THE Test Bank for Economics of Money Banking and Financial Markets Business School Edition 5th Edition Mishkin

lr Financial Markets & Institutions 5th
Edition Test Bank

,lr




Chapter 01 Introduction Answer Key
lr lr lr lr




True / False Questions
lr lr lr




1. l r Primary markets are markets where users of funds raise cash by selling
lr lr lr lr lr lr lr lr lr lr lr




securities to funds’ suppliers. lr lr lr




TRUE

2. l r Secondary markets are markets used by corporations to raise cash by issuing lr lr lr lr lr lr lr lr lr lr lr




securities for a short time period. lr lr lr lr lr




FALSE

3. l r In a private placement, the issuer typically sells the entire issue to one, or only
lr lr lr lr lr lr lr lr lr lr lr lr lr lr




a few, institutional buyers.
lr lr lr




TRUE

4. l r The NYSE is an example of a secondary market.
lr lr lr lr lr lr lr lr




TRUE

5. l r Privately placed securities are usually sold to one or more investment bankerslr lr lr lr lr lr lr lr lr lr lr




and then resold to the general public.
lr lr lr lr lr lr




FALSE

6. l r Money markets are the markets for securities with an original maturity of 1
lr lr lr lr lr lr lr lr lr lr lr lr




year or less. lr lr




TRUE

7. l r Financial intermediaries such as banks typically have assets that are riskier lr lr lr lr lr lr lr lr lr lr




than their liabilities. lr lr




TRUE

8. l r There are three types of major financial markets today: primary, secondary,
lr lr lr lr lr lr lr lr lr lr




and derivatives markets. The NYSE and NASDAQ are both examples of
lr lr lr lr lr lr lr lr lr lr




derivatives markets. lr




FALSE

Multiple Choice Questions lr lr




9. l r What factors are encouraging financial institutions to offer overlapping
lr lr lr lr lr lr lr lr




financial services such as banking, investment banking, brokerage, etc.?
lr lr lr lr lr lr lr lr




I. Regulatory changes allowing institutions to offer more services
lr lr lr lr lr lr lr lr




II. Technological improvements reducing the cost of providing financial
lr lr lr lr lr lr lr lr




services
III. Increasing competition from full service global financial institutions
lr lr lr lr lr lr lr lr




IV. Reduction in the need to manage risk at financial institutions
lr lr lr lr lr lr lr lr lr lr

,lr




A.I only lr




B. II and III only
lr lr lr lr




C. I, II, and III only
lr lr lr lr lr




D. I, II, and IV only
lr lr lr lr lr




E. I, II, III, and IV
lr lr lr lr lr




Figure 1-1
lr




IBM creates and sells additional stock to the investment banker, Morgan Stanley.
lr lr lr lr lr lr lr lr lr lr lr




Morgan Stanley then resells the issue to the U.S. public.
lr lr lr lr lr lr lr lr lr




10. This transaction is an example of a(n)
lr lr lr lr lr lr lr




A.primary market transaction lr lr




B. asset transformation by Morgan Stanley
lr lr lr lr lr




C. money market transaction
lr lr lr




D. foreign exchange transaction
lr lr lr




E. forward transactionlr lr




11. Morgan Stanley is acting as a(n)
lr lr lr lr lr lr




A.asset transformer lr




B. asset broker lr lr




C. government regulatorlr lr




D. foreign service representative
lr lr lr




12. A corporation seeking to sell new equity securities to the public for the first
lr lr lr lr lr lr lr lr lr lr lr lr lr lr




time in order to raise cash for capital investment would most likely
lr lr lr lr lr lr lr lr lr lr lr




A.conduct an IPO with the assistance of an investment banker lr lr lr lr lr lr lr lr lr




B. engage in a secondary market sale of equity
lr lr lr lr lr lr lr lr




C. conduct a private placement to a large number of potential buyers
lr lr lr lr lr lr lr lr lr lr lr




D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
lr lr lr lr lr lr lr lr lr lr lr lr lr




E. none of the above lr lr lr lr




13. The largest capital market security outstanding in 2010 measured by market
lr lr lr lr lr lr lr lr lr lr lr




value was lr




A.securitized mortgages lr




B. corporate bonds lr lr




C. municipal bonds lr lr




D. Treasury bonds lr lr




E. corporate stocks lr lr




14. The diagram below is a diagram of the
lr lr lr lr lr lr lr lr




A.secondary markets lr




B. primary markets lr lr




C. money markets lr lr




D. derivatives markets lr lr




E. commodities marketslr lr




15. _________ and __________ allow a financial intermediary to offer safe,
lr lr lr lr lr lr lr lr lr lr




liquid liabilities such as deposits while investing the depositors’ money in
lr lr lr lr lr lr lr lr lr lr




riskier, illiquid assets. lr lr

,lr




A.Diversification; high equity returns lr lr lr




B. Price risk; collateral
lr lr lr




C. Free riders; regulations
lr lr lr




D. Monitoring; diversification
lr lr




E. Primary markets; foreign exchange markets
lr lr lr lr lr




16. Depository institutions include:
lr lr lr




A.banks
B. thrifts lr




C. finance companies
lr lr




D. all of the above lr lr lr lr




E. A and B only lr lr lr lr




17. Match the intermediary with the characteristic that best describes its function.
lr lr lr lr lr lr lr lr lr lr lr




I. Provide protection from adverse events
lr lr lr lr lr




II. Pool funds of small savers and invest in either money or capital markets
lr lr lr lr lr lr lr lr lr lr lr lr lr




III. Provide consumer loans and real estate loans funded by deposits
lr lr lr lr lr lr lr lr lr lr




IV. Accumulate and transfer wealth from work period to retirement period
lr lr lr lr lr lr lr lr lr lr




V. Underwrite and trade securities and provide brokerage services
lr lr lr lr lr lr lr lr




1. Thrifts
lr




2. Insurers
lr




3. Pension funds
lr lr




4. Securities firms and investment banks
lr lr lr lr lr




5. Mutual funds
lr lr




A.1, 3, 2, 5, 4 lr lr lr lr




B. 4, 2, 3, 5, 1
lr lr lr lr lr




C. 2, 5, 1, 3, 4lr lr lr lr lr




D. 2, 4, 5, 3, 1lr lr lr lr lr




E. 5, 1, 3, 2, 4
lr lr lr lr lr




18. Secondary markets help support primary markets because secondary markets
lr lr lr lr lr lr lr lr lr




I. Offer primary market purchasers liquidity for their holdings
lr lr lr lr lr lr lr lr




II. Update the price or value of the primary market claims
lr lr lr lr lr lr lr lr lr lr




III. Reduce the cost of trading the primary market claims
lr lr lr lr lr lr lr lr lr




A.I only lr




B. II only lr lr




C. I and II only
lr lr lr lr




D. II and III only
lr lr lr lr




E. I, II, and III
lr lr lr lr




19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
lr lr lr lr lr lr lr lr lr lr lr




than a capital market security, even though the intermediary invests in risky
lr lr lr lr lr lr lr lr lr lr lr




illiquid instruments because lr lr




A.FIs can diversify away some of their risk lr lr lr lr lr lr lr




B. FIs closely monitor the riskiness of their assets
lr lr lr lr lr lr lr lr




C. the federal government requires them to do so
lr lr lr lr lr lr lr lr