Test bank for financial markets institutions 6th

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Financial Markets & Institutions5th v v v v




EditionTest Bank v v




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. v v v




TRUE

2. Secondary markets are markets used by corporations to raise cash by issuing
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securities for a short time period. v v v v v




FALSE

3. In a private placement, the issuer typically sells the entire issue to one, or only
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a few, 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
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and then resold to the general public.
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FALSE

6. Money markets are the markets for securities with an original maturity of 1
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year or less. v v




TRUE

7. Financial intermediaries such as banks typically have assets that are riskier
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than their liabilities. v v




TRUE

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




FALSE

Multiple Choice Questions v v




9. What factors are encouraging financial institutions to offer overlapping
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financial services such as banking, investment banking, brokerage, etc.? v v v v v v v v




I. Regulatory changes allowing institutions to offer more services
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II. Technological improvements reducing the cost of providing financial
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services
III. Increasing competition from full service global financial institutions
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IV. Reduction in the need to manage risk at financial institutions
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A.Ionly v




B. II and III only
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C. I, II, and III only
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D. I, II, and IV only
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E. I, II, III, and IV
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Figure 1-1
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IBM creates and sells additional stock to the investment banker, Morgan Stanley.
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Morgan Stanley then resells the issue to the U.S. public.
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10. This transaction is an example of a(n)
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A.primary market transaction v v




B. asset transformation by Morgan Stanley
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C. money market transaction
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D. foreign exchange transaction
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E. forward transaction
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11. Morgan Stanley is acting as a(n)
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A.asset transformer v




B. asset broker v v




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
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time in order to raise cash for capital investment would most likely
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A.conduct an IPO with the assistance of an investment banker v v v v v v v v v




B. engage in a secondary market sale of equity
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C. conduct a private placement to a large number of potential buyers
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D. place an ad in the Wall Street Journal soliciting retail suppliers of funds
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E. none of the above
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13. The largest capital market security outstanding in 2010 measured by market
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value was v




A.securitized mortgages v




B. corporate bonds v v




C. municipal bonds v v




D. Treasury bonds v v




E. corporate stocks v v




14. The diagram below is a diagram of the
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A.secondary markets v




B. primary markets v v




C. money markets v v




D. derivatives markets v v




E. commodities markets
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15. _________ and __________ allow a financial intermediary to offer safe,
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liquid liabilities such as deposits while investing the depositors’ money in
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riskier, illiquid assets. v v

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A.Diversification; high equity returns v v v




B. Price risk; collateral
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C. Free riders; regulations
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D. Monitoring; diversification
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E. Primary markets; foreign exchange markets
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16. Depository institutions include:
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A.banks
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C. finance companies
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D. all of the above v v v v




E. A and B only v v v v




17. Match the intermediary with the characteristic that best describes its function.
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I. Provide protection from adverse events
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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
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IV. Accumulate and transfer wealth from work period to retirement period
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V. Underwrite and trade securities and provide brokerage services
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1. Thrifts
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2. Insurers
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3. Pension funds
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4. Securities firms and investment banks
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5. Mutual funds
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A.1, 3, 2, 5, 4 v v v v




B. 4, 2, 3, 5, 1
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C. 2, 5, 1, 3, 4 v v v v v




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




E. 5, 1, 3, 2, 4
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18. Secondary markets help support primary markets because secondary markets
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I. Offer primary market purchasers liquidity for their holdings
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II. Update the price or value of the primary market claims
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III. Reduce the cost of trading the primary market claims
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A.Ionly v




B. IIonly v v




C. Iand II only
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D. IIand III onlyv v v v




E. I, II, and III
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19. Financial intermediaries (FIs) can offer savers a safer, more liquid investment
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than a capital market security, even though the intermediary invests in risky
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illiquid instruments because v v




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




B. FIs closely monitor the riskiness of their assets
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C. the federal government requires them to do so
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