FIN 340 Financial Markets and
Institutions Exam Practice Questions
And Correct Answers (Verified Answers)
Plus Rationales 2027 Q&A | Instant
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1. Which function is a primary role of financial markets?
A. Eliminating all financial risk
B. Facilitating the transfer of funds between savers and borrowers
C. Preventing businesses from issuing securities
D. Setting government tax rates
**Answer: B. Facilitating the transfer of funds between savers and
borrowers
Rationale: Financial markets channel funds from units with excess savings
to units that need financing, helping allocate capital throughout the
economy.
,2. Which institution accepts deposits from the public and makes loans to
borrowers?
A. Insurance company
B. Commercial bank
C. Mutual fund
D. Pension fund
**Answer: B. Commercial bank
Rationale: Commercial banks primarily accept deposits and use those
funds, along with other sources of financing, to make loans and
investments.
3. The market for securities with original maturities of one year or less is
called the:
A. Capital market
B. Foreign exchange market
C. Money market
D. Derivatives market
**Answer: C. Money market
,Rationale: The money market deals primarily with short-term, highly liquid
debt instruments, generally with maturities of one year or less.
4. Which market primarily facilitates the trading of long-term securities?
A. Money market
B. Capital market
C. Interbank market
D. Reserve market
**Answer: B. Capital market
Rationale: Capital markets facilitate financing through longer-term debt
and equity securities such as bonds and stocks.
5. Which of the following is an example of a money market instrument?
A. Common stock
B. Long-term corporate bond
C. Treasury bill
D. Preferred stock
**Answer: C. Treasury bill
, Rationale: Treasury bills are short-term government securities and are
among the major instruments traded in money markets.
6. A financial intermediary primarily helps reduce:
A. The need for financial contracts
B. Information and transaction costs
C. The supply of savings
D. Economic productivity
**Answer: B. Information and transaction costs
Rationale: Financial intermediaries specialize in evaluating borrowers,
processing transactions, monitoring loans, and pooling funds, which
reduces information and transaction costs.
7. Which is an example of a direct-finance transaction?
A. A household deposits money into a bank
B. A company issues bonds directly to investors
C. A bank makes a mortgage loan
D. An insurance company collects premiums
**Answer: B. A company issues bonds directly to investors
Institutions Exam Practice Questions
And Correct Answers (Verified Answers)
Plus Rationales 2027 Q&A | Instant
Download Pdf
1. Which function is a primary role of financial markets?
A. Eliminating all financial risk
B. Facilitating the transfer of funds between savers and borrowers
C. Preventing businesses from issuing securities
D. Setting government tax rates
**Answer: B. Facilitating the transfer of funds between savers and
borrowers
Rationale: Financial markets channel funds from units with excess savings
to units that need financing, helping allocate capital throughout the
economy.
,2. Which institution accepts deposits from the public and makes loans to
borrowers?
A. Insurance company
B. Commercial bank
C. Mutual fund
D. Pension fund
**Answer: B. Commercial bank
Rationale: Commercial banks primarily accept deposits and use those
funds, along with other sources of financing, to make loans and
investments.
3. The market for securities with original maturities of one year or less is
called the:
A. Capital market
B. Foreign exchange market
C. Money market
D. Derivatives market
**Answer: C. Money market
,Rationale: The money market deals primarily with short-term, highly liquid
debt instruments, generally with maturities of one year or less.
4. Which market primarily facilitates the trading of long-term securities?
A. Money market
B. Capital market
C. Interbank market
D. Reserve market
**Answer: B. Capital market
Rationale: Capital markets facilitate financing through longer-term debt
and equity securities such as bonds and stocks.
5. Which of the following is an example of a money market instrument?
A. Common stock
B. Long-term corporate bond
C. Treasury bill
D. Preferred stock
**Answer: C. Treasury bill
, Rationale: Treasury bills are short-term government securities and are
among the major instruments traded in money markets.
6. A financial intermediary primarily helps reduce:
A. The need for financial contracts
B. Information and transaction costs
C. The supply of savings
D. Economic productivity
**Answer: B. Information and transaction costs
Rationale: Financial intermediaries specialize in evaluating borrowers,
processing transactions, monitoring loans, and pooling funds, which
reduces information and transaction costs.
7. Which is an example of a direct-finance transaction?
A. A household deposits money into a bank
B. A company issues bonds directly to investors
C. A bank makes a mortgage loan
D. An insurance company collects premiums
**Answer: B. A company issues bonds directly to investors
