Financial Markets and Institutions – Final Exam, 2026 –
Comprehensive Study and Practice Material
An investor requires a 3% increase in purchasing power in order to induce her to lend. She
expects inflation to be 2% next year. The nominal rate she must charge is________. - ANS✔✔
5%
The main provider(s) of funds in the US Treasury are - ANS✔✔ households and businesses
The total US government debt is currently closest to________. - ANS✔✔ $18.1 trillion
Funds are provided to the initial issuer of securities in the - ANS✔✔ primary market
Equity securities have a ______ expected return than most long term debt securities, and they
exhibit ______ degree of risk. - ANS✔✔ higher; higher
The required return to implement a given business project will be _____ if interest rates are
lower. This implies that businesses will demand a ______ quantity of loanable funds when
interest rates are lower. - ANS✔✔ lower; greater
Quantitative easing can be best described as - ANS✔✔ the purchase of government securities
to lower interest rates and increase the money supply
If the economy weakens, there is _____ pressure on interest rates. If the federal reserve
increases the money supply there is ______ pressure on interest rates - ANS✔✔ downward;
downward
Assume that foreign investors who have invested in US securities decide to decrease their
holdings of US securities and to instead increase their holdings of securities in their own
, countries. This should cause the supply of loanable funds in the US to _____ and should place
____ pressure on US interest rates - ANS✔✔ decrease; upward
The Federal Reserve does all but which of the following? - ANS✔✔ Insure Deposits
A short term unsecured promissory note issued by a company is - ANS✔✔ commercial paper
Assume the yield curve is flat. If investors flood the short term market and avoid the long term
market, they may cause the yield curve to - ANS✔✔ become upward sloping
Other things equal, the yield required on non-callable bonds should be _____ than the yield
required on callable bonds whose other characteristics are exactly the same - ANS✔✔ less than
The dollar price at which non-convertible bonds can be issued should be ____- than the price at
which convertible bonds can be issued. - ANS✔✔ Less than
Which of the following is an action that the Fed uses to increase or decrease the money supply?
- ANS✔✔ buying or selling treasury securities in the secondary market
To decrease the money supply, the Fed could ____ the reserve requirement ration - ANS✔✔
increase
______ is a short term debt investment issued only by well known, creditworthy firms and is
normally issued to provide liquidity or finance a firm's investment in inventory and accounts
receivable. - ANS✔✔ Commercial Paper
Which municipality in the state of Alabama defaulted on its debt obligations recently and then
later filed for bankruptcy? Until Detroit in 2013, this was the largest municipal default in US
History - ANS✔✔ Jefferson County, AL
Comprehensive Study and Practice Material
An investor requires a 3% increase in purchasing power in order to induce her to lend. She
expects inflation to be 2% next year. The nominal rate she must charge is________. - ANS✔✔
5%
The main provider(s) of funds in the US Treasury are - ANS✔✔ households and businesses
The total US government debt is currently closest to________. - ANS✔✔ $18.1 trillion
Funds are provided to the initial issuer of securities in the - ANS✔✔ primary market
Equity securities have a ______ expected return than most long term debt securities, and they
exhibit ______ degree of risk. - ANS✔✔ higher; higher
The required return to implement a given business project will be _____ if interest rates are
lower. This implies that businesses will demand a ______ quantity of loanable funds when
interest rates are lower. - ANS✔✔ lower; greater
Quantitative easing can be best described as - ANS✔✔ the purchase of government securities
to lower interest rates and increase the money supply
If the economy weakens, there is _____ pressure on interest rates. If the federal reserve
increases the money supply there is ______ pressure on interest rates - ANS✔✔ downward;
downward
Assume that foreign investors who have invested in US securities decide to decrease their
holdings of US securities and to instead increase their holdings of securities in their own
, countries. This should cause the supply of loanable funds in the US to _____ and should place
____ pressure on US interest rates - ANS✔✔ decrease; upward
The Federal Reserve does all but which of the following? - ANS✔✔ Insure Deposits
A short term unsecured promissory note issued by a company is - ANS✔✔ commercial paper
Assume the yield curve is flat. If investors flood the short term market and avoid the long term
market, they may cause the yield curve to - ANS✔✔ become upward sloping
Other things equal, the yield required on non-callable bonds should be _____ than the yield
required on callable bonds whose other characteristics are exactly the same - ANS✔✔ less than
The dollar price at which non-convertible bonds can be issued should be ____- than the price at
which convertible bonds can be issued. - ANS✔✔ Less than
Which of the following is an action that the Fed uses to increase or decrease the money supply?
- ANS✔✔ buying or selling treasury securities in the secondary market
To decrease the money supply, the Fed could ____ the reserve requirement ration - ANS✔✔
increase
______ is a short term debt investment issued only by well known, creditworthy firms and is
normally issued to provide liquidity or finance a firm's investment in inventory and accounts
receivable. - ANS✔✔ Commercial Paper
Which municipality in the state of Alabama defaulted on its debt obligations recently and then
later filed for bankruptcy? Until Detroit in 2013, this was the largest municipal default in US
History - ANS✔✔ Jefferson County, AL
