surplus units.
Financial market participants who provide funds are called:
households and businesses
The main provider(s) of funds to the U.S. Treasury is (are):
the U.S. Treasury
The largest deficit unit is (are):
money markets.
Those financial markets that facilitate the flow of short-term funds are known as:
primary market.
Funds are provided to the initial issuer of securities in the:
a ten-year bond
Which of the following is a capital market instrument?
commercial paper
Which of the following is a money market security?
depository institutions.
The most common investors in federal funds are:
higher; higher
Equity securities have a _______ expected return than most long-term debt securities, and they exhibit a _______ degree of risk.
more; higher
Money market securities generally have _______ liquidity. Capital market securities are typically expected to have a _______ annualized return.
efficient.
If security prices fully reflect all available information, the markets for these securities are:
inefficient
If markets were _______, investors could use available information ignored by the market to earn abnormally high returns.
required complete disclosure of relevant financial information for publicly offered securities in the primary market.
The Securities Act of 1933:
Securities Exchange Act of 1934.
The Securities Exchange Commission (SEC) was established by the:
equity security.
Common stock is an example of a(n):
perfect
If financial markets were _______, all information about any securities for sale in primary and secondary markets would be continuously and freely available to investors.
spread the issue across several investors until the entire issue is sold.
The typical role of a securities firm in a public offering of securities is to:
information and transaction costs would be higher.
Without the participation of financial intermediaries in financial market transactions,:
credit unions
Which of the following is most likely to be described as a depository institution?
commercial banks
In aggregate, _______ are the most dominant depository institution.
mutual funds
Which of the following is a nondepository financial institution?
Credit unions are non-profit.
Which of the following distinguishes credit unions from commercial banks and savings institutions?
executes transactions between two parties.
When a securities firm acts as a broker, it:
dealer
When a securities firm acts as a(n) _______, it maintains a position in securities.
Finance companies
_______ obtain funds by issuing securities, then lend the funds to individuals and small businesses.
deficient funds; depository institutions and finance companies
Households with _______ are served by _______.
Savings institutions
_______ concentrate on mortgage loans.
Money market; money market
_______ securities have a maturity of one year or less; _______ securities are generally more liquid.
commercial banks
29. Which of the following is not a major investor in stocks?
A) commercial banks
B) insurance companies
C) mutual funds
D) pension funds
ANSWER: D
Which of the following financial intermediaries commonly invests in stocks and bonds?
A) pension funds
B) insurance companies
C) mutual funds
D) all of these
ANSWER: A
A five-year security was purchased two years ago by an investor who plans to resell it. The security
will be sold by the investor in the so-called _______ market.
A) secondary
B) primary
C) deficit
D) surplus
ANSWER: A
Financial markets facilitating the flow of short-term funds with maturities of less than one year are
known as _______ markets.
A) money
B) capital
C) primary
D) secondary
E) none of these
ANSWER: C
Which of the following transactions would not be considered a secondary market transaction?
A) an individual investor purchases some existing shares of stock in IBM through his broker
B) an institutional investor sells some Disney stock through its broker
ANSWER: A
If investors speculate in the underlying asset rather than derivative contracts on the underlying asset,
they will probably achieve _______ returns, and they are exposed to relatively _______ risk.
A) lower; lower
B) lower; higher
C) higher; lower
D) high
ANSWER: B
_______ maintain a larger amount of assets than the other types of depository institutions.
A) Credit unions
B) Commercial banks
C) Life insurance companies
D) Savings institutions
ANSWER: D
The main source of funds for _______ is proceeds from selling securities to households and
businesses, while their main use of funds is providing loans to households and businesses.
A) savings institutions
B) commercial banks
C) mutual funds
D) finance co
ANSWER: D
Which of the following is not a reason why depository financial institutions are popular?
A) They offer deposit accounts that can accommodate the amount and liquidity characteristics desired
by most surplus units.
B) They repackage funds received from dep
ANSWER: D
Long-term debt securities tend to have a _______ expected return and _______ risk than money
market securities.
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
ANSWER: B
Those participants who receive more money than they spend are referred to as _______ units.
A) deficit
B) surplus
C) borrowing
D) government
ANSWER: D
Equity securities:
A) have a maturity.
B) pay interest on a periodic basis.
C) represent ownership in the issuer.
D) repay the principal amount at maturity.
ANSWER: A
The finance segment known as _______ involves decisions such as how much funding to obtain, and how to invest the proceeds to expand operations.
A) corporate finance
B) investment management
C) financial markets and institutions
D) none of these
ANSWER: C
Which of the following statements is incorrect?
A) Financial markets attract funds from investors and channel the funds to corporations.
B) Money markets enable corporations to borrow funds on a short-term basis so that they can support their existing ope
ANSWER: A
There is a _______ relationship between the risk of a security and the expected return from investing in the security.
A) positive
B) negative
C) indeterminable
D) none of these
ANSWER: B
Which of the following is not a typical money market security?
A) Treasury bills
B) Treasury bonds
C) commercial paper
D) negotiable certificates of deposit
ANSWER: D
If a security is undervalued, some investors would capitalize from this by purchasing that security. As a result, the security's price will _______, resulting in a _______ return for those investors.
A) rise; lower
B) fall; higher
C) fall; lower
D) rise;
ANSWER: D
Which of the following statements is incorrect?
A) It is probably safe to say that various forms of unethical behavior will continue in the future.
B) New financial scandals will likely result in new regulations.
C) New regulations will likely be followed
ANSWER: A
_______ is not a securities firm.
A) American Express
B) Merrill Lynch
C) Morgan Stanley
D) Goldman Sachs
ANSWER: A
Currently, _______ hold the largest amount of assets of all financial institutions.
A) commercial banks
B) credit unions
C) finance companies
D) securities firms
ANSWER: B
If financial markets are efficient, this implies that investors can ignore the various investment instruments available.
A) true
B) false
ANSWER: A
Securities are certificates that represent a claim on the provider of funds.
A) true
B) false
ANSWER: A
Debt securities are certificates that represent debt (borrowed funds) by the issuer.
A) true
B) false
ANSWER: A
When security prices fully reflect all available information, the markets for these securities are said to be efficient.
A) true
B) false
ANSWER: B
If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire.
A) true
B) false
ANSWER: A
A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread.
A) true
B) false
ANSWER: A
The euro increased business between European countries and created a more competitive environment in Europe.
A) true
B) false:
ANSWER: A
In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of scope.
A) true
B) false
ANSWER: A
Securities are certificates that represent a claim on the provider of funds.
A) true
B) false
ANSWER: A
Commercial banks in aggregate have more assets than of savings institutions.
A) true
B) false
ANSWER: A
Debt securities are certificates that represent debt (borrowed funds) by the issuer.
A) true
B) false
ANSWER: B
Common types of capital market securities include Treasury bills and commercial paper.
A) true
B) false
ANSWER: A
Capital market securities are commonly issued in order to finance the purchase of assets such as buildings, equipment, or machinery.
A) true
B) false