Financial Markets and Institutions
Exam 2025 Questions and Answers
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.
(c) they are the markets where foreign exchange rates are determined.
(d) all of the above. - ....ANSWER ...-b
Interest rates are important to financial institutions since an interest rate
increase_________ the cost of acquiring funds and _________ the income from assets -
....ANSWER ...-increases - increases
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
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 1
,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
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
Which of the following can be described as involving direct finance?
(a) A corporations 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
Which of the following can be described as involving direct finance?
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,(a) A corporations 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
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
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
Financial markets improve economic welfare because
(a) they allow funds to move from those without productive investment opportunities to
those who have such opportunities.
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 3
, (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
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
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 issuers 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
Which of the following are primary markets?
(a) The New York Stock Exchange
(b) The U.S. government bond market
(c) The over-the-counter stock market
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 4
Exam 2025 Questions and Answers
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.
(c) they are the markets where foreign exchange rates are determined.
(d) all of the above. - ....ANSWER ...-b
Interest rates are important to financial institutions since an interest rate
increase_________ the cost of acquiring funds and _________ the income from assets -
....ANSWER ...-increases - increases
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
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 1
,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
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
Which of the following can be described as involving direct finance?
(a) A corporations 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
Which of the following can be described as involving direct finance?
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 2
,(a) A corporations 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
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
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
Financial markets improve economic welfare because
(a) they allow funds to move from those without productive investment opportunities to
those who have such opportunities.
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 3
, (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
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
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 issuers 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
Which of the following are primary markets?
(a) The New York Stock Exchange
(b) The U.S. government bond market
(c) The over-the-counter stock market
…FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 4
