The Economics of
Money, Banking, and
Financial Markets
TEST BANK
Studocu is not sponsored or endorsed by any college or university
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,TB_599810_Mishkin_TP.qxd:Layout 1 6/4/09 9:45 AM Page 1
Test Bank
to accompany
Kathy Kelly Richard G. Stahl
University of Texas, Arlington Louisiana State University
Pearson Addison-Wesley
Boston San Francisco New York
London Toronto Sydney Tokyo Singapore Madrid
Mexico City Munich Paris Cape Town Hong Kong Montreal
,Chapter 2
An Overview of the Financial System
2.1 Function of Financial Markets
1) Every financial market has the following characteristic:
A) It determines the level of interest rates.
B) It allows common stock to be traded.
C) It allows loans to be made.
D) It channels funds from lenders-savers to borrowers-spenders.
Answer: D
Ques Status: Previous Edition
2) Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) providing a risk-free repository of spending power.
Answer: A
Ques Status: Previous Edition
3) Financial markets improve economic welfare because
A) they channel funds from investors to savers.
B) they allow consumers to time their purchase better.
C) they weed out inefficient firms.
D) eliminate the need for indirect finance.
Answer: B
Ques Status: Previous Edition
4) Well-functioning financial markets
A) cause inflation.
B) eliminate the need for indirect finance.
C) cause financial crises.
D) produce an efficient allocation of capital.
Answer: D
Ques Status: Previous Edition
5) A breakdown of financial markets can result in
A) financial stability.
B) rapid economic growth.
C) political instability.
D) stable prices.
Answer: C
Ques Status: Previous Edition
Downloaded by Collins Mwaniki ()
, Chapter 2 An Overview of the Financial System 21
6) The principal lender-savers are
A) governments.
B) businesses.
C) households.
D) foreigners.
Answer: C
Ques Status: New
7) Which of the following can be described as direct finance?
A) You take out a mortgage from your local bank.
B) You borrow $2500 from a friend.
C) You buy shares of common stock in the secondary market.
D) You buy shares in a mutual fund.
Answer: B
Ques Status: Previous Edition
8) Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this
loan to be profitable, the minimum amount this project must generate in annual earnings is
A) $400.
B) $201.
C) $200.
D) $199.
Answer: B
Ques Status: Previous Edition
9) You can borrow $5000 to finance a new business venture. This new venture will generate annual
earnings of $251. The maximum interest rate that you would pay on the borrowed funds and
still increase your income is
A) 25%.
B) 12.5%.
C) 10%.
D) 5%.
Answer: D
Ques Status: Previous Edition
10) Which of the following can be described as involving direct finance?
A) A corporation issues new shares of stock.
B) People buy shares in a mutual fund.
C) A pension fund manager buys a short-term corporate security in the secondary market.
D) An insurance company buys shares of common stock in the over -the-counter markets.
Answer: A
Ques Status: Previous Edition
11) Which of the following can be described as involving direct finance?
A) A corporation takes out loans from a bank.
B) People buy shares in a mutual fund.
C) A corporation buys a short-term corporate security in a secondary market.
D) People buy shares of common stock in the primary markets.
Money, Banking, and
Financial Markets
TEST BANK
Studocu is not sponsored or endorsed by any college or university
Downloaded by Collins Mwaniki ()
,TB_599810_Mishkin_TP.qxd:Layout 1 6/4/09 9:45 AM Page 1
Test Bank
to accompany
Kathy Kelly Richard G. Stahl
University of Texas, Arlington Louisiana State University
Pearson Addison-Wesley
Boston San Francisco New York
London Toronto Sydney Tokyo Singapore Madrid
Mexico City Munich Paris Cape Town Hong Kong Montreal
,Chapter 2
An Overview of the Financial System
2.1 Function of Financial Markets
1) Every financial market has the following characteristic:
A) It determines the level of interest rates.
B) It allows common stock to be traded.
C) It allows loans to be made.
D) It channels funds from lenders-savers to borrowers-spenders.
Answer: D
Ques Status: Previous Edition
2) Financial markets have the basic function of
A) getting people with funds to lend together with people who want to borrow funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) providing a risk-free repository of spending power.
Answer: A
Ques Status: Previous Edition
3) Financial markets improve economic welfare because
A) they channel funds from investors to savers.
B) they allow consumers to time their purchase better.
C) they weed out inefficient firms.
D) eliminate the need for indirect finance.
Answer: B
Ques Status: Previous Edition
4) Well-functioning financial markets
A) cause inflation.
B) eliminate the need for indirect finance.
C) cause financial crises.
D) produce an efficient allocation of capital.
Answer: D
Ques Status: Previous Edition
5) A breakdown of financial markets can result in
A) financial stability.
B) rapid economic growth.
C) political instability.
D) stable prices.
Answer: C
Ques Status: Previous Edition
Downloaded by Collins Mwaniki ()
, Chapter 2 An Overview of the Financial System 21
6) The principal lender-savers are
A) governments.
B) businesses.
C) households.
D) foreigners.
Answer: C
Ques Status: New
7) Which of the following can be described as direct finance?
A) You take out a mortgage from your local bank.
B) You borrow $2500 from a friend.
C) You buy shares of common stock in the secondary market.
D) You buy shares in a mutual fund.
Answer: B
Ques Status: Previous Edition
8) Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this
loan to be profitable, the minimum amount this project must generate in annual earnings is
A) $400.
B) $201.
C) $200.
D) $199.
Answer: B
Ques Status: Previous Edition
9) You can borrow $5000 to finance a new business venture. This new venture will generate annual
earnings of $251. The maximum interest rate that you would pay on the borrowed funds and
still increase your income is
A) 25%.
B) 12.5%.
C) 10%.
D) 5%.
Answer: D
Ques Status: Previous Edition
10) Which of the following can be described as involving direct finance?
A) A corporation issues new shares of stock.
B) People buy shares in a mutual fund.
C) A pension fund manager buys a short-term corporate security in the secondary market.
D) An insurance company buys shares of common stock in the over -the-counter markets.
Answer: A
Ques Status: Previous Edition
11) Which of the following can be described as involving direct finance?
A) A corporation takes out loans from a bank.
B) People buy shares in a mutual fund.
C) A corporation buys a short-term corporate security in a secondary market.
D) People buy shares of common stock in the primary markets.
