Financial Markets & Institutions – Test Bank (5th Edition) – Complete Exam Preparation Material

bs




Financial Markets & Institutions 5th
Edition Test Bank

,bs




Chapter 01 Introduction Answer Key
bs bs bs bs



True / False Questions
bs bs bs




1.b s Primary markets are markets where users of funds raise cash by selling
bs bs bs bs bs bs bs bs bs bs bs



securities to funds’ suppliers. bs bs bs



TRUE

2.b s Secondary markets are markets used by corporations to raise cash by issuing
bs bs bs bs bs bs bs bs bs bs bs



securities for a short time period. bs bs bs bs bs



FALSE

3.b s In a private placement, the issuer typically sells the entire issue to one, or only
bs bs bs bs bs bs bs bs bs bs bs bs bs bs



a few, institutional buyers.
bs bs bs



TRUE

4.b s The NYSE is an example of a secondary market.
bs bs bs bs bs bs bs bs



TRUE

5.b s Privately placed securities are usually sold to one or more investment bankers
bs bs bs bs bs bs bs bs bs bs bs



and then resold to the general public.
bs bs bs bs bs bs



FALSE

6.b s Money markets are the markets for securities with an original maturity of 1
bs bs bs bs bs bs bs bs bs bs bs bs



year or less. bs bs



TRUE

7.b s Financial intermediaries such as banks typically have assets that are riskier
bs bs bs bs bs bs bs bs bs bs



than their liabilities. bs bs



TRUE

8.b s There are three types of major financial markets today: primary, secondary,
bs bs bs bs bs bs bs bs bs bs



and derivatives markets. The NYSE and NASDAQ are both examples of
bs bs bs bs bs bs bs bs bs bs



derivatives markets. bs



FALSE

Multiple Choice Questions bs bs




9.b s What factors are encouraging financial institutions to offer overlapping
bs bs bs bs bs bs bs bs



financial services such as banking, investment banking, brokerage, etc.?
bs bs bs bs bs bs bs bs




I. Regulatory changes allowing institutions to offer more services
bs bs bs bs bs bs bs bs



II. Technological improvements reducing the cost of providing financial
bs bs bs bs bs bs bs bs



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



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

,bs




A.I only bs



B. II and III only
bs bs bs bs



C. I, II, and III only
bs bs bs bs bs



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



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




Figure 1-1
bs




IBM creates and sells additional stock to the investment banker, Morgan Stanley.
bs bs bs bs bs bs bs bs bs bs bs



Morgan Stanley then resells the issue to the U.S. public.
bs bs bs bs bs bs bs bs bs




10. This transaction is an example of a(n)
bs bs bs bs bs bs bs



A.primary market transaction bs bs



B. asset transformation by Morgan Stanley
bs bs bs bs bs



C. money market transaction
bs bs bs



D. foreign exchange transaction
bs bs bs



E. forward transaction
bs bs




11. Morgan Stanley is acting as a(n)
bs bs bs bs bs bs



A.asset transformer bs



B. asset broker
bs bs



C. government regulator
bs bs



D. foreign service representative
bs bs bs




12. A corporation seeking to sell new equity securities to the public for the first
bs bs bs bs bs bs bs bs bs bs bs bs bs bs



time in order to raise cash for capital investment would most likely
bs bs bs bs bs bs bs bs bs bs bs



A.conduct an IPO with the assistance of an investment banker bs bs bs bs bs bs bs bs bs



B. engage in a secondary market sale of equity
bs bs bs bs bs bs bs bs



C. conduct a private placement to a large number of potential buyers
bs bs bs bs bs bs bs bs bs bs bs



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



E. none of the above
bs bs bs bs




13. The largest capital market security outstanding in 2010 measured by market
bs bs bs bs bs bs bs bs bs bs bs



value was bs



A.securitized mortgages bs



B. corporate bonds
bs bs



C. municipal bonds
bs bs



D. Treasury bonds bs bs



E. corporate stocks
bs bs




14. The diagram below is a diagram of the
bs bs bs bs bs bs bs bs



A.secondary markets bs



B. primary markets
bs bs



C. money markets
bs bs



D. derivatives markets
bs bs



E. commodities markets
bs bs




15. _________ and __________ allow a financial intermediary to offer safe,
bs bs bs bs bs bs bs bs bs bs



liquid liabilities such as deposits while investing the depositors’ money in
bs bs bs bs bs bs bs bs bs bs



riskier, illiquid assets. bs bs

,bs




A.Diversification; high equity returns bs bs bs



B. Price risk; collateral
bs bs bs



C. Free riders; regulations
bs bs bs



D. Monitoring; diversification
bs bs



E. Primary markets; foreign exchange markets
bs bs bs bs bs




16. Depository institutions include:
bs bs bs



A.banks
B. thriftsbs



C. finance companies
bs bs



D. all of the above
bs bs bs bs



E. A and B only
bs bs bs bs




17. Match the intermediary with the characteristic that best describes its function.
bs bs bs bs bs bs bs bs bs bs bs




I. Provide protection from adverse events
bs bs bs bs bs



II. Pool funds of small savers and invest in either money or capital markets
bs bs bs bs bs bs bs bs bs bs bs bs bs



III. Provide consumer loans and real estate loans funded by deposits
bs bs bs bs bs bs bs bs bs bs



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



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




1. Thrifts
bs



2. Insurers
bs



3. Pension funds
bs bs



4. Securities firms and investment banks
bs bs bs bs bs



5. Mutual funds
bs bs



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



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



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



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



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




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




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



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



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



A.I only bs



B. II only
bs bs



C. I and II only
bs bs bs bs



D. II and III only
bs bs bs bs



E. I, II, and III
bs bs bs bs




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



than a capital market security, even though the intermediary invests in risky
bs bs bs bs bs bs bs bs bs bs bs



illiquid instruments because bs bs



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



B. FIs closely monitor the riskiness of their assets
bs bs bs bs bs bs bs bs



C. the federal government requires them to do so
bs bs bs bs bs bs bs bs