FINANCIAL MARKETS AND INSTITUTIONS
ACTUAL EXAM SCRIPT 2026 COMPLETE
QUESTIONS AND ANSWERS
◉ What are the three major components of the financial system?
Answer: Financial assets, financial institutions, and financial
regulators.
◉ What is a financial asset? Answer: An asset that represents a claim
on someone else for a payment.
◉ Define a security. Answer: A financial asset that can be bought and
sold in a financial market.
◉ What is a bond? Answer: A debt security that promises to make
payments periodically for a specified period.
◉ What does 'maturity' refer to in the context of bonds? Answer:
The life of a bond, or the time between the original sale and payment
of the face value.
◉ What is a coupon payment? Answer: Interest paid at specified
intervals for the use of borrowed funds.
,◉ What is the face value of a bond? Answer: The principal paid
when a bond matures.
◉ What is commercial paper? Answer: A type of bond with
maturities less than one year, issued by corporations.
◉ What are Treasury bills? Answer: Short-term debt securities
issued by the U.S. government.
◉ What is a zero-coupon bond? Answer: A bond sold at a discount
from face value with no specified coupon or interest payment.
◉ Define money. Answer: Anything that is generally accepted in
payment for goods and services or to pay off debts.
◉ What is the money supply? Answer: The total quantity of money
in the economy.
◉ What are stocks? Answer: Financial securities that represent
partial ownership of a firm.
◉ What are dividends? Answer: Payments made by a corporation to
its shareholders after keeping some of its profits.
,◉ What does foreign exchange refer to? Answer: Units of foreign
currency and the market where they are traded.
◉ What is securitization? Answer: The process of converting loans
and other financial assets into tradable securities.
◉ What is a financial liability? Answer: A financial claim owed by a
person or a firm.
◉ What are financial intermediaries? Answer: Financial firms that
borrow funds from savers and lend them to borrowers.
◉ What is indirect finance? Answer: Funds flow from lenders to
borrowers indirectly through financial intermediaries.
◉ What is direct finance? Answer: Funds flow directly from savers to
borrowers.
◉ What is the role of commercial banks? Answer: To take in deposits
and use them to make loans.
, ◉ What are nonbank financial intermediaries? Answer: Entities like
savings and loans, credit unions, and investment banks that also take
deposits and make loans.
◉ What do insurance companies do? Answer: Collect premiums
from customers and invest them to pay claims and other costs.
◉ What is the function of pension funds? Answer: To collect
contributions and make benefit payments during workers'
retirements.
◉ What are mutual funds? Answer: Funds that obtain money by
selling shares to investors and invest in a portfolio of financial
assets.
◉ What is the purpose of hedge funds? Answer: To make riskier
investments with funds from a small number of wealthy investors.
◉ What are the functions of financial intermediaries? Answer:
Lower transaction costs, provide liquidity services, reduce risk
exposure, and deal with asymmetric information problems.
◉ What is the primary function of financial intermediaries? Answer:
To connect savers and borrowers, allowing small savers and
borrowers to benefit from financial markets.
ACTUAL EXAM SCRIPT 2026 COMPLETE
QUESTIONS AND ANSWERS
◉ What are the three major components of the financial system?
Answer: Financial assets, financial institutions, and financial
regulators.
◉ What is a financial asset? Answer: An asset that represents a claim
on someone else for a payment.
◉ Define a security. Answer: A financial asset that can be bought and
sold in a financial market.
◉ What is a bond? Answer: A debt security that promises to make
payments periodically for a specified period.
◉ What does 'maturity' refer to in the context of bonds? Answer:
The life of a bond, or the time between the original sale and payment
of the face value.
◉ What is a coupon payment? Answer: Interest paid at specified
intervals for the use of borrowed funds.
,◉ What is the face value of a bond? Answer: The principal paid
when a bond matures.
◉ What is commercial paper? Answer: A type of bond with
maturities less than one year, issued by corporations.
◉ What are Treasury bills? Answer: Short-term debt securities
issued by the U.S. government.
◉ What is a zero-coupon bond? Answer: A bond sold at a discount
from face value with no specified coupon or interest payment.
◉ Define money. Answer: Anything that is generally accepted in
payment for goods and services or to pay off debts.
◉ What is the money supply? Answer: The total quantity of money
in the economy.
◉ What are stocks? Answer: Financial securities that represent
partial ownership of a firm.
◉ What are dividends? Answer: Payments made by a corporation to
its shareholders after keeping some of its profits.
,◉ What does foreign exchange refer to? Answer: Units of foreign
currency and the market where they are traded.
◉ What is securitization? Answer: The process of converting loans
and other financial assets into tradable securities.
◉ What is a financial liability? Answer: A financial claim owed by a
person or a firm.
◉ What are financial intermediaries? Answer: Financial firms that
borrow funds from savers and lend them to borrowers.
◉ What is indirect finance? Answer: Funds flow from lenders to
borrowers indirectly through financial intermediaries.
◉ What is direct finance? Answer: Funds flow directly from savers to
borrowers.
◉ What is the role of commercial banks? Answer: To take in deposits
and use them to make loans.
, ◉ What are nonbank financial intermediaries? Answer: Entities like
savings and loans, credit unions, and investment banks that also take
deposits and make loans.
◉ What do insurance companies do? Answer: Collect premiums
from customers and invest them to pay claims and other costs.
◉ What is the function of pension funds? Answer: To collect
contributions and make benefit payments during workers'
retirements.
◉ What are mutual funds? Answer: Funds that obtain money by
selling shares to investors and invest in a portfolio of financial
assets.
◉ What is the purpose of hedge funds? Answer: To make riskier
investments with funds from a small number of wealthy investors.
◉ What are the functions of financial intermediaries? Answer:
Lower transaction costs, provide liquidity services, reduce risk
exposure, and deal with asymmetric information problems.
◉ What is the primary function of financial intermediaries? Answer:
To connect savers and borrowers, allowing small savers and
borrowers to benefit from financial markets.
