. V. Underwrite and trade securities and provide brokerage services
6. Thrifts
7. Insurers
8. Pension funds
9. Securities firms and investment banks
10. Mutual funds
A) 1,3,2,5,4
B) 4,2,3,5,1
C) 2,5,1,3,4
MARKETS AND INSTITUTIONS, 8TH
EDITION BY ANTHONY SAUNDERS
ALL CHAPTERS COVERED|
VERIFIED QUESTIONS & ACCURATE
SOLUTIONS FOR EXAM
PREPARATIONS| A+ GRADED
Test Bank for Financial Markets and Institutions, 8th Edition by Anthony Saunders
Chapter 1: Introduction
1) What factors are encouraging financial institutions to offer overlapping financial services such as
banking, investment banking, brokerage, etc.?
1. I. Regulatory changes allowing institutions to offer more services
2. II. Technological improvements reducing the cost of providing financial services
3. III. Increasing competition from full-service global financial institutions
4. IV. Reduction in the need to manage risk at financial institutions
A) I only
B) II and III only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV
Correct Answer: C
Rationale: Regulatory changes (I), technological improvements (II), and increasing competition from full-
service global financial institutions (III) are all factors encouraging FIs to offer overlapping services.
However, IV is incorrect because the need to manage risk has not decreased; in fact, it has become more
important as institutions offer more services.
,2) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley
then resells the issue to the U.S. public through its mutual funds. This transaction is an example of
a(n):
A) primary market transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction.
Correct Answer: A
Rationale: This is a primary market transaction because IBM is issuing new stock to raise capital for the
first time through an investment banker. Primary markets involve the sale of new securities from issuers
to initial buyers.
3) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley
then resells the issue to the U.S. public through its mutual funds. Morgan Stanley is acting as a(n):
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader.
Correct Answer: A
Rationale: Morgan Stanley is acting as an asset transformer because it purchases the stock from IBM
and resells it to the public through its mutual funds, transforming the original security into a different
form (mutual fund shares) that better suits the suppliers of funds.
4) A corporation seeking to sell new equity securities to the public for the first time in order to raise
cash for capital investment would most likely:
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market sale of equity.
C) conduct a private placement to a large number of potential buyers.
D) place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E) issue bonds with the assistance of a dealer.
Correct Answer: A
,Rationale: An Initial Public Offering (IPO) with the assistance of an investment banker is the most likely
method for a corporation selling new equity securities to the public for the first time. This is a primary
market transaction.
5) The largest capital market security outstanding in 2019 measured by market value was:
A) securitized mortgages.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
E) corporate stocks.
Correct Answer: E
Rationale: Corporate stocks represented the largest capital market security outstanding in 2019
measured by market value, reflecting the substantial market capitalization of publicly traded companies.
6) The diagram below is a diagram of the:
*Diagram showing Users of Funds → Underwriter → Suppliers of Funds+
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
Correct Answer: B
Rationale: The diagram illustrates primary markets, where users of funds (corporations) raise funds by
selling securities through underwriters to suppliers of funds (investors).
7) ___ and ___ allow a financial intermediary to offer safe liquid liabilities such as deposits while
investing the depositors' money in riskier illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
, Correct Answer: D
Rationale: Monitoring and diversification allow FIs to offer safe liquid liabilities while investing in riskier
illiquid assets. Monitoring reduces information asymmetry, and diversification reduces risk.
8) Depository institutions include:
A) banks only.
B) thrifts only.
C) finance companies only.
D) banks and thrifts.
E) All of these choices are correct.
Correct Answer: D
Rationale: Depository institutions include both banks and thrifts (savings institutions, savings banks, and
credit unions). Finance companies are not depository institutions.
9) Match the intermediary with the characteristic that best describes its function.
1. I. Provide protection from adverse events
2. II. Pool funds of small savers and invest in either money or capital markets
3. III. Provide consumer loans and real estate loans funded by deposits
4. IV. Accumulate and transfer wealth from work period to retirement period
5. V. Underwrite and trade securities and provide brokerage services
6. Thrifts
7. Insurers
8. Pension funds
9. Securities firms and investment banks
10. Mutual funds
A) 1,3,2,5,4
B) 4,2,3,5,1
C) 2,5,1,3,4
