,Financial Markets & Institutions 5thE
j j j j j
dition Test Bank
j j
Chapterj01jIntroductionjAnswerjKey
Truej/jFalsejQuestions
1. Primaryjmarketsjarejmarketsjwherejusersjofjfundsjraisejcashjbyjsellingjsec
uritiesjtojfunds’jsuppliers.
TRUE
2. Secondaryjmarketsjarejmarketsjusedjbyjcorporationsjtojraisejcashjbyjissuingjsec
uritiesjforjajshortjtimejperiod.
FALSE
3. Injajprivatejplacement,jthejissuerjtypicallyjsellsjthejentirejissuejtojone,jorjonlyjajfe
w,jinstitutionaljbuyers.
TRUE
4. ThejNYSEjisjanjexamplejofjajsecondaryjmarket.
TRUE
5. Privatelyjplacedjsecuritiesjarejusuallyjsoldjtojonejorjmorejinvestmentjbankersjand
jthenjresoldjtojthejgeneral jpublic.
FALSE
6. Moneyjmarketsjarejthejmarketsjforjsecuritiesjwithjanjoriginaljmaturityjofj1jyea
rjorjless.
TRUE
7. Financialjintermediariesjsuchjasjbanksjtypicallyjhavejassetsjthatjarejriskierjtha
njtheirjliabilities.
TRUE
8. Therejarejthreejtypesjofjmajorjfinancialjmarketsjtoday:jprimary,jsecondary,jan
djderivativesjmarkets.jThejNYSEjandjNASDAQjarejbothjexamplesjofjderivati
vesjmarkets.
FALSE
MultiplejChoicejQuestions
9. Whatjfactorsjarejencouragingjfinancialjinstitutionsjtojofferjoverlappingjfin
ancialjservicesjsuchjasjbanking,jinvestmentjbanking,jbrokerage,jetc.?
I. Regulatoryjchangesjallowingjinstitutionsjtojofferjmorejservices
II. Technologicaljimprovementsjreducingjthejcostjofjprovidingjfinancialjse
rvices
III. Increasingjcompetitionjfromjfulljservicejglobaljfinancialjinstitutions
IV. Reductionjinjthejneedjtojmanagejriskjatjfinancialjinstitutions
, A. Ijonly
B. IIjandjIIIjonly
C. I,jII,jandjIIIjonly
D. I,jII,jandjIVjonly
E. I,jII,jIII,jandjIVjF
igurej1-1
IBMjcreatesjandjsellsjadditionaljstockjtojthejinvestmentjbanker,jMorganjStanley.jMo
rganjStanleyjthenjresellsjthejissuejtojthejU.S.jpublic.
10. Thisjtransactionjisjanjexamplejofja(n)
A. primaryjmarketjtransaction
B. assetjtransformationjbyjMorganjStanley
C. moneyjmarketjtransaction
D. foreignjexchangejtransaction
E. forwardjtransaction
11. MorganjStanleyjisjactingjasja(n)j
A.assetjtransformer
B. assetjbroker
C. governmentjregulator
D. foreignjservicejrepresentative
12. Ajcorporationjseekingjtojselljnewjequityjsecuritiesjtojthejpublicjforjthejfirstjtime
jinjorderjtojraisejcashjforjcapitaljinvestmentjwouldjmostjlikelyjA.conductjanj IP
Ojwithjthejassistancejofjanjinvestmentjbanker
B. engagejinjajsecondaryjmarketjsalejofjequity
C. conductjajprivatejplacementjtojajlargejnumberjofjpotentialjbuyers
D. placejanjadjinjthejWalljStreetjJournaljsolicitingjretailjsuppliersjofjfunds
E. nonejofjthejabove
13. Thejlargestjcapitaljmarketjsecurityjoutstandingjinj2010jmeasuredjbyjmarketjval
uejwas
A. securitizedjmortgages
B. corporatejbonds
C. municipaljbonds
D. Treasuryjbonds
E. corporatejstocks
14. ThejdiagramjbelowjisjajdiagramjofjthejA
.secondaryjmarkets
B. primaryjmarkets
C. moneyjmarkets
D. derivativesjmarkets
E. commoditiesjmarkets
15. j and
allowjajfinancialjintermediaryjtojofferjsafe,jliquidjliabilitiesjsuchjasjdepositsj
whilejinvestingjthejdepositors’jmoneyjinjriskier,jilliquidjassets.
, A.Diversification;jhighjequityjreturns
B. Pricejrisk;jcollateral
C. Freejriders;jregulations
D. Monitoring;jdiversification
E. Primaryjmarkets;jforeignjexchangejmarkets
16. Depositoryjinstitutionsjinclude:j
A.banks
B. thrifts
C. financejcompanies
D. alljofjthejabove
E. AjandjBjonly
17. Matchjthejintermediaryjwithjthejcharacteristicjthatjbestjdescribesjitsjfunction.
I. Providejprotectionjfromjadversejevents
II. Pooljfundsjofjsmalljsaversjandjinvestjinjeitherjmoneyjorjcapitaljmarkets
III. Providejconsumerjloansjandjrealjestatejloansjfundedjbyjdeposits
IV. Accumulatejandjtransferjwealthjfromjworkjperiodjtojretirementjperiod
V. Underwritejandjtradejsecuritiesjandjprovidejbrokeragejservices
1. Thrifts
2. Insurers
3. Pensionjfunds
4. Securitiesjfirmsjandjinvestmentjbanks
5. Mutualjfundsj
A.1,j3,j2,j5,j4
B.j4,j2,j3,j5,j1
C.j2,j5,j1,j3,j4
D.j2,j4,j5,j3,j1
E.j5,j1,j3,j2,j4
18. Secondaryjmarketsjhelpjsupportjprimaryjmarketsjbecausejsecondaryjmarkets
I. Offerjprimaryjmarketjpurchasersjliquidityjforjtheirjholdings
II. Updatejthejpricejorjvaluejofjthejprimaryjmarketjclaims
III. Reducejthejcostjofjtradingjthejprimaryjmarketjclaims
A.Ijonly
B. IIjonly
C. IjandjIIjonly
D. IIjandjIIIjonly
E. I,jII,jandjIII
19. Financialjintermediariesj(FIs)jcanjofferjsaversjajsafer,jmorejliquidjinvestmentjtha
njajcapitaljmarketjsecurity,jevenjthoughjthejintermediaryjinvestsjinjriskyjilliquidji
nstrumentsjbecause
A.FIsjcanjdiversifyjawayjsomejofjtheirjrisk
B. FIsjcloselyjmonitorjthejriskinessjofjtheirjassets
C. thejfederaljgovernmentjrequiresjthemjtojdojso
j j j j j
dition Test Bank
j j
Chapterj01jIntroductionjAnswerjKey
Truej/jFalsejQuestions
1. Primaryjmarketsjarejmarketsjwherejusersjofjfundsjraisejcashjbyjsellingjsec
uritiesjtojfunds’jsuppliers.
TRUE
2. Secondaryjmarketsjarejmarketsjusedjbyjcorporationsjtojraisejcashjbyjissuingjsec
uritiesjforjajshortjtimejperiod.
FALSE
3. Injajprivatejplacement,jthejissuerjtypicallyjsellsjthejentirejissuejtojone,jorjonlyjajfe
w,jinstitutionaljbuyers.
TRUE
4. ThejNYSEjisjanjexamplejofjajsecondaryjmarket.
TRUE
5. Privatelyjplacedjsecuritiesjarejusuallyjsoldjtojonejorjmorejinvestmentjbankersjand
jthenjresoldjtojthejgeneral jpublic.
FALSE
6. Moneyjmarketsjarejthejmarketsjforjsecuritiesjwithjanjoriginaljmaturityjofj1jyea
rjorjless.
TRUE
7. Financialjintermediariesjsuchjasjbanksjtypicallyjhavejassetsjthatjarejriskierjtha
njtheirjliabilities.
TRUE
8. Therejarejthreejtypesjofjmajorjfinancialjmarketsjtoday:jprimary,jsecondary,jan
djderivativesjmarkets.jThejNYSEjandjNASDAQjarejbothjexamplesjofjderivati
vesjmarkets.
FALSE
MultiplejChoicejQuestions
9. Whatjfactorsjarejencouragingjfinancialjinstitutionsjtojofferjoverlappingjfin
ancialjservicesjsuchjasjbanking,jinvestmentjbanking,jbrokerage,jetc.?
I. Regulatoryjchangesjallowingjinstitutionsjtojofferjmorejservices
II. Technologicaljimprovementsjreducingjthejcostjofjprovidingjfinancialjse
rvices
III. Increasingjcompetitionjfromjfulljservicejglobaljfinancialjinstitutions
IV. Reductionjinjthejneedjtojmanagejriskjatjfinancialjinstitutions
, A. Ijonly
B. IIjandjIIIjonly
C. I,jII,jandjIIIjonly
D. I,jII,jandjIVjonly
E. I,jII,jIII,jandjIVjF
igurej1-1
IBMjcreatesjandjsellsjadditionaljstockjtojthejinvestmentjbanker,jMorganjStanley.jMo
rganjStanleyjthenjresellsjthejissuejtojthejU.S.jpublic.
10. Thisjtransactionjisjanjexamplejofja(n)
A. primaryjmarketjtransaction
B. assetjtransformationjbyjMorganjStanley
C. moneyjmarketjtransaction
D. foreignjexchangejtransaction
E. forwardjtransaction
11. MorganjStanleyjisjactingjasja(n)j
A.assetjtransformer
B. assetjbroker
C. governmentjregulator
D. foreignjservicejrepresentative
12. Ajcorporationjseekingjtojselljnewjequityjsecuritiesjtojthejpublicjforjthejfirstjtime
jinjorderjtojraisejcashjforjcapitaljinvestmentjwouldjmostjlikelyjA.conductjanj IP
Ojwithjthejassistancejofjanjinvestmentjbanker
B. engagejinjajsecondaryjmarketjsalejofjequity
C. conductjajprivatejplacementjtojajlargejnumberjofjpotentialjbuyers
D. placejanjadjinjthejWalljStreetjJournaljsolicitingjretailjsuppliersjofjfunds
E. nonejofjthejabove
13. Thejlargestjcapitaljmarketjsecurityjoutstandingjinj2010jmeasuredjbyjmarketjval
uejwas
A. securitizedjmortgages
B. corporatejbonds
C. municipaljbonds
D. Treasuryjbonds
E. corporatejstocks
14. ThejdiagramjbelowjisjajdiagramjofjthejA
.secondaryjmarkets
B. primaryjmarkets
C. moneyjmarkets
D. derivativesjmarkets
E. commoditiesjmarkets
15. j and
allowjajfinancialjintermediaryjtojofferjsafe,jliquidjliabilitiesjsuchjasjdepositsj
whilejinvestingjthejdepositors’jmoneyjinjriskier,jilliquidjassets.
, A.Diversification;jhighjequityjreturns
B. Pricejrisk;jcollateral
C. Freejriders;jregulations
D. Monitoring;jdiversification
E. Primaryjmarkets;jforeignjexchangejmarkets
16. Depositoryjinstitutionsjinclude:j
A.banks
B. thrifts
C. financejcompanies
D. alljofjthejabove
E. AjandjBjonly
17. Matchjthejintermediaryjwithjthejcharacteristicjthatjbestjdescribesjitsjfunction.
I. Providejprotectionjfromjadversejevents
II. Pooljfundsjofjsmalljsaversjandjinvestjinjeitherjmoneyjorjcapitaljmarkets
III. Providejconsumerjloansjandjrealjestatejloansjfundedjbyjdeposits
IV. Accumulatejandjtransferjwealthjfromjworkjperiodjtojretirementjperiod
V. Underwritejandjtradejsecuritiesjandjprovidejbrokeragejservices
1. Thrifts
2. Insurers
3. Pensionjfunds
4. Securitiesjfirmsjandjinvestmentjbanks
5. Mutualjfundsj
A.1,j3,j2,j5,j4
B.j4,j2,j3,j5,j1
C.j2,j5,j1,j3,j4
D.j2,j4,j5,j3,j1
E.j5,j1,j3,j2,j4
18. Secondaryjmarketsjhelpjsupportjprimaryjmarketsjbecausejsecondaryjmarkets
I. Offerjprimaryjmarketjpurchasersjliquidityjforjtheirjholdings
II. Updatejthejpricejorjvaluejofjthejprimaryjmarketjclaims
III. Reducejthejcostjofjtradingjthejprimaryjmarketjclaims
A.Ijonly
B. IIjonly
C. IjandjIIjonly
D. IIjandjIIIjonly
E. I,jII,jandjIII
19. Financialjintermediariesj(FIs)jcanjofferjsaversjajsafer,jmorejliquidjinvestmentjtha
njajcapitaljmarketjsecurity,jevenjthoughjthejintermediaryjinvestsjinjriskyjilliquidji
nstrumentsjbecause
A.FIsjcanjdiversifyjawayjsomejofjtheirjrisk
B. FIsjcloselyjmonitorjthejriskinessjofjtheirjassets
C. thejfederaljgovernmentjrequiresjthemjtojdojso
