TEST BANK FOR FINANCIAL
MARKETS AND INSTITUTIONS
8TH EDITION BY SAUNDERS
,Chapter 01 - Introduction
Chapter 01
Introduction
True / False Questions
1. Primary markets are markets where users of funds raise cash by selling securities to funds'
suppliers.
True False
2. Secondary markets are markets used by corporations to raise cash by issuing securities for a
short time period.
True False
3. In a private placement, the issuer typically sells the entire issue to one, or only a few,
institutional buyers.
True False
4. The NYSE is an example of a secondary market.
True False
5. Privately placed securities are usually sold to one or more investment bankers and then
resold to the general public.
True False
6. Money markets are the markets for securities with an original maturity of 1 year or less.
True False
7. Financial intermediaries such as banks typically have assets that are riskier than their
liabilities.
True False
1-1
,Chapter 01 - Introduction
8. There are three types of major financial markets today: primary, secondary, and derivatives
markets. The NYSE and NASDAQ are both examples of derivatives markets.
True False
Multiple Choice Questions
9. What factors are encouraging financial institutions to offer overlapping financial services
such as banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full service global financial institutions
IV. Reduction in the need to manage risk at financial institutions
A. I only
B. II and III only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV
Figure 1-1
IBM creates and sells additional stock to the investment banker, Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public.
10. This transaction is an example of a(n)
A. primary market transaction
B. asset transformation by Morgan Stanley
C. money market transaction
D. foreign exchange transaction
E. forward transaction
1-2
, Chapter 01 - Introduction
11. Morgan Stanley is acting as a(n)
A. asset transformer
B. asset broker
C. government regulator
D. foreign service representative
12. A corporation seeking to sell new equity securities to the public for the first time in order
to raise cash for capital investment would most likely
A. conduct an IPO with the assistance of an investment banker
B. engage in a secondary market sale of equity
C. conduct a private placement to a large number of potential buyers
D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
E. none of the above
13. The largest capital market security outstanding in 2010 measured by market value was
A. securitized mortgages
B. corporate bonds
C. municipal bonds
D. Treasury bonds
E. corporate stocks
14. The diagram below is a diagram of the
A. secondary markets
B. primary markets
C. money markets
D. derivatives markets
E. commodities markets
1-3
MARKETS AND INSTITUTIONS
8TH EDITION BY SAUNDERS
,Chapter 01 - Introduction
Chapter 01
Introduction
True / False Questions
1. Primary markets are markets where users of funds raise cash by selling securities to funds'
suppliers.
True False
2. Secondary markets are markets used by corporations to raise cash by issuing securities for a
short time period.
True False
3. In a private placement, the issuer typically sells the entire issue to one, or only a few,
institutional buyers.
True False
4. The NYSE is an example of a secondary market.
True False
5. Privately placed securities are usually sold to one or more investment bankers and then
resold to the general public.
True False
6. Money markets are the markets for securities with an original maturity of 1 year or less.
True False
7. Financial intermediaries such as banks typically have assets that are riskier than their
liabilities.
True False
1-1
,Chapter 01 - Introduction
8. There are three types of major financial markets today: primary, secondary, and derivatives
markets. The NYSE and NASDAQ are both examples of derivatives markets.
True False
Multiple Choice Questions
9. What factors are encouraging financial institutions to offer overlapping financial services
such as banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full service global financial institutions
IV. Reduction in the need to manage risk at financial institutions
A. I only
B. II and III only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV
Figure 1-1
IBM creates and sells additional stock to the investment banker, Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public.
10. This transaction is an example of a(n)
A. primary market transaction
B. asset transformation by Morgan Stanley
C. money market transaction
D. foreign exchange transaction
E. forward transaction
1-2
, Chapter 01 - Introduction
11. Morgan Stanley is acting as a(n)
A. asset transformer
B. asset broker
C. government regulator
D. foreign service representative
12. A corporation seeking to sell new equity securities to the public for the first time in order
to raise cash for capital investment would most likely
A. conduct an IPO with the assistance of an investment banker
B. engage in a secondary market sale of equity
C. conduct a private placement to a large number of potential buyers
D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
E. none of the above
13. The largest capital market security outstanding in 2010 measured by market value was
A. securitized mortgages
B. corporate bonds
C. municipal bonds
D. Treasury bonds
E. corporate stocks
14. The diagram below is a diagram of the
A. secondary markets
B. primary markets
C. money markets
D. derivatives markets
E. commodities markets
1-3
