9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
Chapter 1
Why Study Financial Markets and Institutions?
!Multiple Choice Questions
1. Financial markets and institutions
(a) involve the movement of huge quantities of money.
(b) affect the profits of businesses.
(c) affect the types of goods and services produced in an economy.
(d) do all of the above.
(e) do only (a) and (b) of the above.
Answer: D
2. Financial market activities affect
(a) personal wealth.
(b) spending decisions by individuals and business firms.
(c) the economy’s location in the business cycle.
(d) all of the above.
Answer: D
3. Markets in which funds are transferred from those who have excess funds available to
those who have a shortage of available funds are called
(a) commodity markets.
(b) funds markets.
(c) derivative exchange markets.
(d) financial markets.
Answer: D
4. The price paid for the rental of borrowed funds (usually expressed as a percentage of the
rental of $100 per year) is commonly referred to as the
(a) inflation rate.
(b) exchange rate.
(c) interest rate.
(d) aggregate price level.
Answer: C
5. The bond markets are important because
(a) they are easily the most widely followed financial markets in the United States.
(b) they are the markets where interest rates are determined.
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,9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
(c) they are the markets where foreign exchange rates are determined.
(d) all of the above.
Answer: B
6. Interest rates are important to financial institutions since an interest rate increase
the cost of acquiring funds and the income from assets.
(a) decreases; decreases
(b) increases; increases
(c) decreases; increases
(d) increases; decreases
Answer: B
7. Typically, increasing interest rates
(a) discourage individuals from saving.
(b) discourage corporate investments.
(c) encourage corporate expansion.
(d) encourage corporate borrowing.
(e) none of the above.
Answer: B
8. Compared to interest rates on long-term U.S. government bonds, interest rates on
fluctuate more and are lower on average.
(a) medium-quality corporate bonds
(b) low-quality corporate bonds
(c) high-quality corporate bonds
(d) three-month Treasury bills
(e) none of the above
Answer: D
9. Compared to interest rates on long-term U.S. government bonds, interest rates on three-
month Treasury bills fluctuate and are on average.
(a) more; lower
(b) less; lower
(c) more; higher
(d) less; higher
Answer: A
10. The stock market is important because
(a) it is where interest rates are determined.
(b) it is the most widely followed financial market in the United States.
(c) it is where foreign exchange rates are determined.
(d) all of the above.
Answer: B
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,9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
Chapter 2
Overview of the Financial System
!Multiple Choice Questions
1. !Every financial market performs the following function:
(a) !It determines the level of interest rates.
(b) !It allows common stock to be traded.
(c) !It allows loans to be made.
(d) !It channels funds from lenders-savers to borrowers-spenders.
Answer: !D
2. !Financial markets have the basic function of
(a) !bringing together people with funds to lend and people who want to borrow funds.
(b) !assuring that the swings in the business cycle are less pronounced.
(c) !assuring that governments need never resort to printing money.
(d) !both (a) and (b) of the above.
(e) !both (b) and (c) of the above.
Answer: !A
3. !Which of the following can be described as involving direct finance?
(a) !A corporation’s stock is traded in an over-the-counter market.
(b) !People buy shares in a mutual fund.
(c) !A pension fund manager buys commercial paper in the secondary market.
(d) !An insurance company buys shares of common stock in the over-the-counter
markets.
(e) !None of the above.
Answer: E!
4. !Which of the following can be described as involving direct finance?
(a) !A corporation’s stock is traded in an over-the-counter market.
(b) !A corporation buys commercial paper issued by another corporation.
(c) !A pension fund manager buys commercial paper from the issuing corporation.
(d) !Both (a) and (b) of the above.
(e) !Both (b) and (c) of the above.
Answer: !B
5. !Which of the following can be described as involving indirect finance?
(a) !A corporation takes out loans from a bank.
(b) !People buy shares in a mutual fund.
(c) !A corporation buys commercial paper in a secondary market.
(d) !All of the above.
(e) !Only (a) and (b) of the above.
Answer: !E
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, 9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
6. !Which of the following can be described as involving indirect finance?
(a) !A bank buys a U.S. Treasury bill from one of its depositors.
(b) !A corporation buys commercial paper issued by another corporation.
(c) !A pension fund manager buys commercial paper in the primary market.
(d) !Both (a) and (c) of the above.
Answer: !D
7. !Financial markets improve economic welfare because
(a) !they allow funds to move from those without productive investment opportunities
to those who have such opportunities.
(b) !they allow consumers to time their purchases better.
(c) !they weed out inefficient firms.
(d) !they do all of the above.
(e) !they do (a) and (b) of the above.
Answer: !E
8. !A country whose financial markets function poorly is likely to
(a) !efficiently allocate its capital resources.
(b) !enjoy high productivity.
(c) !experience economic hardship and financial crises.
(d) !increase its standard of living.
Answer: !C
9. !Which of the following are securities?
(a) !A certificate of deposit
(b) !A share of Texaco common stock
(c) !A Treasury bill
(d) !All of the above
(e) !Only (a) and (b) of the above
Answer: !D
10. !Which of the following statements about the characteristics of debt and equity are true?
(a) !They both can be long-term financial instruments.
(b) !They both involve a claim on the issuer’s income.
(c) !They both enable a corporation to raise funds.
(d) !All of the above.
(e) !Only (a) and (b) of the above.
Answer: !D
11. !The money market is the market in which are traded.
(a) !new issues of securities
(b) !previously issued securities
(c) !short-term debt instruments
(d) !long-term debt and equity instruments
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PM questions
Chapter 1
Why Study Financial Markets and Institutions?
!Multiple Choice Questions
1. Financial markets and institutions
(a) involve the movement of huge quantities of money.
(b) affect the profits of businesses.
(c) affect the types of goods and services produced in an economy.
(d) do all of the above.
(e) do only (a) and (b) of the above.
Answer: D
2. Financial market activities affect
(a) personal wealth.
(b) spending decisions by individuals and business firms.
(c) the economy’s location in the business cycle.
(d) all of the above.
Answer: D
3. Markets in which funds are transferred from those who have excess funds available to
those who have a shortage of available funds are called
(a) commodity markets.
(b) funds markets.
(c) derivative exchange markets.
(d) financial markets.
Answer: D
4. The price paid for the rental of borrowed funds (usually expressed as a percentage of the
rental of $100 per year) is commonly referred to as the
(a) inflation rate.
(b) exchange rate.
(c) interest rate.
(d) aggregate price level.
Answer: C
5. The bond markets are important because
(a) they are easily the most widely followed financial markets in the United States.
(b) they are the markets where interest rates are determined.
about:bl 1/1
,9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
(c) they are the markets where foreign exchange rates are determined.
(d) all of the above.
Answer: B
6. Interest rates are important to financial institutions since an interest rate increase
the cost of acquiring funds and the income from assets.
(a) decreases; decreases
(b) increases; increases
(c) decreases; increases
(d) increases; decreases
Answer: B
7. Typically, increasing interest rates
(a) discourage individuals from saving.
(b) discourage corporate investments.
(c) encourage corporate expansion.
(d) encourage corporate borrowing.
(e) none of the above.
Answer: B
8. Compared to interest rates on long-term U.S. government bonds, interest rates on
fluctuate more and are lower on average.
(a) medium-quality corporate bonds
(b) low-quality corporate bonds
(c) high-quality corporate bonds
(d) three-month Treasury bills
(e) none of the above
Answer: D
9. Compared to interest rates on long-term U.S. government bonds, interest rates on three-
month Treasury bills fluctuate and are on average.
(a) more; lower
(b) less; lower
(c) more; higher
(d) less; higher
Answer: A
10. The stock market is important because
(a) it is where interest rates are determined.
(b) it is the most widely followed financial market in the United States.
(c) it is where foreign exchange rates are determined.
(d) all of the above.
Answer: B
about:bl 2/1
,9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
Chapter 2
Overview of the Financial System
!Multiple Choice Questions
1. !Every financial market performs the following function:
(a) !It determines the level of interest rates.
(b) !It allows common stock to be traded.
(c) !It allows loans to be made.
(d) !It channels funds from lenders-savers to borrowers-spenders.
Answer: !D
2. !Financial markets have the basic function of
(a) !bringing together people with funds to lend and people who want to borrow funds.
(b) !assuring that the swings in the business cycle are less pronounced.
(c) !assuring that governments need never resort to printing money.
(d) !both (a) and (b) of the above.
(e) !both (b) and (c) of the above.
Answer: !A
3. !Which of the following can be described as involving direct finance?
(a) !A corporation’s stock is traded in an over-the-counter market.
(b) !People buy shares in a mutual fund.
(c) !A pension fund manager buys commercial paper in the secondary market.
(d) !An insurance company buys shares of common stock in the over-the-counter
markets.
(e) !None of the above.
Answer: E!
4. !Which of the following can be described as involving direct finance?
(a) !A corporation’s stock is traded in an over-the-counter market.
(b) !A corporation buys commercial paper issued by another corporation.
(c) !A pension fund manager buys commercial paper from the issuing corporation.
(d) !Both (a) and (b) of the above.
(e) !Both (b) and (c) of the above.
Answer: !B
5. !Which of the following can be described as involving indirect finance?
(a) !A corporation takes out loans from a bank.
(b) !People buy shares in a mutual fund.
(c) !A corporation buys commercial paper in a secondary market.
(d) !All of the above.
(e) !Only (a) and (b) of the above.
Answer: !E
about:bl 3/1
, 9/5/24, 5:45 Test bank 2doc - Multiple choice and true and false
PM questions
6. !Which of the following can be described as involving indirect finance?
(a) !A bank buys a U.S. Treasury bill from one of its depositors.
(b) !A corporation buys commercial paper issued by another corporation.
(c) !A pension fund manager buys commercial paper in the primary market.
(d) !Both (a) and (c) of the above.
Answer: !D
7. !Financial markets improve economic welfare because
(a) !they allow funds to move from those without productive investment opportunities
to those who have such opportunities.
(b) !they allow consumers to time their purchases better.
(c) !they weed out inefficient firms.
(d) !they do all of the above.
(e) !they do (a) and (b) of the above.
Answer: !E
8. !A country whose financial markets function poorly is likely to
(a) !efficiently allocate its capital resources.
(b) !enjoy high productivity.
(c) !experience economic hardship and financial crises.
(d) !increase its standard of living.
Answer: !C
9. !Which of the following are securities?
(a) !A certificate of deposit
(b) !A share of Texaco common stock
(c) !A Treasury bill
(d) !All of the above
(e) !Only (a) and (b) of the above
Answer: !D
10. !Which of the following statements about the characteristics of debt and equity are true?
(a) !They both can be long-term financial instruments.
(b) !They both involve a claim on the issuer’s income.
(c) !They both enable a corporation to raise funds.
(d) !All of the above.
(e) !Only (a) and (b) of the above.
Answer: !D
11. !The money market is the market in which are traded.
(a) !new issues of securities
(b) !previously issued securities
(c) !short-term debt instruments
(d) !long-term debt and equity instruments
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