FINA 3317 CORRECT SCRIPT ANSWERS AND
QUESTIONS SET A+
✔✔The largest capital-market security outstanding in 2019 measured by market value
was:
A. Treasury bonds
B. securitized mortgages
C. corporate stocks
D. municipal bonds
E. corporate bonds - ✔✔Corporate stocks.
The course materials rank corporate stocks as the largest category by market value,
ahead of mortgages and corporate bonds.
✔✔Diagram: [Users of Funds] <=> [Underwriter] <=> [Suppliers of Funds]. This is a
diagram of the:
A. derivatives markets
B. money markets
C. secondary markets
D. primary markets
E. commodities markets - ✔✔Primary markets.
Underwriters, especially investment banks, help issuers sell newly created securities in
primary markets.
✔✔______ and ______ allow a financial intermediary to offer safe, liquid liabilities such
as deposits while investing depositors' money in riskier, illiquid assets.
A. Primary markets; foreign exchange markets
B. Free riders; regulations
C. Monitoring; diversification
D. Price risk; collateral
E. Diversification; high equity returns - ✔✔Monitoring; diversification.
,Diversification pools and reduces risk, while monitoring helps control the riskiness of the
intermediary's assets.
✔✔Depository institutions include:
A. banks and thrifts
B. finance companies only
C. thrifts only
D. all of these choices
E. banks only - ✔✔Banks and thrifts.
Banks, thrifts, and credit unions take deposits. Finance companies are nondepository
lenders.
✔✔Match each function to the intermediary: Functions: 1) protect from adverse events;
2) pool small savers' funds and invest in markets; 3) make consumer/real-estate loans
funded by deposits; 4) accumulate wealth from work years to retirement; 5)
underwrite/trade securities and provide brokerage. Intermediaries: Thrifts, Insurers,
Pension funds, Securities firms/investment banks, Mutual funds.
A. 4,2,3,5,1
B. 1,3,2,5,4
C. 5,1,3,2,4
D. 2,5,1,3,4
E. 2,4,5,3,1 - ✔✔2, 5, 1, 3, 4.
Protection=insurers; pooled investing=mutual funds; deposit-funded real-estate
lending=thrifts; retirement wealth=pension funds; underwriting/trading=securities firms
and investment banks.
✔✔Secondary markets support primary markets because they: I) offer primary-market
purchasers liquidity; II) update the price/value of primary-market claims; III) reduce
trading costs.
A. II only
B. I only
C. I, II, III
D. II and III only
E. I and II only - ✔✔I, II, and III.
Secondary markets add liquidity, provide market pricing, and lower transaction costs
through competition and electronic trading.
, ✔✔Financial intermediaries can offer savers a safer, more liquid investment than a
capital-market security even though the intermediary invests in risky, illiquid instruments
because:
A. they closely monitor assets
B. they diversify and the government requires it
C. they diversify and closely monitor assets
D. they diversify only
E. the government requires it - ✔✔They diversify away some risk and closely monitor
the riskiness of their assets.
Diversification reduces firm-specific risk and monitoring helps control asset quality.
✔✔Which of the following is/are money-market instrument(s)?
A. common stock
B. T-bonds
C. negotiable CDs
D. negotiable CDs, common stock, and T-bonds
E. 4-year corporate bond - ✔✔Negotiable CDs.
Money-market instruments are short-term debt instruments, generally issued with
original maturities of one year or less.
✔✔The Securities and Exchange Commission (SEC) does NOT:
A. decide whether a public issuer provided enough information
B. attempt to reduce excessive price fluctuations
C. decide whether a public issue is fairly priced
D. monitor major securities exchanges
E. require exchanges to monitor trading to prevent insider trading - ✔✔Decide whether
a public issue is fairly priced.
The SEC focuses on disclosure, market integrity, and investor protection; market supply
and demand determine security prices.
✔✔The most diversified type of depository institution is:
A. mutual funds
B. finance companies
C. credit unions
D. commercial banks
E. savings associations - ✔✔Commercial banks.
QUESTIONS SET A+
✔✔The largest capital-market security outstanding in 2019 measured by market value
was:
A. Treasury bonds
B. securitized mortgages
C. corporate stocks
D. municipal bonds
E. corporate bonds - ✔✔Corporate stocks.
The course materials rank corporate stocks as the largest category by market value,
ahead of mortgages and corporate bonds.
✔✔Diagram: [Users of Funds] <=> [Underwriter] <=> [Suppliers of Funds]. This is a
diagram of the:
A. derivatives markets
B. money markets
C. secondary markets
D. primary markets
E. commodities markets - ✔✔Primary markets.
Underwriters, especially investment banks, help issuers sell newly created securities in
primary markets.
✔✔______ and ______ allow a financial intermediary to offer safe, liquid liabilities such
as deposits while investing depositors' money in riskier, illiquid assets.
A. Primary markets; foreign exchange markets
B. Free riders; regulations
C. Monitoring; diversification
D. Price risk; collateral
E. Diversification; high equity returns - ✔✔Monitoring; diversification.
,Diversification pools and reduces risk, while monitoring helps control the riskiness of the
intermediary's assets.
✔✔Depository institutions include:
A. banks and thrifts
B. finance companies only
C. thrifts only
D. all of these choices
E. banks only - ✔✔Banks and thrifts.
Banks, thrifts, and credit unions take deposits. Finance companies are nondepository
lenders.
✔✔Match each function to the intermediary: Functions: 1) protect from adverse events;
2) pool small savers' funds and invest in markets; 3) make consumer/real-estate loans
funded by deposits; 4) accumulate wealth from work years to retirement; 5)
underwrite/trade securities and provide brokerage. Intermediaries: Thrifts, Insurers,
Pension funds, Securities firms/investment banks, Mutual funds.
A. 4,2,3,5,1
B. 1,3,2,5,4
C. 5,1,3,2,4
D. 2,5,1,3,4
E. 2,4,5,3,1 - ✔✔2, 5, 1, 3, 4.
Protection=insurers; pooled investing=mutual funds; deposit-funded real-estate
lending=thrifts; retirement wealth=pension funds; underwriting/trading=securities firms
and investment banks.
✔✔Secondary markets support primary markets because they: I) offer primary-market
purchasers liquidity; II) update the price/value of primary-market claims; III) reduce
trading costs.
A. II only
B. I only
C. I, II, III
D. II and III only
E. I and II only - ✔✔I, II, and III.
Secondary markets add liquidity, provide market pricing, and lower transaction costs
through competition and electronic trading.
, ✔✔Financial intermediaries can offer savers a safer, more liquid investment than a
capital-market security even though the intermediary invests in risky, illiquid instruments
because:
A. they closely monitor assets
B. they diversify and the government requires it
C. they diversify and closely monitor assets
D. they diversify only
E. the government requires it - ✔✔They diversify away some risk and closely monitor
the riskiness of their assets.
Diversification reduces firm-specific risk and monitoring helps control asset quality.
✔✔Which of the following is/are money-market instrument(s)?
A. common stock
B. T-bonds
C. negotiable CDs
D. negotiable CDs, common stock, and T-bonds
E. 4-year corporate bond - ✔✔Negotiable CDs.
Money-market instruments are short-term debt instruments, generally issued with
original maturities of one year or less.
✔✔The Securities and Exchange Commission (SEC) does NOT:
A. decide whether a public issuer provided enough information
B. attempt to reduce excessive price fluctuations
C. decide whether a public issue is fairly priced
D. monitor major securities exchanges
E. require exchanges to monitor trading to prevent insider trading - ✔✔Decide whether
a public issue is fairly priced.
The SEC focuses on disclosure, market integrity, and investor protection; market supply
and demand determine security prices.
✔✔The most diversified type of depository institution is:
A. mutual funds
B. finance companies
C. credit unions
D. commercial banks
E. savings associations - ✔✔Commercial banks.
