FINA 3317 Exam 1 Questions with Correct Answers Latest Update 2025/2026
Primary markets are markets in which users of funds raise cash by selling securities to funds'
suppliers.
T or F - Answers T
Secondary markets are markets used by corporations to raise cash by issuing securities for a
short time period.
T or F - Answers F
Corporate security issuers are always directly involved in funds transfers in the secondary
market.
T or F - Answers F
The New York Stock Exchange (NYSE) is an example of a secondary market.
T or F - Answers T
Central governments sometimes intervene in foreign exchange markets by affecting foreign
exchange rates indirectly through raising or lowering interest rates.
T or F - Answers F
Money markets are the markets for securities with an original maturity of one year or less.
T or F - Answers T
Financial intermediaries such as banks typically have assets that are riskier than their liabilities.
T or F - Answers T
There are three types of major financial markets today: primary, secondary, and derivatives
markets. The NYSE and NASDAQ are both examples of derivatives markets.
T or F - Answers F
What factors are encouraging financial institutions to offer overlapping financial services such
as banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full-service global financial institutions
,IV. Reduction in the need to manage risk at financial institutions
A) I only
B) II and III only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV Topic: Overview of Financial Institutions - Answers C) I, II, and III only
IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public.
This transaction is an example of a(n)
A) primary market transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction. Topic: Overview of Financial Markets - Answers A) primary market
transaction.
IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public.
Morgan Stanley is acting as a(n)
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader. Topic: Overview of Financial Institutions - Answers A) asset transformer.
,A corporation seeking to sell new equity securities to the public for the first time in order to
raise cash for capital investment would most likely
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market sale of equity.
C) conduct a private placement to a large number of potential buyers.
D) place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E) issue bonds with the assistance of a dealer. Topic: Overview of Financial Markets - Answers
A) conduct an IPO with the assistance of an investment banker.
The largest capital market security outstanding in 2010 measured by market value was
A) securitized mortgages.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
E) corporate stocks. Topic: Overview of Financial Markets - Answers E. corporate stocks.
_________ and __________ allow a financial intermediary to offer safe liquid liabilities such as
deposits while investing the depositors' money in riskier illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
Topic: Overview of Financial Institutions - Answers D) Monitoring; diversification
Depository institutions include
, A) banks.
B) thrifts.
C) finance companies.
D) all of these choices are correct.
E) banks and thrifts. Topic: Overview of Financial Institutions - Answers A) banks and thrifts.
Match the intermediary with the characteristic that best describes its function.
I. Provide protection from adverse events.
II. Pool funds of small savers and invest in either money or capital markets.
III. Provide consumer loans and real estate loans funded by deposits.
IV. Accumulate and transfer wealth from work period to retirement period.
V. Underwrite and trade securities and provide brokerage services.
1. Thrifts
2. Insurers
3. Pension funds
4. Securities firms and investment banks
5. Mutual 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 . Topic: Overview of Financial Institutions - Answers C) 2, 5, 1, 3, 4
Secondary markets help support primary markets because secondary markets
I. offer primary market purchasers liquidity for their holdings.
II. update the price or value of the primary market claims.
Primary markets are markets in which users of funds raise cash by selling securities to funds'
suppliers.
T or F - Answers T
Secondary markets are markets used by corporations to raise cash by issuing securities for a
short time period.
T or F - Answers F
Corporate security issuers are always directly involved in funds transfers in the secondary
market.
T or F - Answers F
The New York Stock Exchange (NYSE) is an example of a secondary market.
T or F - Answers T
Central governments sometimes intervene in foreign exchange markets by affecting foreign
exchange rates indirectly through raising or lowering interest rates.
T or F - Answers F
Money markets are the markets for securities with an original maturity of one year or less.
T or F - Answers T
Financial intermediaries such as banks typically have assets that are riskier than their liabilities.
T or F - Answers T
There are three types of major financial markets today: primary, secondary, and derivatives
markets. The NYSE and NASDAQ are both examples of derivatives markets.
T or F - Answers F
What factors are encouraging financial institutions to offer overlapping financial services such
as banking, investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full-service global financial institutions
,IV. Reduction in the need to manage risk at financial institutions
A) I only
B) II and III only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV Topic: Overview of Financial Institutions - Answers C) I, II, and III only
IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public.
This transaction is an example of a(n)
A) primary market transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
E) forward transaction. Topic: Overview of Financial Markets - Answers A) primary market
transaction.
IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public.
Morgan Stanley is acting as a(n)
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader. Topic: Overview of Financial Institutions - Answers A) asset transformer.
,A corporation seeking to sell new equity securities to the public for the first time in order to
raise cash for capital investment would most likely
A) conduct an IPO with the assistance of an investment banker.
B) engage in a secondary market sale of equity.
C) conduct a private placement to a large number of potential buyers.
D) place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E) issue bonds with the assistance of a dealer. Topic: Overview of Financial Markets - Answers
A) conduct an IPO with the assistance of an investment banker.
The largest capital market security outstanding in 2010 measured by market value was
A) securitized mortgages.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
E) corporate stocks. Topic: Overview of Financial Markets - Answers E. corporate stocks.
_________ and __________ allow a financial intermediary to offer safe liquid liabilities such as
deposits while investing the depositors' money in riskier illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
Topic: Overview of Financial Institutions - Answers D) Monitoring; diversification
Depository institutions include
, A) banks.
B) thrifts.
C) finance companies.
D) all of these choices are correct.
E) banks and thrifts. Topic: Overview of Financial Institutions - Answers A) banks and thrifts.
Match the intermediary with the characteristic that best describes its function.
I. Provide protection from adverse events.
II. Pool funds of small savers and invest in either money or capital markets.
III. Provide consumer loans and real estate loans funded by deposits.
IV. Accumulate and transfer wealth from work period to retirement period.
V. Underwrite and trade securities and provide brokerage services.
1. Thrifts
2. Insurers
3. Pension funds
4. Securities firms and investment banks
5. Mutual 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 . Topic: Overview of Financial Institutions - Answers C) 2, 5, 1, 3, 4
Secondary markets help support primary markets because secondary markets
I. offer primary market purchasers liquidity for their holdings.
II. update the price or value of the primary market claims.
