Test bank for financial markets institutions 6th

JK

,FinancialMarkets&Institutions5th Edition v v v v v




Test Bank
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Chapter 01 Introduction Answer Key
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True / False Questions
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1. Primary markets are markets where users of funds raise cash by selling
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securities to funds’ suppliers.
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TRUE

2. Secondary markets are markets used by corporations to raise cash by issuing
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securities for a short time period.
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FALSE

3. In a private placement, the issuer typically sells the entire issue to one, or only a
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few, institutional buyers.
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TRUE

4. The NYSE is an example of a secondary market.
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TRUE

5. Privately placed securities are usually sold to one or more investment bankers and
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then resold to the general public.
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FALSE

6. Money markets are the markets for securities with an original maturity of 1
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year or less.
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TRUE

7. Financial intermediaries such as banks typically have assets that are riskier
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than their liabilities.
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TRUE

8. There are three types of major financial markets today: primary, secondary,
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and derivatives markets. The NYSE and NASDAQ are both examples of
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derivatives markets.
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FALSE

Multiple Choice Questions
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9. What factors are encouraging financial institutions to offer overlapping
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v financial services such as banking, investment banking, brokerage, etc.?
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I. Regulatory changes allowing institutions to offer more services v v v v v v v




II. Technological improvements reducing the cost of providing financial v v v v v v v




services
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III. Increasing competition from full service global financial institutions v v v v v v v




IV. Reduction in the need to manage risk at financial institutions v v v v v v v v v

, A.I only v




B. II and III only v v v




C. I, II, and III only v v v v




D. I, II, and IV only v v v v




E. I, II, III, and IV v v v v




Figure 1-1
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IBM creates and sells additional stock to the investment banker, Morgan Stanley. Morgan
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Stanley then resells the issue to the U.S. public.
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10. This transaction is an example of a(n)
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A. primary market transaction v v




B. asset transformation by Morgan Stanley v v v v




C. money market transaction v v




D. foreign exchange transaction v v




E. forward transaction v




11. Morgan Stanley is acting as a(n) JK v v v v




A.asset transformer
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B. asset broker v v




C. government regulator
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D. foreign service representative
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12. A corporation seeking to sell new equity securities to the public for the first time
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in order to raise cash for capital investment would most likely A.conduct an
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IPO with the assistance of an investment banker
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B. engage in a secondary market sale of equity v v v v v v v




C. conduct a private placement to a large number of potential buyers v v v v v v v v v v




D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
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E. none of the above v v v




13. The largest capital market security outstanding in 2010 measured by market
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value was
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A. securitized mortgages v




B. corporate bonds v




C. municipal bonds v




D. Treasury bonds v




E. corporate stocks v




14. The diagram below is a diagram of the
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A.secondary markets
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B. primary markets v




C. money markets v




D. derivatives markets v




E. commodities markets v




15. v and allow a financial intermediary to offer safe, v v v v v v v




v liquid liabilities such as deposits while investing the depositors’ money in
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v riskier, illiquid assets. v v

, A. Diversification; high equity returns v v v




B. Price risk; collateral v v




C. Free riders; regulations v v




D. Monitoring; diversification v




E. Primary markets; foreign exchange markets v v v v




16. Depository institutions include: v v




vA.banks
B. thrifts
C. finance companies v




D. all of the above v v v




E. A and B only v v v




17. Match the intermediary with the characteristic that best describes its function.
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I. Provide protection from adverse events v v JK v




II. Pool funds of small savers and invest in either money or capital markets
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III. Provide consumer loans and real estate loans funded by deposits v v v v v v v v v




IV. Accumulate and transfer wealth from work period to retirement period v v v v v v v v v




V. Underwrite and trade securities and provide brokerage services v v v v v v v




1. Thrifts
2. Insurers
3. Pension funds JK



4. Securities firms and investment banks v v v v




5. Mutual funds v




A. 1, 3, 2, 5, 4
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B. 4, 2, 3, 5, 1 v v v v




C. 2, 5, 1, 3, 4 v v v v




D. 2, 4, 5, 3, 1 v v v v




E. 5, 1, 3, 2, 4 v v v v




18. Secondary markets help support primary markets because secondary markets v v v v v v v v




I. Offer primary market purchasers liquidity for their holdings
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II. Update the price or value of the primary market claims v v v v v v v v v




III. Reduce the cost of trading the primary market claims v v v v v v v v




A.I only
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B. II only v




C. I and II only
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D. II and III only
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E. I, II, and III
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19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
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vthan a capital market security, even though the intermediary invests in risky
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villiquid instruments because v v




A. FIs can diversify away some of their risk
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B. FIs closely monitor the riskiness of their assets
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C. the federal government requires them to do so
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