Chapter 2 The Financial Market Environment

Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 2 The Financial Market Environment

2.1 Financial institutions

1) A financial institution is an intermediary that channels the savings of individuals, businesses,
and governments into loans or investments.
Answer: TRUE
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

2) Commercial banks advise firms on major transactions such as mergers or financial
restructurings.
Answer: FALSE
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

3) As a key participant in financial transactions, individuals are ________.
A) net demanders of funds because they save more money than they borrow
B) net users of funds because they save less money than they borrow
C) net suppliers of funds because they save more money than they borrow
D) net purchasers of funds because they save more money than they borrow
Answer: C
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

4) Government is typically a ________.
A) net provider of funds because it borrows more than it saves
B) net demander of funds because it borrows more than it saves
C) net provider of funds because it can print money at will
D) net demander of funds because it saves more than it borrows
Answer: B
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking


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,5) Government can obtain funds ________.
A) by trading in the equity market
B) by issuing financial instruments such as futures and options
C) through the foreign exchange market
D) by selling debt securities
Answer: D
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

6) Firms that require funds from external sources can obtain them ________.
A) through financial institutions
B) from central bank directly
C) through the foreign exchange market
D) by issuing T-bills
Answer: A
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

7) Investment banks are institutions that ________.
A) perform all activities of commercial banks and retail banks
B) are exempted from Securities and Exchange Commission regulations
C) engage in trading and market making activities
D) are only limited to capital market activities
Answer: C
Diff: 1
Topic: Commercial Banks, Investment Banks, And The Shadow Banking System
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking




2
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, 8) Which of the following serves as an intermediary channeling the savings of individuals,
businesses, and governments into loans and investments?
A) financial institutions
B) financial markets
C) Securities and Exchange Commission
D) OTC market
Answer: A
Diff: 1
Topic: Financial Institutions
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

9) The shadow banking system describes a group of institutions that engage in lending activities,
much like traditional banks.
Answer: TRUE
Diff: 1
Topic: Commercial Banks, Investment Banks, And The Shadow Banking System
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking

10) Which of the following provides savers with a secure place to invest funds and offer both
individuals and companies loans to finance investments?
A) investment banks
B) securities exchanges
C) mutual funds
D) commercial banks
Answer: D
Diff: 1
Topic: Commercial Banks, Investment Banks, And The Shadow Banking System
Learning Obj.: LG 1
Learning Outcome: F-01
AACSB: Analytical Thinking




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Copyright © 2019 Pearson Education, Inc.