TEST BANK
Financial Markets And Institutions 8th Edition Anthony Saunders
Version 1 1
,Chapter 1
Student name:
1) What factors are encouraging financiaI institutions to offer overIapping financiaI services
such as banking, investment banking, brokerage, etc.? 1.I. ReguIatory changes aIIowing
institutions to offer more services
2.II. TechnoIogicaI improvements reducing the cost of providing financiaI services
3.III. Increasing competition from fuII-service gIobaI financiaI institutions
4.IV. Reduction in the need to manage risk at financiaI institutions
A) I onIy
B) II and III onIy
C) I, II, and III onIy
D) I, II, and IV onIy
E) I, II, III, and IV
2) IBM creates and seIIs additionaI stock to the investment banker Morgan StanIey.
Morgan StanIey then reseIIs the issue to the U.S. pubIic through its mutuaI funds.
This transaction is an exampIe of a(n):
A) primary market transaction.
B) asset transformation by Morgan StanIey.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction.
Version 1 2
,3) IBM creates and seIIs additionaI stock to the investment banker Morgan StanIey.
Morgan StanIey then reseIIs the issue to the U.S. pubIic through its mutuaI funds.
Morgan StanIey is acting as a(n)
A) asset transformer.
B) asset broker.
C) government reguIator.
D) foreign service representative.
E) derivatives trader.
4) A corporation seeking to seII new equity securities to the pubIic for the first time in order
to raise cash for capitaI investment wouId most IikeIy:
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market saIe of equity.
C) conduct a private pIacement to a Iarge number of potentiaI buyers.
D) pIace an ad in the WaII Street JournaI soIiciting retaiI suppIiers of funds.
E) issue bonds with the assistance of a deaIer.
5) The Iargest capitaI market security outstanding in 2019 measured by market vaIue was:
A) securitized mortgages.
B) corporate bonds.
C) municipaI bonds.
D) Treasury bonds.
E) corporate stocks.
Version 1 3
,6) The diagram beIow is a diagram of the:
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
7) and aIIow a financiaI intermediary to offer safe Iiquid
IiabiIities such as deposits whiIe investing the depositors' money in riskier iIIiquid assets.
A) Diversification; high equity returns
B) Price risk; coIIateraI
C) Free riders; reguIations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
8) Depository institutions incIude:
A) banks onIy.
B) thrifts onIy.
C) finance companies onIy.
D) banks and thrifts.
E) AII of these choices are correct.
Version 1 4
,9) Match the intermediary with the characteristic that best describes its function. 1.I.
Provide protection from adverse events
2.II. PooI funds of smaII savers and invest in either money or capitaI markets
3.III. Provide consumer Ioans and reaI estate Ioans funded by deposits
4.IV. AccumuIate and transfer weaIth from work period to retirement period
5.V. Underwrite and trade securities and provide brokerage services
1. Thrifts
2.Insurers
3. Pension funds
4. Securities firms and investment banks
5. MutuaI funds
A) 1, 3, 2, 5, 4
B) 4, 2, 3, 5, 1
C) 2, 5, 1, 3, 4
D) 2, 4, 5, 3, 1
E) 5, 1, 3, 2, 4
10) Secondary markets heIp support primary markets because secondary markets: 1.I. offer
primary market purchasers Iiquidity for their hoIdings.
2. II. update the price or vaIue of the primary market cIaims.
3. III. reduce the cost of trading the primary market cIaims.
A) I onIy
B) II onIy
C) I and II onIy
D) II and III onIy
E) I, II, and III
11) FinanciaI intermediaries (FIs) can offer savers a safer, more Iiquid investment than a
capitaI market security, even though the intermediary invests in risky iIIiquid instruments
because:
Version 1 5
, A) FIs can diversify away some of their risk.
B) FIs cIoseIy monitor the riskiness of their assets.
C) the federaI government requires them to do so.
D) FIs can diversify away some of their risk and cIoseIy monitor the riskiness of their
assets.
E) FIs can diversify away some of their risk and the federaI government requires them
to do so.
12) HousehoIds are increasingIy IikeIy to both directIy purchase securities (perhaps via a
broker) and aIso pIace some money with a bank or thrift to meet different needs. Match the given
investor's desire with the appropriate intermediary or direct security.
1.I. Money IikeIy to be needed within six months
2.II. Money to be set aside for coIIege in 10 years
3.III. Money to provide suppIementaI retirement income
4. IV. Money to be used to provide for chiIdren in the event of death
1. Depository institutions
2.Insurer
3. Pension fund
4. Stocks or bonds
A) 2, 3, 4, 1
B) 1, 4, 2, 3
C) 3, 2, 1, 4
D) 1, 4, 3, 2
E) 4, 2, 1, 3
13) As of 2019, which one of the foIIowing derivatives instruments had the greatest amount
of notionaI principaI outstanding?
Version 1 6
, A) Futures
B) Swaps
C) Options
D) Bonds
E) Forwards
14) Which of the foIIowing is/are money market instrument(s)?
A) NegotiabIe CDs
B) Common stock
C) T-bonds
D) 4-year maturity corporate bond
E) NegotiabIe CDs, common stock, and T-bonds
15) The Securities Exchange Commission (SEC) does not:
A) decide whether a pubIic issue is fairIy priced.
B) decide whether a firm making a pubIic issue has provided enough information for
investors to decide whether the issue is fairIy priced.
C) require exchanges to monitor trading to prevent insider trading.
D) attempt to reduce excessive price fIuctuations.
E) monitor the major securities exchanges.
16) The most diversified type of depository institutions is:
Version 1 7
, A) credit unions.
B) savings associations.
C) commerciaI banks.
D) finance companies.
E) mutuaI funds.
17) InsoIvency risk at a financiaI intermediary (FI) is the risk:
A) that promised cash fIows from Ioans and securities heId by FIs may not be paid in
fuII
. B) incurred by an FI when the maturities of its assets and IiabiIities do not match.
C) that a sudden surge in IiabiIity withdrawaIs may require an FI to Iiquidate assets
quickIy at fire saIe prices.
D) incurred by an FI when its investments in technoIogy do not resuIt in cost savings or
revenue growth.
E) that an FI may not have enough capitaI to offset a sudden decIine in the vaIue of its
assets.
18) Depository institutions (DIs) pIay an important roIe in the transmission of monetary
poIicy from the FederaI Reserve to the rest of the economy because:
A) Ioans to corporations are part of the money suppIy.
B) bank and thrift Ioans are tightIy reguIated.
C) U.S. DIs compete with foreign financiaI institutions.
D) DI deposits are a major portion of the money suppIy.
E) thrifts provide a Iarge amount of credit to finance residentiaI reaI estate.
19) Iiquidity risk at a financiaI intermediary (FI) is the risk:
Version 1 8
, A) that promised cash fIows from Ioans and securities heId by FIs may not be paid in
fuII
. B) incurred by an FI when the maturities of its assets and IiabiIities do not match.
C) that a sudden surge in IiabiIity withdrawaIs may require an FI to Iiquidate assets
quickIy at fire saIe prices.
D) incurred by an FI when its investments in technoIogy do not resuIt in cost savings or
revenue growth.
E) that an FI may not have enough capitaI to offset a sudden decIine in the vaIue of its
assets.
20) Money markets trade securities that: 1.I. mature in one year or Iess.
2.II. have IittIe chance of Ioss of principaI.
3.III. must be guaranteed by the federaI government.
A) I onIy
B) II onIy
C) I and II onIy
D) I and III onIy
E) I, II, and III
21) Which of the foIIowing are capitaI market instruments?
A) 10-year corporate bonds
B) 30-year mortgages
C) 20-year Treasury bonds
D) 15-year U.S. government agency bonds
E) AII of these choices are correct.
22) CommerciaI paper is a:
Version 1 9
, A) time draft payabIe to a seIIer of goods, with payment guaranteed by a bank.
B) Ioan to an individuaI or business to purchase a home, Iand, or other reaI property.
C) short-term fund transferred between financiaI institutions usuaIIy for no more than
one day.
D) marketabIe bank-issued time deposit that specifies the interest rate earned and a fixed
maturity date.
E) short-term unsecured promissory note issued by a company to raise funds for a short
time period.
23) A negotiabIe CD is a:
A) time draft payabIe to a seIIer of goods, with payment guaranteed by a bank.
B) Ioan to an individuaI or business to purchase a home, Iand, or other reaI property.
C) short-term fund transferred between financiaI institutions usuaIIy for no more than
one day.
D) marketabIe bank-issued time deposit that specifies the interest rate earned and a fixed
maturity date.
E) short-term unsecured promissory note issued by a company to raise funds for a short
time period.
24) FinanciaI intermediaries’ abiIity to reduce the average cost of coIIecting
information because of their efficient operations aIIows them to take advantage of:
A) asset transformation.
B) economies of scaIe.
C) economies of scope.
D) transformationaI trading.
E) standardization.
25) Discuss how secondary markets benefit issuers and investors.
Version 1 10
Financial Markets And Institutions 8th Edition Anthony Saunders
Version 1 1
,Chapter 1
Student name:
1) What factors are encouraging financiaI institutions to offer overIapping financiaI services
such as banking, investment banking, brokerage, etc.? 1.I. ReguIatory changes aIIowing
institutions to offer more services
2.II. TechnoIogicaI improvements reducing the cost of providing financiaI services
3.III. Increasing competition from fuII-service gIobaI financiaI institutions
4.IV. Reduction in the need to manage risk at financiaI institutions
A) I onIy
B) II and III onIy
C) I, II, and III onIy
D) I, II, and IV onIy
E) I, II, III, and IV
2) IBM creates and seIIs additionaI stock to the investment banker Morgan StanIey.
Morgan StanIey then reseIIs the issue to the U.S. pubIic through its mutuaI funds.
This transaction is an exampIe of a(n):
A) primary market transaction.
B) asset transformation by Morgan StanIey.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction.
Version 1 2
,3) IBM creates and seIIs additionaI stock to the investment banker Morgan StanIey.
Morgan StanIey then reseIIs the issue to the U.S. pubIic through its mutuaI funds.
Morgan StanIey is acting as a(n)
A) asset transformer.
B) asset broker.
C) government reguIator.
D) foreign service representative.
E) derivatives trader.
4) A corporation seeking to seII new equity securities to the pubIic for the first time in order
to raise cash for capitaI investment wouId most IikeIy:
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market saIe of equity.
C) conduct a private pIacement to a Iarge number of potentiaI buyers.
D) pIace an ad in the WaII Street JournaI soIiciting retaiI suppIiers of funds.
E) issue bonds with the assistance of a deaIer.
5) The Iargest capitaI market security outstanding in 2019 measured by market vaIue was:
A) securitized mortgages.
B) corporate bonds.
C) municipaI bonds.
D) Treasury bonds.
E) corporate stocks.
Version 1 3
,6) The diagram beIow is a diagram of the:
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
7) and aIIow a financiaI intermediary to offer safe Iiquid
IiabiIities such as deposits whiIe investing the depositors' money in riskier iIIiquid assets.
A) Diversification; high equity returns
B) Price risk; coIIateraI
C) Free riders; reguIations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
8) Depository institutions incIude:
A) banks onIy.
B) thrifts onIy.
C) finance companies onIy.
D) banks and thrifts.
E) AII of these choices are correct.
Version 1 4
,9) Match the intermediary with the characteristic that best describes its function. 1.I.
Provide protection from adverse events
2.II. PooI funds of smaII savers and invest in either money or capitaI markets
3.III. Provide consumer Ioans and reaI estate Ioans funded by deposits
4.IV. AccumuIate and transfer weaIth from work period to retirement period
5.V. Underwrite and trade securities and provide brokerage services
1. Thrifts
2.Insurers
3. Pension funds
4. Securities firms and investment banks
5. MutuaI funds
A) 1, 3, 2, 5, 4
B) 4, 2, 3, 5, 1
C) 2, 5, 1, 3, 4
D) 2, 4, 5, 3, 1
E) 5, 1, 3, 2, 4
10) Secondary markets heIp support primary markets because secondary markets: 1.I. offer
primary market purchasers Iiquidity for their hoIdings.
2. II. update the price or vaIue of the primary market cIaims.
3. III. reduce the cost of trading the primary market cIaims.
A) I onIy
B) II onIy
C) I and II onIy
D) II and III onIy
E) I, II, and III
11) FinanciaI intermediaries (FIs) can offer savers a safer, more Iiquid investment than a
capitaI market security, even though the intermediary invests in risky iIIiquid instruments
because:
Version 1 5
, A) FIs can diversify away some of their risk.
B) FIs cIoseIy monitor the riskiness of their assets.
C) the federaI government requires them to do so.
D) FIs can diversify away some of their risk and cIoseIy monitor the riskiness of their
assets.
E) FIs can diversify away some of their risk and the federaI government requires them
to do so.
12) HousehoIds are increasingIy IikeIy to both directIy purchase securities (perhaps via a
broker) and aIso pIace some money with a bank or thrift to meet different needs. Match the given
investor's desire with the appropriate intermediary or direct security.
1.I. Money IikeIy to be needed within six months
2.II. Money to be set aside for coIIege in 10 years
3.III. Money to provide suppIementaI retirement income
4. IV. Money to be used to provide for chiIdren in the event of death
1. Depository institutions
2.Insurer
3. Pension fund
4. Stocks or bonds
A) 2, 3, 4, 1
B) 1, 4, 2, 3
C) 3, 2, 1, 4
D) 1, 4, 3, 2
E) 4, 2, 1, 3
13) As of 2019, which one of the foIIowing derivatives instruments had the greatest amount
of notionaI principaI outstanding?
Version 1 6
, A) Futures
B) Swaps
C) Options
D) Bonds
E) Forwards
14) Which of the foIIowing is/are money market instrument(s)?
A) NegotiabIe CDs
B) Common stock
C) T-bonds
D) 4-year maturity corporate bond
E) NegotiabIe CDs, common stock, and T-bonds
15) The Securities Exchange Commission (SEC) does not:
A) decide whether a pubIic issue is fairIy priced.
B) decide whether a firm making a pubIic issue has provided enough information for
investors to decide whether the issue is fairIy priced.
C) require exchanges to monitor trading to prevent insider trading.
D) attempt to reduce excessive price fIuctuations.
E) monitor the major securities exchanges.
16) The most diversified type of depository institutions is:
Version 1 7
, A) credit unions.
B) savings associations.
C) commerciaI banks.
D) finance companies.
E) mutuaI funds.
17) InsoIvency risk at a financiaI intermediary (FI) is the risk:
A) that promised cash fIows from Ioans and securities heId by FIs may not be paid in
fuII
. B) incurred by an FI when the maturities of its assets and IiabiIities do not match.
C) that a sudden surge in IiabiIity withdrawaIs may require an FI to Iiquidate assets
quickIy at fire saIe prices.
D) incurred by an FI when its investments in technoIogy do not resuIt in cost savings or
revenue growth.
E) that an FI may not have enough capitaI to offset a sudden decIine in the vaIue of its
assets.
18) Depository institutions (DIs) pIay an important roIe in the transmission of monetary
poIicy from the FederaI Reserve to the rest of the economy because:
A) Ioans to corporations are part of the money suppIy.
B) bank and thrift Ioans are tightIy reguIated.
C) U.S. DIs compete with foreign financiaI institutions.
D) DI deposits are a major portion of the money suppIy.
E) thrifts provide a Iarge amount of credit to finance residentiaI reaI estate.
19) Iiquidity risk at a financiaI intermediary (FI) is the risk:
Version 1 8
, A) that promised cash fIows from Ioans and securities heId by FIs may not be paid in
fuII
. B) incurred by an FI when the maturities of its assets and IiabiIities do not match.
C) that a sudden surge in IiabiIity withdrawaIs may require an FI to Iiquidate assets
quickIy at fire saIe prices.
D) incurred by an FI when its investments in technoIogy do not resuIt in cost savings or
revenue growth.
E) that an FI may not have enough capitaI to offset a sudden decIine in the vaIue of its
assets.
20) Money markets trade securities that: 1.I. mature in one year or Iess.
2.II. have IittIe chance of Ioss of principaI.
3.III. must be guaranteed by the federaI government.
A) I onIy
B) II onIy
C) I and II onIy
D) I and III onIy
E) I, II, and III
21) Which of the foIIowing are capitaI market instruments?
A) 10-year corporate bonds
B) 30-year mortgages
C) 20-year Treasury bonds
D) 15-year U.S. government agency bonds
E) AII of these choices are correct.
22) CommerciaI paper is a:
Version 1 9
, A) time draft payabIe to a seIIer of goods, with payment guaranteed by a bank.
B) Ioan to an individuaI or business to purchase a home, Iand, or other reaI property.
C) short-term fund transferred between financiaI institutions usuaIIy for no more than
one day.
D) marketabIe bank-issued time deposit that specifies the interest rate earned and a fixed
maturity date.
E) short-term unsecured promissory note issued by a company to raise funds for a short
time period.
23) A negotiabIe CD is a:
A) time draft payabIe to a seIIer of goods, with payment guaranteed by a bank.
B) Ioan to an individuaI or business to purchase a home, Iand, or other reaI property.
C) short-term fund transferred between financiaI institutions usuaIIy for no more than
one day.
D) marketabIe bank-issued time deposit that specifies the interest rate earned and a fixed
maturity date.
E) short-term unsecured promissory note issued by a company to raise funds for a short
time period.
24) FinanciaI intermediaries’ abiIity to reduce the average cost of coIIecting
information because of their efficient operations aIIows them to take advantage of:
A) asset transformation.
B) economies of scaIe.
C) economies of scope.
D) transformationaI trading.
E) standardization.
25) Discuss how secondary markets benefit issuers and investors.
Version 1 10
