Test bank for financial markets institutions 6th

JK

,FinancialMarkets&Institutions5thEdition q q q q q




Test Bank
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Chapter 01 Introduction Answer Key
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True / False Questions
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1. Primary markets are markets where users of funds raise cash by selling
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securities to funds’ suppliers.
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TRUE

2. Secondary markets are markets used by corporations to raise cash by issuing q q q q q q q q q q q




securities for a short time period.
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FALSE

3. In a private placement, the issuer typically sells the entire issue to one, oronly a few,
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institutional buyers.
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TRUE

4. The NYSE is an example of a secondary market.
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TRUE

5. Privately placed securities are usually sold to one or more investment bankers and
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then resold to the general public.
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FALSE

6. Money markets arethe markets for securities with an original maturity of 1 year
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or less.
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TRUE

7. Financial intermediaries such as banks typically have assets that areriskier than
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their liabilities.
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TRUE

8. There are three types of major financial markets today: primary, secondary, and
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derivatives markets. The NYSE and NASDAQ are both examples of derivatives
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markets.
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FALSE

Multiple Choice Questionsq q




9. What factors are encouraging financial institutionsto offer overlapping
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qfinancial services such as banking, investment banking, brokerage, etc.?
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I. Regulatorychanges allowing institutions to offer more services q q q q q q q




II. Technological improvements reducing the cost ofproviding financial q q q q q q q




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




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

, A.Ionly q




B. II and III only q q q




C. I, II, and IIIonly q q q q




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




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




Figure 1-1
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IBM creates and sells additional stock to the investment banker, Morgan Stanley. Morgan
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Stanley then resells the issue to the U.S. public.
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10. This transaction is an example of a(n) q q q q q q




A. primary market transaction q q




B. asset transformation byMorgan Stanley q q q q




C. money market transaction q q




D. foreign exchange transaction q q




E. forward transaction q




11. Morgan Stanley is acting as a(n) JK q q q q




A.asset transformer
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B. asset broker q q




C. government regulator
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D. foreign service representative
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12. A corporation seeking to sell new equity securities to the public for the first time in
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order to raise cash for capital investment would most likely A.conduct an IPO
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with the assistance of an investment banker
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B. engage in a secondary market sale of equity q q q q q q q




C. conduct a private placement to a large number ofpotential buyers q q q q q q q q q q




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




E. none of the above q q q




13. The largest capital market securityoutstanding in 2010 measured by market value
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was q




A. securitized mortgages q




B. corporate bonds q




C. municipal bonds q




D. Treasury bonds q




E. corporate stocks q




14. The diagram below is a diagram ofthe
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A.secondary markets
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B. primary markets q




C. money markets q




D. derivatives markets q




E. commoditiesmarkets q




15. q and allow a financial intermediary to offer safe, q q q q q q q




qliquid liabilities such as deposits while investing the depositors’ money in
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qriskier, illiquid assets. q q

, A. Diversification; high equity returns q q q




B. Price risk; collateral q q




C. Free riders; regulations q q




D. Monitoring;diversification q




E. Primary markets; foreign exchange markets q q q q




16. Depositoryinstitutionsinclude: q q




A.banks
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B. thrifts
C. finance companies q




D. all of the above q q q




E. A and B only q q q




17. Match the intermediary with the characteristic that best describes its function.
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I. Provide protection from adverse events q q JK q




II. Pool funds of small savers and invest in either money or capital markets
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III. Provide consumer loans and real estate loans funded by deposits q q q q q q q q q




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




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




1. Thrifts
2. Insurers
3. Pension funds JK



4. Securities firms and investment banks q q q q




5. Mutual funds q




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




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




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




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




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




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




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




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




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




A.Ionly q




B. IIonly q




C. Iand II only
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D. IIand III only q q q




E. I, II, and III q q q




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




a capital market security, even though the intermediary invests in risky illiquid
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instruments because
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A. FIs can diversify away some of their risk
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B. FIs closely monitor the riskiness oftheir assets
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C. the federal government requires them to do so
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