TestBank Chapter-1
TestBank Chapter-1
TestBank Chapter-1
D) I, II, and IV
A) I only only
B) II and III only E) I, II, III, and IV
C) I, II, and III only
E) forward
A) primary market transaction. transaction.
B) asset transformation by Morgan Stanley.
C) money market transaction.
D) foreign exchange transaction.
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sells additional stock to the investment banker Morgan
Stanley. Morgan Stanley then resells the issue to the U.S. Morgan Stanley is acting
public through its mutual funds. as a(n)
E) derivatives
A) asset transformer. trader.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) corporate
A) securitized mortgages. stocks.
B) corporate bonds.
C) municipal bonds.
D) Treasury bonds.
A) secondary
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markets. E) commodities
B) primary markets. markets.
C) money markets.
D) derivatives markets.
E) Primary
A) Diversification; high equity returns markets; foreign exchange
B) Price risk; collateral markets
C) Free riders; regulations
D) Monitoring; diversification
E) All of these
A) banks only. choices are correct.
B) thrifts only.
C) finance companies only.
D) banks and thrifts.
9) Match the intermediary with the characteristic that 5.V. Underwrite and
best describes its function. 1.I. Provide protection from trade securities and
adverse events provide brokerage services
2.II. Pool funds of small savers and invest in either money 1.Thrifts
or capital markets 2.Insurers
3.III. Provide consumer loans and real estate loans funded 3.Pension funds
by deposits 4.Securities firms and
4.IV. Accumulate and transfer wealth from work period to investment banks
retirement period 5.Mutual funds
A) 1, 3, 2, 5, 4
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D) 2, 4, 5, 3, 1
B) 4, 2, 3, 5, 1 E) 5, 1, 3, 2, 4
C) 2, 5, 1, 3, 4
E) FIs can
A) FIs can diversify away some of their risk. diversify away some of
B) FIs closely monitor the riskiness of their assets. their risk and the federal
C) the federal government requires them to do so. government requires them
D) FIs can diversify away some of their risk and to do so.
closely monitor the riskiness of their assets.
12) Households are increasingly likely to both directly 3.III. Money to provide
purchase securities (perhaps via a broker) and also place some supplemental retirement
money with a bank or thrift to meet different needs. Match the income
given investor's desire with the appropriate intermediary or 4.IV. Money to be used
direct security. to provide for children in
1.I. Money likely to be needed within six months the event of death
2.II. Money to be set aside for college in 10 years 1.Depository institutions
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2.Insurer 4.Stocks or bonds
3.Pension fund
D) 1, 4, 3, 2
A) 2, 3, 4, 1 E) 4, 2, 1, 3
B) 1, 4, 2, 3
C) 3, 2, 1, 4
D) Bonds
A) Futures E) Forwards
B) Swaps
C) Options
E) Negotiable
A) Negotiable CDs CDs, common stock, and
B) Common stock T-bonds
C) T-bonds
D) 4-year maturity corporate bond
D) attempt to
A) decide whether a public issue is fairly priced. reduce excessive price
B) decide whether a firm making a public issue has fluctuations.
provided enough information for investors to decide whether E) monitor the
the issue is fairly priced. major securities
C) require exchanges to monitor trading to prevent exchanges.
insider trading.
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16) The most diversified type of depository institutions is:
D) finance
A) credit unions. companies.
B) savings associations. E) mutual funds.
C) commercial banks.
18) Depository institutions (DIs) play an important role in to the rest of the economy
the transmission of monetary policy from the Federal Reserve because:
supply.
A) loans to corporations are part of the money E) thrifts provide
supply. a large amount of credit to
B) bank and thrift loans are tightly regulated. finance residential real
C) U.S. DIs compete with foreign financial estate.
institutions.
D) DI deposits are a major portion of the money
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technology do not result in
A) that promised cash flows from loans and cost savings or revenue
securities held by FIs may not be paid in full. growth.
B) incurred by an FI when the maturities of its assets E) that an FI may
and liabilities do not match. not have enough capital to
C) that a sudden surge in liability withdrawals may offset a sudden decline in
require an FI to liquidate assets quickly at fire sale prices. the value of its assets.
D) incurred by an FI when its investments in
E) All of these
A) 10-year corporate bonds choices are correct.
B) 30-year mortgages
C) 20-year Treasury bonds
D) 15-year U.S. government agency bonds
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financial institutions usually for no more than one day. company to raise funds for
D) marketable bank-issued time deposit that specifies a short time period.
the interest rate earned and a fixed maturity date.
E) short-term unsecured promissory note issued by a
23) A negotiable CD is a:
24) Financial intermediaries’ ability to reduce the average operations allows them to
cost of collecting information because of their efficient take advantage of:
E)
A) asset transformation. standardization.
B) economies of scale.
C) economies of scope.
D) transformational trading.
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26) How can brokers and dealers make money? Which activity is riskier? Why?
28) How can using indirect finance rather than direct associated with monitoring
finance reduce agency costsfor users of funds that is funds?
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31) How can a depository intermediary (DI) afford to denomination deposits?
purchase long-term risky direct claims from users of funds What can go wrong in this
and finance these purchases with safe, liquid, short-term, low- process?
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35) Explain how the credit crunch originating in the their loans and investments
mortgage markets hurt financial intermediaries' attempts to while offering more liquid
use diversification and monitoring to limit the riskiness of claims to savers.
⊚ true
⊚ false
⊚ true
⊚ false
⊚ true
⊚ false
⊚ true
⊚ false
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40) Central governments sometimes indirectly intervene in through raising or lowering
foreign exchange markets by affecting foreign exchange rates interest rates.
⊚ true
⊚ false
⊚ true
⊚ false
42) Financial intermediaries rather than financial systems suppliers to the users of
are the most common agents to channel funds from the funds.
⊚ true
⊚ false
⊚ true
⊚ false
44) Asset
transformation by financial
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intermediaries involves increasing the risk attributes of
securities such as mortgages, bonds, and stocks.
⊚ true
⊚ false
⊚ true
⊚ false
⊚ true
⊚ false
⊚ true
⊚ false
⊚ true ⊚ false
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49) In the United States, the SEC provides deposit
insurance for $250,000 per person per bank.
⊚ true
⊚ false
⊚ true
⊚ false
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Answer Key
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20) C
21) E
22) E
23) D
24) B
36) TRUE
37) FALSE
38) FALSE
39) TRUE
40) TRUE
41) TRUE
42) TRUE
43) FALSE
44) FALSE
45) TRUE
46) FALSE
47) TRUE
48) FALSE
49) FALSE
50) TRUE
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