VVV
,VV
Financial Markets & Institutions 5th VV VV VV VV
EditionTest Bank VV V V
Chapter 01 Introduction Answer Key
VV VV VV VV
True / False Questions
VV VV VV
1. V Primary markets are markets where users of funds raise cash by selling
V VV VV VV VV VV VV VV VV VV VV VV
securities to funds’ suppliers. VV VV VV
TRUE
2. V Secondary markets are markets used by corporations to raise cash by issuing
V VV VV VV VV VV VV VV VV VV VV VV
securities for a short time period. VV VV VV VV VV
FALSE
3. V In a private placement, the issuer typically sells the entire issue to one, or only
V VV VV VV VV VV VV VV VV VV VV VV VV VV VV
a few, institutional buyers.
VV VV VV
TRUE
4. V The NYSE is an example of a secondary market.
V VV VV VV VV VV VV VV VV
TRUE
5. V Privately placed securities are usually sold to one or more investment bankers
V VV VV VV VV VV VV VV VV VV VV VV
and then resold to the general public.
VV VV VV VV VV VV
FALSE
6. V Money markets are the markets for securities with an original maturity of 1
V VV VV VV VV VV VV VV VV VV VV VV VV
year or less. VV VV
TRUE
7. V Financial intermediaries such as banks typically have assets that are riskier
V VV VV VV VV VV VV VV VV VV VV
than their liabilities. VV VV
TRUE
8. V There are three types of major financial markets today: primary, secondary,
V VV VV VV VV VV VV VV VV VV VV
and derivatives markets. The NYSE and NASDAQ are both examples of
VV VV VV VV VV VV VV VV VV VV
derivatives markets. VV
FALSE
Multiple Choice Questions VV VV
9. V What factors are encouraging financial institutions to offer overlapping
V VV VV VV VV VV VV VV VV
financial services such as banking, investment banking, brokerage, etc.?
VV VV VV VV VV VV VV VV
I. Regulatory changes allowing institutions to offer more services
VV VV VV VV VV VV VV VV
II. Technological improvements reducing the cost of providing financial
VV VV VV VV VV VV VV VV
services
III. Increasing competition from full service global financial institutions
VV VV VV VV VV VV VV VV
IV. Reduction in the need to manage risk at financial institutions
VV VV VV VV VV VV VV VV VV VV
,VV
A.I only VV
B. II and III only
VV VV VV VV
C. I, II, and III only
VV VV VV VV VV
D. I, II, and IV only
VV VV VV VV VV
E. I, II, III, and IV
VV VV VV VV VV
Figure 1-1
VV
IBM creates and sells additional stock to the investment banker, Morgan Stanley.
VV VV VV VV VV VV VV VV VV VV VV
Morgan Stanley then resells the issue to the U.S. public.
VV VV VV VV VV VV VV VV VV
10. This transaction is an example of a(n)
VV VV VV VV VV VV VV
A.primary market transaction VV VV
B. asset transformation by Morgan Stanley
VV VV VV VV VV
C. money market transaction
VV VV VV
D. foreign exchange transaction
VV VV VV
E. forward transactionVV VV
11. Morgan Stanley is acting as a(n)
VV VV VV VV VV VV
A.asset transformer VV
B. asset broker VV VV
C. government regulatorVV VV
D. foreign service representative
VV VV VV
12. A corporation seeking to sell new equity securities to the public for the first
VV VV VV VV VV VV VV VV VV VV VV VV VV VV
time in order to raise cash for capital investment would most likely
VV VV VV VV VV VV VV VV VV VV VV
A.conduct an IPO with the assistance of an investment banker VV VV VV VV VV VV VV VV VV
B. engage in a secondary market sale of equity
VV VV VV VV VV VV VV VV
C. conduct a private placement to a large number of potential buyers
VV VV VV VV VV VV VV VV VV VV VV
D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
VV VV VV VV VV VV VV VV VV VV VV VV VV
E. none of the above VV VV VV VV
13. The largest capital market security outstanding in 2010 measured by market
VV VV VV VV VV VV VV VV VV VV VV
value was VV
A.securitized mortgages VV
B. corporate bonds VV VV
C. municipal bonds VV VV
D. Treasury bonds VV VV
E. corporate stocks VV VV
14. The diagram below is a diagram of the
VV VV VV VV VV VV VV VV
A.secondary markets VV
B. primary markets VV VV
C. money markets VV VV
D. derivatives markets VV VV
E. commodities marketsVV VV
15. _________ and __________ allow a financial intermediary to offer safe,
VV VV VV VV VV VV VV VV VV VV
liquid liabilities such as deposits while investing the depositors’ money in
VV VV VV VV VV VV VV VV VV VV
riskier, illiquid assets. VV VV
,VV
A.Diversification; high equity returns VV VV VV
B. Price risk; collateral
VV VV VV
C. Free riders; regulations
VV VV VV
D. Monitoring; diversification
VV VV
E. Primary markets; foreign exchange markets
VV VV VV VV VV
16. Depository institutions include:
VV VV VV
A.banks
B. thrifts VV
C. finance companies
VV VV
D. all of the above
VV VV VV VV
E. A and B onlyVV VV VV VV
17. Match the intermediary with the characteristic that best describes its function.
VV VV VV VV VV VV VV VV VV VV VV
I. Provide protection from adverse events
VV VV VV VV VV
II. Pool funds of small savers and invest in either money or capital markets
VV VV VV VV VV VV VV VV VV VV VV VV VV
III. Provide consumer loans and real estate loans funded by deposits
VV VV VV VV VV VV VV VV VV VV
IV. Accumulate and transfer wealth from work period to retirement period
VV VV VV VV VV VV VV VV VV VV
V. Underwrite and trade securities and provide brokerage services
VV VV VV VV VV VV VV VV
1. Thrifts
VV
2. Insurers
VV
3. Pension funds
VV VV
4. Securities firms and investment banks
VV VV VV VV VV
5. Mutual funds
VV VV
A.1, 3, 2, 5, 4 VV VV VV VV
B. 4, 2, 3, 5, 1
VV VV VV VV VV
C. 2, 5, 1, 3, 4
VV VV VV VV VV
D. 2, 4, 5, 3, 1
VV VV VV VV VV
E. 5, 1, 3, 2, 4
VV VV VV VV VV
18. Secondary markets help support primary markets because secondary markets
VV VV VV VV VV VV VV VV VV
I. Offer primary market purchasers liquidity for their holdings
VV VV VV VV VV VV VV VV
II. Update the price or value of the primary market claims
VV VV VV VV VV VV VV VV VV VV
III. Reduce the cost of trading the primary market claims
VV VV VV VV VV VV VV VV VV
A.I only VV
B. II only VV VV
C. I and II only
VV VV VV VV
D. II and III only
VV VV VV VV
E. I, II, and III
VV V V VV VV
19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
VV VV VV VV VV VV VV VV VV VV VV
than a capital market security, even though the intermediary invests in risky
VV VV VV VV VV VV VV VV VV VV VV
illiquid instruments because VV VV
A.FIs can diversify away some of their risk VV VV VV VV VV VV VV
B. FIs closely monitor the riskiness of their assets
VV VV VV VV VV VV VV VV
C. the federal government requires them to do so
VV VV VV VV VV VV VV VV
,VV
Financial Markets & Institutions 5th VV VV VV VV
EditionTest Bank VV V V
Chapter 01 Introduction Answer Key
VV VV VV VV
True / False Questions
VV VV VV
1. V Primary markets are markets where users of funds raise cash by selling
V VV VV VV VV VV VV VV VV VV VV VV
securities to funds’ suppliers. VV VV VV
TRUE
2. V Secondary markets are markets used by corporations to raise cash by issuing
V VV VV VV VV VV VV VV VV VV VV VV
securities for a short time period. VV VV VV VV VV
FALSE
3. V In a private placement, the issuer typically sells the entire issue to one, or only
V VV VV VV VV VV VV VV VV VV VV VV VV VV VV
a few, institutional buyers.
VV VV VV
TRUE
4. V The NYSE is an example of a secondary market.
V VV VV VV VV VV VV VV VV
TRUE
5. V Privately placed securities are usually sold to one or more investment bankers
V VV VV VV VV VV VV VV VV VV VV VV
and then resold to the general public.
VV VV VV VV VV VV
FALSE
6. V Money markets are the markets for securities with an original maturity of 1
V VV VV VV VV VV VV VV VV VV VV VV VV
year or less. VV VV
TRUE
7. V Financial intermediaries such as banks typically have assets that are riskier
V VV VV VV VV VV VV VV VV VV VV
than their liabilities. VV VV
TRUE
8. V There are three types of major financial markets today: primary, secondary,
V VV VV VV VV VV VV VV VV VV VV
and derivatives markets. The NYSE and NASDAQ are both examples of
VV VV VV VV VV VV VV VV VV VV
derivatives markets. VV
FALSE
Multiple Choice Questions VV VV
9. V What factors are encouraging financial institutions to offer overlapping
V VV VV VV VV VV VV VV VV
financial services such as banking, investment banking, brokerage, etc.?
VV VV VV VV VV VV VV VV
I. Regulatory changes allowing institutions to offer more services
VV VV VV VV VV VV VV VV
II. Technological improvements reducing the cost of providing financial
VV VV VV VV VV VV VV VV
services
III. Increasing competition from full service global financial institutions
VV VV VV VV VV VV VV VV
IV. Reduction in the need to manage risk at financial institutions
VV VV VV VV VV VV VV VV VV VV
,VV
A.I only VV
B. II and III only
VV VV VV VV
C. I, II, and III only
VV VV VV VV VV
D. I, II, and IV only
VV VV VV VV VV
E. I, II, III, and IV
VV VV VV VV VV
Figure 1-1
VV
IBM creates and sells additional stock to the investment banker, Morgan Stanley.
VV VV VV VV VV VV VV VV VV VV VV
Morgan Stanley then resells the issue to the U.S. public.
VV VV VV VV VV VV VV VV VV
10. This transaction is an example of a(n)
VV VV VV VV VV VV VV
A.primary market transaction VV VV
B. asset transformation by Morgan Stanley
VV VV VV VV VV
C. money market transaction
VV VV VV
D. foreign exchange transaction
VV VV VV
E. forward transactionVV VV
11. Morgan Stanley is acting as a(n)
VV VV VV VV VV VV
A.asset transformer VV
B. asset broker VV VV
C. government regulatorVV VV
D. foreign service representative
VV VV VV
12. A corporation seeking to sell new equity securities to the public for the first
VV VV VV VV VV VV VV VV VV VV VV VV VV VV
time in order to raise cash for capital investment would most likely
VV VV VV VV VV VV VV VV VV VV VV
A.conduct an IPO with the assistance of an investment banker VV VV VV VV VV VV VV VV VV
B. engage in a secondary market sale of equity
VV VV VV VV VV VV VV VV
C. conduct a private placement to a large number of potential buyers
VV VV VV VV VV VV VV VV VV VV VV
D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
VV VV VV VV VV VV VV VV VV VV VV VV VV
E. none of the above VV VV VV VV
13. The largest capital market security outstanding in 2010 measured by market
VV VV VV VV VV VV VV VV VV VV VV
value was VV
A.securitized mortgages VV
B. corporate bonds VV VV
C. municipal bonds VV VV
D. Treasury bonds VV VV
E. corporate stocks VV VV
14. The diagram below is a diagram of the
VV VV VV VV VV VV VV VV
A.secondary markets VV
B. primary markets VV VV
C. money markets VV VV
D. derivatives markets VV VV
E. commodities marketsVV VV
15. _________ and __________ allow a financial intermediary to offer safe,
VV VV VV VV VV VV VV VV VV VV
liquid liabilities such as deposits while investing the depositors’ money in
VV VV VV VV VV VV VV VV VV VV
riskier, illiquid assets. VV VV
,VV
A.Diversification; high equity returns VV VV VV
B. Price risk; collateral
VV VV VV
C. Free riders; regulations
VV VV VV
D. Monitoring; diversification
VV VV
E. Primary markets; foreign exchange markets
VV VV VV VV VV
16. Depository institutions include:
VV VV VV
A.banks
B. thrifts VV
C. finance companies
VV VV
D. all of the above
VV VV VV VV
E. A and B onlyVV VV VV VV
17. Match the intermediary with the characteristic that best describes its function.
VV VV VV VV VV VV VV VV VV VV VV
I. Provide protection from adverse events
VV VV VV VV VV
II. Pool funds of small savers and invest in either money or capital markets
VV VV VV VV VV VV VV VV VV VV VV VV VV
III. Provide consumer loans and real estate loans funded by deposits
VV VV VV VV VV VV VV VV VV VV
IV. Accumulate and transfer wealth from work period to retirement period
VV VV VV VV VV VV VV VV VV VV
V. Underwrite and trade securities and provide brokerage services
VV VV VV VV VV VV VV VV
1. Thrifts
VV
2. Insurers
VV
3. Pension funds
VV VV
4. Securities firms and investment banks
VV VV VV VV VV
5. Mutual funds
VV VV
A.1, 3, 2, 5, 4 VV VV VV VV
B. 4, 2, 3, 5, 1
VV VV VV VV VV
C. 2, 5, 1, 3, 4
VV VV VV VV VV
D. 2, 4, 5, 3, 1
VV VV VV VV VV
E. 5, 1, 3, 2, 4
VV VV VV VV VV
18. Secondary markets help support primary markets because secondary markets
VV VV VV VV VV VV VV VV VV
I. Offer primary market purchasers liquidity for their holdings
VV VV VV VV VV VV VV VV
II. Update the price or value of the primary market claims
VV VV VV VV VV VV VV VV VV VV
III. Reduce the cost of trading the primary market claims
VV VV VV VV VV VV VV VV VV
A.I only VV
B. II only VV VV
C. I and II only
VV VV VV VV
D. II and III only
VV VV VV VV
E. I, II, and III
VV V V VV VV
19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
VV VV VV VV VV VV VV VV VV VV VV
than a capital market security, even though the intermediary invests in risky
VV VV VV VV VV VV VV VV VV VV VV
illiquid instruments because VV VV
A.FIs can diversify away some of their risk VV VV VV VV VV VV VV
B. FIs closely monitor the riskiness of their assets
VV VV VV VV VV VV VV VV
C. the federal government requires them to do so
VV VV VV VV VV VV VV VV
