Financial Markets and Institutions, 8th
Edition All Chapters 1 - 25, Complete
Brand New Version
_____________________________________________________________________________________
Liquidity risk at a financial intermediary (FI) is the risk
that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire
sale prices.
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
I, II, and III only
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
conduct an IPO with the assistance of an investment banker.
Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market
security, even though the intermediary invests in risky illiquid instruments because
FIs can diversify away some of their risk and closely monitor the riskiness of their assets.
Insolvency risk at a financial intermediary (FI) is the risk
risk that an FI may not have enough capital to offset a sudden decline in the value of its
assets.
Classify each of the following in terms of their effect on interest rates (increase or decrease):
I. Covenants on borrowing become more restrictive.
II. The Federal Reserve increases the money supply.
III. Total household wealth increases.
I decreases,
II decreases,
III decreases
, An annuity and an annuity due with the same number of payments have the same future value if r =
10%. Which one has the higher payment?
The annuity has the higher payment.
Classify each of the following in terms of their effect on interest rates (increase or decrease):
I. Perceived risk of financial securities increases.
II. Near term spending needs decrease.
III. Future profitability of real investments increases.
None of the options
According to the market segmentation theory, short-term investors will not normally switch to
intermediate- or long-term investments.
True
An improvement in economic conditions would likely shift the supply curve down and to the right and
shift the demand curve for funds up and to the right.
True
According to the unbiased expectations theory,
the long-term spot rate is an average of the current and expected future short-term interest
rates.
Simple interest calculations assume that interest earned is never reinvested.
True
According to the liquidity premium theory of interest rates long-term spot rates are higher than
the average of current and expected future short-term rates.
With a zero interest rate both the present value and the future value of an N payment annuity would
equal N × payment.
True
An investor requires a 3 percent increase in purchasing power in order to induce her to lend. She
expects inflation to be 2 percent next year. The nominal rate she must charge is about
5 percent.
The real risk-free rate is the increment to purchasing power that the lender earns in order to induce him
or her to forego current consumption.
True
Which of the following would normally be expected to result in an increase in the supply of funds, all
else equal?
Edition All Chapters 1 - 25, Complete
Brand New Version
_____________________________________________________________________________________
Liquidity risk at a financial intermediary (FI) is the risk
that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire
sale prices.
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
I, II, and III only
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
conduct an IPO with the assistance of an investment banker.
Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market
security, even though the intermediary invests in risky illiquid instruments because
FIs can diversify away some of their risk and closely monitor the riskiness of their assets.
Insolvency risk at a financial intermediary (FI) is the risk
risk that an FI may not have enough capital to offset a sudden decline in the value of its
assets.
Classify each of the following in terms of their effect on interest rates (increase or decrease):
I. Covenants on borrowing become more restrictive.
II. The Federal Reserve increases the money supply.
III. Total household wealth increases.
I decreases,
II decreases,
III decreases
, An annuity and an annuity due with the same number of payments have the same future value if r =
10%. Which one has the higher payment?
The annuity has the higher payment.
Classify each of the following in terms of their effect on interest rates (increase or decrease):
I. Perceived risk of financial securities increases.
II. Near term spending needs decrease.
III. Future profitability of real investments increases.
None of the options
According to the market segmentation theory, short-term investors will not normally switch to
intermediate- or long-term investments.
True
An improvement in economic conditions would likely shift the supply curve down and to the right and
shift the demand curve for funds up and to the right.
True
According to the unbiased expectations theory,
the long-term spot rate is an average of the current and expected future short-term interest
rates.
Simple interest calculations assume that interest earned is never reinvested.
True
According to the liquidity premium theory of interest rates long-term spot rates are higher than
the average of current and expected future short-term rates.
With a zero interest rate both the present value and the future value of an N payment annuity would
equal N × payment.
True
An investor requires a 3 percent increase in purchasing power in order to induce her to lend. She
expects inflation to be 2 percent next year. The nominal rate she must charge is about
5 percent.
The real risk-free rate is the increment to purchasing power that the lender earns in order to induce him
or her to forego current consumption.
True
Which of the following would normally be expected to result in an increase in the supply of funds, all
else equal?
