B
,B
Financial Markets & Institutions 5th B B B B
Edition Test Bank B B
Chapter 01 Introduction Answer Key
B B B B
True / False Questions
B B B
1. Primary markets are markets where users of funds raise cash by
B B B B B B B B B B B
B securities to funds’ suppliers.
selling B B B
TRUE
2. Secondary markets are markets used by corporations to raise cash by
B B B B B B B B B B B
Bissuing
securities for a short time period. B B B B B
FALSE
3. In a private placement, the issuer typically sells the entire issue to one, or
B B B B B B B B B B B B B B
Bonly
a few, institutional buyers.
B B B
TRUE
4. B The NYSE is an example of a secondary market.
B B B B B B B B
TRUE
5. Privately placed securities are usually sold to one or more investment
B B B B B B B B B B B
Bbankers
and then resold to the general public.
B B B B B B
FALSE
6. Money markets are the markets for securities with an original maturity of
B B B B B B B B B B B B
B1 year or less. B B
TRUE
7. Financial intermediaries such as banks typically have assets that are
B B B B B B B B B B
Briskier
than their liabilities. B B
TRUE
8. There are three types of major financial markets today: primary,
B B B B B B B B B B
Bsecondary,
and derivatives markets. The NYSE and NASDAQ are both examples of
B B B B B B B B B B
derivatives markets. B
FALSE
Multiple Choice Questions
B B
9. B What factors are encouraging financial institutions to offer overlapping
B B B B B B B B
financial services such as banking, investment banking, brokerage, etc.?
B B B B B B B B
I. Regulatory changes allowing institutions to offer more services
B B B B B B B B
II. Technological improvements reducing the cost of providing financial
B B B B B B B B
services
III. Increasing competition from full service global financial institutions
B B B B B B B B
IV. Reduction in the need to manage risk at financial institutions
B B B B B B B B B B
,B
A.I onlyB
B. II and III only
B B B B
C. I, II, and III only
B B B B B
D. I, II, and IV only
B B B B B
E. I, II, III, and IV
B B B B B
Figure 1-1
B
IBM creates and sells additional stock to the investment banker, Morgan Stanley.
B B B B B B B B B B B
Morgan Stanley then resells the issue to the U.S. public.
B B B B B B B B B
10. This transaction is an example of a(n)
B B B B B B B
A.primary market transaction B B
B. asset transformation by Morgan Stanley
B B B B B
C. money market transaction
B B B
D. foreign exchange transaction
B B B
E. forward transaction
B B
11. Morgan Stanley is acting as a(n)
B B B B B B
A.asset transformer B
B. asset broker
B B
C. government regulator
B B
D. foreign service representative
B B B
12. A corporation seeking to sell new equity securities to the public for the first
B B B B B B B B B B B B B B
time in order to raise cash for capital investment would most likely
B B B B B B B B B B B
A.conduct an IPO with the assistance of an investment banker
B B B B B B B B B
B. engage in a secondary market sale of equity
B B B B B B B B
C. conduct a private placement to a large number of potential buyers
B B B B B B B B B B B
D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
B B B B B B B B B B B B B
E. none of the above
B B B B
13. The largest capital market security outstanding in 2010 measured by market
B B B B B B B B B B B
value was B
A.securitized mortgages B
B. corporate bonds
B B
C. municipal bonds
B B
D. Treasury bonds
B B
E. corporate stocks
B B
14. The diagram below is a diagram of the
B B B B B B B B
A.secondary markets B
B. primary markets
B B
C. money markets
B B
D. derivatives markets
B B
E. commodities markets
B B
15. _________ and __________ allow a financial intermediary to offer safe,
B B B B B B B B B B
liquid liabilities such as deposits while investing the depositors’ money in
B B B B B B B B B B
riskier, illiquid assets. B B
,B
A.Diversification; high equity returns B B B
B. Price risk; collateral
B B B
C. Free riders; regulations
B B B
D. Monitoring; diversification
B B
E. Primary markets; foreign exchange markets
B B B B B
16. Depository institutions include:
B B B
A.banks
B. thrifts
B
C. finance companies
B B
D. all of the above
B B B B
E. A and B only
B B B B
17. Match the intermediary with the characteristic that best describes its function.
B B B B B B B B B B B
I. Provide protection from adverse events
B B B B B
II. Pool funds of small savers and invest in either money or capital markets
B B B B B B B B B B B B B
III. Provide consumer loans and real estate loans funded by deposits
B B B B B B B B B B
IV. Accumulate and transfer wealth from work period to retirement period
B B B B B B B B B B
V. Underwrite and trade securities and provide brokerage services
B B B B B B B B
1. Thrifts
B
2. Insurers
B
3. Pension funds
B B
4. Securities firms and investment banks
B B B B B
5. Mutual funds
B B
A.1, 3, 2, 5, 4 B B B B
B. 4, 2, 3, 5, 1
B B B B B
C. 2, 5, 1, 3, 4
B B B B B
D. 2, 4, 5, 3, 1
B B B B B
E. 5, 1, 3, 2, 4
B B B B B
18. Secondary markets help support primary markets because secondary markets
B B B B B B B B B
I. Offer primary market purchasers liquidity for their holdings
B B B B B B B B
II. Update the price or value of the primary market claims
B B B B B B B B B B
III. Reduce the cost of trading the primary market claims
B B B B B B B B B
A.I only B
B. II only
B B
C. I and II only
B B B B
D. II and III only
B B B B
E. I, II, and III
B B B B
19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
B B B B B B B B B B B
than a capital market security, even though the intermediary invests in risky
B B B B B B B B B B B
illiquid instruments because B B
A.FIs can diversify away some of their risk
B B B B B B B
B. FIs closely monitor the riskiness of their assets
B B B B B B B B
C. the federal government requires them to do so
B B B B B B B B
,B
Financial Markets & Institutions 5th B B B B
Edition Test Bank B B
Chapter 01 Introduction Answer Key
B B B B
True / False Questions
B B B
1. Primary markets are markets where users of funds raise cash by
B B B B B B B B B B B
B securities to funds’ suppliers.
selling B B B
TRUE
2. Secondary markets are markets used by corporations to raise cash by
B B B B B B B B B B B
Bissuing
securities for a short time period. B B B B B
FALSE
3. In a private placement, the issuer typically sells the entire issue to one, or
B B B B B B B B B B B B B B
Bonly
a few, institutional buyers.
B B B
TRUE
4. B The NYSE is an example of a secondary market.
B B B B B B B B
TRUE
5. Privately placed securities are usually sold to one or more investment
B B B B B B B B B B B
Bbankers
and then resold to the general public.
B B B B B B
FALSE
6. Money markets are the markets for securities with an original maturity of
B B B B B B B B B B B B
B1 year or less. B B
TRUE
7. Financial intermediaries such as banks typically have assets that are
B B B B B B B B B B
Briskier
than their liabilities. B B
TRUE
8. There are three types of major financial markets today: primary,
B B B B B B B B B B
Bsecondary,
and derivatives markets. The NYSE and NASDAQ are both examples of
B B B B B B B B B B
derivatives markets. B
FALSE
Multiple Choice Questions
B B
9. B What factors are encouraging financial institutions to offer overlapping
B B B B B B B B
financial services such as banking, investment banking, brokerage, etc.?
B B B B B B B B
I. Regulatory changes allowing institutions to offer more services
B B B B B B B B
II. Technological improvements reducing the cost of providing financial
B B B B B B B B
services
III. Increasing competition from full service global financial institutions
B B B B B B B B
IV. Reduction in the need to manage risk at financial institutions
B B B B B B B B B B
,B
A.I onlyB
B. II and III only
B B B B
C. I, II, and III only
B B B B B
D. I, II, and IV only
B B B B B
E. I, II, III, and IV
B B B B B
Figure 1-1
B
IBM creates and sells additional stock to the investment banker, Morgan Stanley.
B B B B B B B B B B B
Morgan Stanley then resells the issue to the U.S. public.
B B B B B B B B B
10. This transaction is an example of a(n)
B B B B B B B
A.primary market transaction B B
B. asset transformation by Morgan Stanley
B B B B B
C. money market transaction
B B B
D. foreign exchange transaction
B B B
E. forward transaction
B B
11. Morgan Stanley is acting as a(n)
B B B B B B
A.asset transformer B
B. asset broker
B B
C. government regulator
B B
D. foreign service representative
B B B
12. A corporation seeking to sell new equity securities to the public for the first
B B B B B B B B B B B B B B
time in order to raise cash for capital investment would most likely
B B B B B B B B B B B
A.conduct an IPO with the assistance of an investment banker
B B B B B B B B B
B. engage in a secondary market sale of equity
B B B B B B B B
C. conduct a private placement to a large number of potential buyers
B B B B B B B B B B B
D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
B B B B B B B B B B B B B
E. none of the above
B B B B
13. The largest capital market security outstanding in 2010 measured by market
B B B B B B B B B B B
value was B
A.securitized mortgages B
B. corporate bonds
B B
C. municipal bonds
B B
D. Treasury bonds
B B
E. corporate stocks
B B
14. The diagram below is a diagram of the
B B B B B B B B
A.secondary markets B
B. primary markets
B B
C. money markets
B B
D. derivatives markets
B B
E. commodities markets
B B
15. _________ and __________ allow a financial intermediary to offer safe,
B B B B B B B B B B
liquid liabilities such as deposits while investing the depositors’ money in
B B B B B B B B B B
riskier, illiquid assets. B B
,B
A.Diversification; high equity returns B B B
B. Price risk; collateral
B B B
C. Free riders; regulations
B B B
D. Monitoring; diversification
B B
E. Primary markets; foreign exchange markets
B B B B B
16. Depository institutions include:
B B B
A.banks
B. thrifts
B
C. finance companies
B B
D. all of the above
B B B B
E. A and B only
B B B B
17. Match the intermediary with the characteristic that best describes its function.
B B B B B B B B B B B
I. Provide protection from adverse events
B B B B B
II. Pool funds of small savers and invest in either money or capital markets
B B B B B B B B B B B B B
III. Provide consumer loans and real estate loans funded by deposits
B B B B B B B B B B
IV. Accumulate and transfer wealth from work period to retirement period
B B B B B B B B B B
V. Underwrite and trade securities and provide brokerage services
B B B B B B B B
1. Thrifts
B
2. Insurers
B
3. Pension funds
B B
4. Securities firms and investment banks
B B B B B
5. Mutual funds
B B
A.1, 3, 2, 5, 4 B B B B
B. 4, 2, 3, 5, 1
B B B B B
C. 2, 5, 1, 3, 4
B B B B B
D. 2, 4, 5, 3, 1
B B B B B
E. 5, 1, 3, 2, 4
B B B B B
18. Secondary markets help support primary markets because secondary markets
B B B B B B B B B
I. Offer primary market purchasers liquidity for their holdings
B B B B B B B B
II. Update the price or value of the primary market claims
B B B B B B B B B B
III. Reduce the cost of trading the primary market claims
B B B B B B B B B
A.I only B
B. II only
B B
C. I and II only
B B B B
D. II and III only
B B B B
E. I, II, and III
B B B B
19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
B B B B B B B B B B B
than a capital market security, even though the intermediary invests in risky
B B B B B B B B B B B
illiquid instruments because B B
A.FIs can diversify away some of their risk
B B B B B B B
B. FIs closely monitor the riskiness of their assets
B B B B B B B B
C. the federal government requires them to do so
B B B B B B B B
