Question 1

Many common stocks are traded over the counter, although a majority of the largest corporations have their shares traded at organized stock exchanges.

Accepted Answer

A) True 
 B)False

Question 2

Distinguish between direct financing and indirect financing.

Accepted Answer

The answer of Distinguish between direct financing and indirect financing....

Question 3

Distinguish between primary markets and secondary markets.

Accepted Answer

The answer of Distinguish between primary markets and secondary markets....

Question 4

Which of the following are primary markets?

Accepted Answer

A)  The New York Stock Exchange
B)  The U.S. government bond market
C)  The over-the-counter stock market
D)  The options markets
E)  None of the above

Question 5

Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called

Accepted Answer

A)  investment bankers.
B)  traders.
C)  brokers.
D)  dealers.
E)  none of the above.

Question 6

Adverse selection is a problem associated with equity and debt contracts arising from

Accepted Answer

A)  the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.
B)  the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults.
C)  the borrower's lack of incentive to seek a loan for highly risky investments.
D)  none of the above.

Question 7

Why is it so important for an economy to have fully developed financial markets?

Accepted Answer

The answer of Why is it so important for an...

Question 8

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

Accepted Answer

A)  foreign bonds.
B)  Eurobonds.
C)  Eurocurrencies.
D)  Eurodollars.

Question 9

Describe how over-the-counter markets work.

Accepted Answer

The answer of Describe how over-the-counter markets work....

Question 10

The process of financial intermediation is also known as direct finance.

Accepted Answer

A) True 
 B)False

Question 11

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

Accepted Answer

A)  noncollateralized risk
B)  free-riding
C)  asymmetric information
D)  costly state verification

Question 12

Which of the following can be described as involving direct finance?

Accepted Answer

A)  A corporation's stock is traded in an over-the-counter market.
B)  People buy shares in a mutual fund.
C)  A pension fund manager buys commercial paper in the secondary market.
D)  An insurance company buys shares of common stock in the over-the-counter markets.
E)  None of the above.

Question 13

Financial intermediaries

Accepted Answer

A)  exist because there are substantial information and transaction costs in the economy.
B)  improve the lot of the small saver.
C)  are involved in the process of indirect finance.
D)  do all of the above.
E)  do only A and B of the above.

Question 14

Why are financial intermediaries so important to an economy?

Accepted Answer

The answer of Why are financial intermediaries so important to...

Question 15

A country whose financial markets function poorly is likely to

Accepted Answer

A)  efficiently allocate its capital resources.
B)  enjoy high productivity.
C)  experience economic hardship and financial crises.
D)  increase its standard of living.

Question 16

Discuss the differences between depository institutions, contractual savings institutions, and investment intermediaries.

Accepted Answer

Depository institutions, contractual sav...

Question 17

A mutual fund is not a depository institution.

Accepted Answer

A) True 
 B)False

Question 18

An investor who puts all her funds into one asset ________ her portfolio's ________.

Accepted Answer

A)  increases; diversification
B)  decreases; diversification
C)  increases; average return
D)  decreases; average return

Question 19

Which of the following markets is sometimes organized as an over-the-counter market?

Accepted Answer

A)  The stock market
B)  The bond market
C)  The foreign exchange market
D)  The federal funds market
E)  all of the above

Question 20

The presence of transaction costs in financial markets explains, in part, why

Accepted Answer

A)  financial intermediaries and indirect finance play such an important role in financial markets.
B)  equity and bond financing play such an important role in financial markets.
C)  corporations get more funds through equity financing than they get from financial intermediaries.
D)  direct financing is more important than indirect financing as a source of funds.

Exam 2: Overview of the Financial System

Distinguish between primary markets and secondary markets.

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Financial intermediaries

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Which of the following are primary markets?

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The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

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Which of the following can be described as involving direct finance?

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Why are financial intermediaries so important to an economy?

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A country whose financial markets function poorly is likely to

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Adverse selection is a problem associated with equity and debt contracts arising from

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Why is it so important for an economy to have fully developed financial markets?

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Distinguish between direct financing and indirect financing.

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A mutual fund is not a depository institution.

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Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called

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Many common stocks are traded over the counter, although a majority of the largest corporations have their shares traded at organized stock exchanges.

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The presence of transaction costs in financial markets explains, in part, why

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An investor who puts all her funds into one asset ________ her portfolio's ________.

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Which of the following markets is sometimes organized as an over-the-counter market?

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Discuss the differences between depository institutions, contractual savings institutions, and investment intermediaries.

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The process of financial intermediation is also known as direct finance.

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Describe how over-the-counter markets work.

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Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

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An investor who puts all her funds into one asset her portfolio's .

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Depository institutions, contractual sav...
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