Finance Markets and Institutions – Exam 1, 2026 – Study Material and Practice
Questions
3 major components of the financial system - ANS✔✔ -Financial assets
-financial institutions
-The Federal Reserve and other financial regulators
asset - ANS✔✔ -Anything of value owned by a person or a firm.
financial asset - ANS✔✔ An asset that represents a claim on someone else for a payment
ex.) a bank checking account is a financial asset because it represents a claim you have against a
bank to pay you an amount of money equal to the dollar value of your account.
-Economists divide financial assets into those that are securities and those that aren't
securities - ANS✔✔ A financial asset that is tradable and that can be bought and sold in a
financial market.
Financial markets - ANS✔✔ A place or channel for buying or selling stocks, bonds, and other
securities.
ex.) New York Stock Exchange.
--> If you own a share of stock in Apple or Google, you own a security because you can sell that
share in the stock market.
---> If you have a checking account at Citibank or Wells Fargo, you can't sell it. So your checking
account is an asset but not a security.
5 key categories of assets - ANS✔✔ -money
,-stocks
-bonds
-foreign exchange
-securitized loans
Money - ANS✔✔ anything that is generally accepted in payment for goods and services or to
pay off debts.
money supply - ANS✔✔ The total quantity of money in the economy
Stock - ANS✔✔ Financial securities that represent partial ownership of a firm; also called
equities.
-->When you buy a share of Microsoft stock, you become a Microsoft shareholder, and you own
part of Microsoft, although only a tiny part because microsoft has issued millions of shares of
stock.
financial capital - ANS✔✔ increasing the funds available to the firm in exchange for increasing
the number of the firm's owners
dividend - ANS✔✔ a payment that a corporation makes to its shareholders
bond - ANS✔✔ a financial security issued by corporation or a government that represents a
promise to repay a fixed amount of money.
interest rate - ANS✔✔ The cost of borrowing funds(or the payment for lending funds), usually
expressed as a percentage of the amount borrowed.
-bonds typically pay interest in fixed dollar amounts called coupons
, -a bond that matures in one year or less is a short term bond.
-a bond that matures in more than one year is a long-term bond.
foreign exchange - ANS✔✔ Units of foreign currency
-the most important buyers and sellers of foreign exchange are large banks.
-banks engage in foreign currency transactions on behalf of investors who want to buy foreign
financial assets and on the behalf of firms that want to import of export goods and services, or
to invest in physical assets such as factories
securititzation - ANS✔✔ -the process of converting loans and other financial assets that are not
tradable into securities.
mortgage - ANS✔✔ a loan a borrower uses to buy a home
mortgage-backed security - ANS✔✔ -bank that grants a mortgage, and sells it to a government
sponsored enterprise or a financial firm that wil bundle the mortgage together with similar
mortgages granted by other banks. This bundle of mortgages will form the basis of a new
security and will just like a bond.
financial liability - ANS✔✔ -a financial claim owed by a person or a firm.
- Taking out a loan to purchase a car, you are now responsible for paying that loan back
What two channels does the financial system use to match savers and buyers? - ANS✔✔ 1.
Banks and other financial intermediaries
2. Financial markets
financial intermediary - ANS✔✔ -A financial firm, such as a bank, that borrows funds from
savers and lends them to borrowers.
Questions
3 major components of the financial system - ANS✔✔ -Financial assets
-financial institutions
-The Federal Reserve and other financial regulators
asset - ANS✔✔ -Anything of value owned by a person or a firm.
financial asset - ANS✔✔ An asset that represents a claim on someone else for a payment
ex.) a bank checking account is a financial asset because it represents a claim you have against a
bank to pay you an amount of money equal to the dollar value of your account.
-Economists divide financial assets into those that are securities and those that aren't
securities - ANS✔✔ A financial asset that is tradable and that can be bought and sold in a
financial market.
Financial markets - ANS✔✔ A place or channel for buying or selling stocks, bonds, and other
securities.
ex.) New York Stock Exchange.
--> If you own a share of stock in Apple or Google, you own a security because you can sell that
share in the stock market.
---> If you have a checking account at Citibank or Wells Fargo, you can't sell it. So your checking
account is an asset but not a security.
5 key categories of assets - ANS✔✔ -money
,-stocks
-bonds
-foreign exchange
-securitized loans
Money - ANS✔✔ anything that is generally accepted in payment for goods and services or to
pay off debts.
money supply - ANS✔✔ The total quantity of money in the economy
Stock - ANS✔✔ Financial securities that represent partial ownership of a firm; also called
equities.
-->When you buy a share of Microsoft stock, you become a Microsoft shareholder, and you own
part of Microsoft, although only a tiny part because microsoft has issued millions of shares of
stock.
financial capital - ANS✔✔ increasing the funds available to the firm in exchange for increasing
the number of the firm's owners
dividend - ANS✔✔ a payment that a corporation makes to its shareholders
bond - ANS✔✔ a financial security issued by corporation or a government that represents a
promise to repay a fixed amount of money.
interest rate - ANS✔✔ The cost of borrowing funds(or the payment for lending funds), usually
expressed as a percentage of the amount borrowed.
-bonds typically pay interest in fixed dollar amounts called coupons
, -a bond that matures in one year or less is a short term bond.
-a bond that matures in more than one year is a long-term bond.
foreign exchange - ANS✔✔ Units of foreign currency
-the most important buyers and sellers of foreign exchange are large banks.
-banks engage in foreign currency transactions on behalf of investors who want to buy foreign
financial assets and on the behalf of firms that want to import of export goods and services, or
to invest in physical assets such as factories
securititzation - ANS✔✔ -the process of converting loans and other financial assets that are not
tradable into securities.
mortgage - ANS✔✔ a loan a borrower uses to buy a home
mortgage-backed security - ANS✔✔ -bank that grants a mortgage, and sells it to a government
sponsored enterprise or a financial firm that wil bundle the mortgage together with similar
mortgages granted by other banks. This bundle of mortgages will form the basis of a new
security and will just like a bond.
financial liability - ANS✔✔ -a financial claim owed by a person or a firm.
- Taking out a loan to purchase a car, you are now responsible for paying that loan back
What two channels does the financial system use to match savers and buyers? - ANS✔✔ 1.
Banks and other financial intermediaries
2. Financial markets
financial intermediary - ANS✔✔ -A financial firm, such as a bank, that borrows funds from
savers and lends them to borrowers.
