front 1 Every financial market has the following characteristic. A) It determines the level of interest rates. B) It allows common stock to be traded. C) It allows loans to be made. D) It channels funds from lenders-savers to borrowers-spenders. | back 1 Answer: D |
front 2 Financial markets have the basic function of A) getting people with funds to lend together with people who want to borrow funds. B) assuring that the swings in the business cycle are less pronounced. C) assuring that governments need never resort to printing money. D) providing a risk-free repository of spending power. | back 2 Answer: A |
front 3 Financial markets improve economic welfare because
D) they eliminate the need for indirect finance | back 3 Answer: B |
front 4 Well-functioning financial markets A) cause inflation. B) eliminate the need for indirect finance. C) cause financial crises. D) allow the economy to operate more efficiently. | back 4 Answer: D |
front 5 A breakdown of financial markets can result in A) financial stability. B) rapid economic growth. C) political instability. D) stable prices. | back 5 Answer: C |
front 6 The principal lender-savers are A) governments. B) businesses. C) households. D) foreigners. | back 6 Answer: C |
front 7 Which of the following can be described as direct finance? A) You take out a mortgage from your local bank. B) You borrow $2500 from a friend. C) You buy shares of common stock in the secondary market. D) You buy shares in a mutual fund. | back 7 Answer: B |
front 8 Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is A) $400. B) $201. C) $200. D) $199. | back 8 Answer: B |
front 9 You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is A) 25%. B) 12.5%. C) 10%. D) 5%. | back 9 Answer: D |
front 10 Which of the following can be described as involving direct finance?
D) An insurance company buys shares of common stock in the over-the-counter markets. | back 10 Answer: A |
front 11 Which of the following can be described as involving direct finance? A) A corporation takes out loans from a bank. B) People buy shares in a mutual fund. C) A corporation buys a short-term corporate security in a secondary market. D) People buy shares of common stock in the primary markets. | back 11 Answer: D |
front 12 Which of the following can be described as involving indirect finance? A) You make a loan to your neighbor. B) A corporation buys a share of common stock issued by another corporation in the primary market. C) You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov. D) You make a deposit at a bank. | back 12 Answer: D |
front 13 Which of the following can be described as involving indirect finance? A) You make a loan to your neighbor. B) You buy shares in a mutual fund. C) You buy a U.S. Treasury bill from the U.S. Treasury at Treasury Direct.gov. D) You purchase shares in an initial public offering by a corporation in the primary market. | back 13 Answer: B |
front 14 Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them. A) assets; liabilities B) liabilities; assets C) negotiable; nonnegotiable D) nonnegotiable; negotiable | back 14 Answer: A |
front 15 With ________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets. A) active B) determined C) indirect D) direct | back 15 Answer: D |
front 16 With direct finance, funds are channeled through the financial market from the ________ directly to the ________. A) savers, spenders B) spenders, investors C) borrowers, savers D) investors, savers | back 16 Answer: A |
front 17 Distinguish between direct finance and indirect finance. Which of these is the most important source of funds for corporations in the United States? | back 17 Answer: With direct finance, funds flow directly from the lender/saver to the borrower. With indirect finance, funds flow from the lender/saver to a financial intermediary who then channels the funds to the borrower/investor. Financial intermediaries (indirect finance) are the major source of funds for corporations in the U.S. |
front 18 Which of the following statements about the characteristics of debt and equity is FALSE? A) They can both be long-term financial instruments. B) They can both be short-term financial instruments. C) They both involve a claim on the issuer's income. D) They both enable a corporation to raise funds. | back 18 Answer: B |
front 19 Which of the following statements about the characteristics of debt and equities is TRUE? A) They can both be long-term financial instruments. B) Bond holders are residual claimants. C) The income from bonds is typically more variable than that from equities. D) Bonds pay dividends. | back 19 Answer: A |
front 20 Which of the following statements about financial markets and securities is TRUE? A) A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. B) A debt instrument is intermediate term if its maturity is less than one year. C) A debt instrument is intermediate term if its maturity is ten years or longer. D) The maturity of a debt instrument is the number of years (term) to that instrument's expiration date. | back 20 Answer: D |
front 21 Which of the following is an example of an intermediate-term debt? A) a fifteen-year mortgage B) a sixty-month car loan C) a six-month loan from a finance company D) a thirty-year U.S. Treasury bond | back 21 Answer: B |
front 22 If the maturity of a debt instrument is less than one year, the debt is called A) short-term. B) intermediate-term. C) long-term. D) prima-term. | back 22 Answer: A |
front 23 Long-term debt has a maturity that is
| back 23 Answer: D |
front 24 When I purchase ________, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors. A) bonds B) bills C) notes D) stock | back 24 Answer: D |
front 25 Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders. A) debtors B) brokers C) residual claimants D) underwriters | back 25 Answer: C |
front 26 Which of the following benefits directly from any increase in the corporation's profitability? A) a bond holder B) a commercial paper holder C) a shareholder D) a T-bill holder | back 26 Answer: C |
front 27 A financial market in which previously issued securities can be resold is called a ________ market. A) primary B) secondary C) tertiary D) used securities | back 27 Answer: B |
front 28 An important financial institution that assists in the initial sale of securities in the primary market is the A) investment bank. B) commercial bank. C) stock exchange. D) brokerage house. | back 28 Answer: A |
front 29 When an investment bank ________ securities, it guarantees a price for a corporation's securities and then sells them to the public. A) underwrites B) undertakes C) overwrites D) overtakes | back 29 Answer: A |
front 30 Which of the following is NOT a secondary market? A) foreign exchange market B) futures market C) options market D) IPO market | back 30 Answer: D |
front 31 ) ________ work in the secondary markets matching buyers with sellers of securities. A) Dealers B) Underwriters C) Brokers D) Claimants | back 31 Answer: C |
front 32 A corporation acquires new funds only when its securities are sold in the A) primary market by an investment bank. B) primary market by a stock exchange broker. C) secondary market by a securities dealer. D) secondary market by a commercial bank. | back 32 Answer: A |
front 33 A corporation acquires new funds only when its securities are sold in the A) secondary market by an investment bank. B) primary market by an investment bank. C) secondary market by a stock exchange broker. D) secondary market by a commercial bank. | back 33 Answer: B |
front 34 An important function of secondary markets is to A) make it easier to sell financial instruments to raise funds. B) raise funds for corporations through the sale of securities. C) make it easier for governments to raise taxes. D) create a market for newly constructed houses. | back 34 Answer: A |
front 35 Secondary markets make financial instruments more A) solid. B) vapid. C) liquid. D) risky. | back 35 Answer: C |
front 36 A liquid asset is A) an asset that can easily and quickly be sold to raise cash. B) a share of an ocean resort. C) difficult to resell. D) always sold in an over-the-counter market. | back 36 Answer: A |
front 37 The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market. A) more; primary B) more; secondary C) less; primary D) less; secondary | back 37 Answer: A |
front 38 When secondary market buyers and sellers of securities meet in one central location to conduct trades the market is called a(n) A) exchange. B) over-the-counter market. C) common market. D) barter market. | back 38 Answer: A |
front 39 In a(n) ________ market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. A) exchange B) over-the-counter C) common D) barter | back 39 Answer: B |
front 40 Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them. A) secondary stocks B) surplus stocks C) U.S. government bonds D) common stocks | back 40 Answer: C |
front 41 Which of the following statements about financial markets and securities is TRUE? A) Many common stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stock exchanges such as the New York Stock Exchange. B) As a corporation gets a share of the broker's commission, a corporation acquires new funds whenever its securities are sold. C) Capital market securities are usually more widely traded than shorter-term securities and so tend to be more liquid. D) Prices of capital market securities are usually more stable than prices of money market securities, and so are often used to hold temporary surplus funds of corporations. | back 41 Answer: A |
front 42 A financial market in which only short-term debt instruments are traded is called the ________ market. A) bond B) money C) capital D) stock | back 42 Answer: B |
front 43 Equity instruments are traded in the ________ market. A) money B) bond C) capital D) commodities | back 43 Answer: C |
front 44 Because these securities are more liquid and generally have smaller price fluctuations, corporations and banks use the ________ securities to earn interest on temporary surplus funds.
| back 44 Answer: A |
front 45 Corporations receive funds when their stock is sold in the primary market. Why do corporations pay attention to what is happening to their stock in the secondary market? | back 45 Answer: The existence of the secondary market makes their stock more liquid and the price in the secondary market sets the price that the corporation would receive if they choose to sell more stock in the primary market. |
front 46 Describe the two methods of organizing a secondary market. | back 46 Answer: A secondary market can be organized as an exchange where buyers and sellers meet in one central location to conduct trades. An example of an exchange is the New York Stock Exchange. A secondary market can also be organized as an over-the-counter market. In this type of market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. An example of an over-the-counter market is the federal funds market. |
front 47 Prices of money market instruments undergo the least price fluctuations because of A) the short terms to maturity for the securities. B) the heavy regulations in the industry. C) the price ceiling imposed by government regulators. D) the lack of competition in the market. | back 47 Answer: A |
front 48 ) U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. A) premium B) collateral C) default D) discount | back 48 Answer: D |
front 49 U.S. Treasury bills are considered the safest of all money market instruments because there is a low probability of A) defeat. B) default. C) desertion. D) demarcation. | back 49 Answer: B |
front 50 A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called A) commercial paper. B) a certificate of deposit. C) a municipal bond. D) federal funds. | back 50 Answer: B |
front 51 A short-term debt instrument issued by well-known corporations is called A) commercial paper. B) corporate bonds. C) municipal bonds. D) commercial mortgages. | back 51 Answer: A |
front 52 ________ are short-term loans in which Treasury bills serve as collateral. A) Repurchase agreements B) Negotiable certificates of deposit C) Federal funds D) U.S. government agency securities | back 52 Answer: A |
front 53 Collateral is ________ the lender receives if the borrower does not pay back the loan.
D) an offering | back 53 Answer: B |
front 54 Federal funds are A) funds raised by the federal government in the bond market. B) loans made by the Federal Reserve System to banks. C) loans made by banks to the Federal Reserve System. D) loans made by banks to each other. | back 54 Answer: D |
front 55 An important source of short-term funds for commercial banks are ________ which can be resold on the secondary market. A) negotiable CDs B) commercial paper C) mortgage-backed securities D) municipal bonds | back 55 Answer: A |
front 56 Which of the following are short-term financial instruments? A) a repurchase agreement B) a share of Walt Disney Corporation stock C) a Treasury note with a maturity of four years D) a residential mortgage | back 56 Answer: A |
front 57 Which of the following instruments are traded in a money market? A) state and local government bonds B) U.S. Treasury bills C) corporate bonds D) U.S. government agency securities | back 57 Answer: B |
front 58 Which of the following instruments are traded in a money market? A) bank commercial loans B) commercial paper C) state and local government bonds D) residential mortgages | back 58 Answer: B |
front 59 Which of the following instruments is NOT traded in a money market? A) residential mortgages B) U.S. Treasury Bills C) negotiable bank certificates of deposit D) commercial paper | back 59 Answer: A |
front 60 Bonds issued by state and local governments are called ________ bonds. A) corporate B) Treasury C) municipal D) commercial | back 60 Answer: C |
front 61 Equity and debt instruments with maturities greater than one year are called ________ market instruments. A) capital B) money C) federal D) benchmark | back 61 Answer: A |
front 62 Which of the following is a long-term financial instrument? A) a negotiable certificate of deposit B) a repurchase agreement C) a U.S. Treasury bond D) a U.S. Treasury bill | back 62 Answer: C |
front 63 Which of the following instruments are traded in a capital market? A) U.S. Government agency securities B) negotiable bank CDs C) repurchase agreements D) U.S. Treasury bills | back 63 Answer: A |
front 64 Which of the following instruments are traded in a capital market?
D) repurchase agreements | back 64 Answer: A |
front 65 Which of the following are NOT traded in a capital market? A) U.S. government agency securities B) state and local government bonds C) repurchase agreements D) corporate bonds | back 65 Answer: C |
front 66 The most liquid securities traded in the capital market are A) corporate bonds. B) municipal bonds. C) U.S. Treasury bonds. D) mortgage-backed securities. | back 66 Answer: C |
front 67 Mortgage-backed securities are similar to ________ but the interest and principal payments are backed by the individual mortgages within the security. A) bonds B) stock C) repurchase agreements D) negotiable CDs | back 67 Answer: A |
front 68 Equity of U.S. companies can be purchased by A) U.S. citizens only. B) foreign citizens only. C) U.S. citizens and foreign citizens. D) U.S. mutual funds only. | back 68 Answer: C |
front 69 One reason for the extraordinary growth of foreign financial markets is A) decreased trade. B) increases in the pool of savings in foreign countries. C) the recent introduction of the foreign bond. D) slower technological innovation in foreign markets. | back 69 Answer: B |
front 70 Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as A) foreign bonds. B) Eurobonds. C) equity bonds. D) country bonds. | back 70 Answer: A |
front 71 Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as A) foreign bonds. B) Eurobonds. C) equity bonds. D) country bonds. | back 71 Answer: B |
front 72 If Microsoft sells a bond in London and it is denominated in dollars, the bond is a
D) currency bond. | back 72 Answer: A |
front 73 U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called A) Atlantic dollars. B) Eurodollars. C) foreign dollars. D) outside dollars. | back 73 Answer: B |
front 74 If Toyota sells a $1000 bond in the United States, the bond is a A) foreign bond. B) Eurobond. C) Tokyo bond. D) currency bond. | back 74 Answer: A |
front 75 Distinguish between a foreign bond and a Eurobond. | back 75 Answer: A foreign bond is sold in a foreign country and priced in that country's currency. A Eurobond is sold in a foreign country and priced in a currency that is not that country's currency. |
front 76 The process of indirect finance using financial intermediaries is called A) direct lending. B) financial intermediation. C) resource allocation. D) financial liquidation. | back 76 Answer: B |
front 77 In the United States, loans from ________ are far ________ important for corporate finance than are securities markets. A) government agencies; more B) government agencies; less C) financial intermediaries; more D) financial intermediaries; less | back 77 Answer: C |
front 78 The time and money spent in carrying out financial transactions are called A) economies of scale. B) financial intermediation. C) liquidity services. D) transaction costs. | back 78 Answer: D |
front 79 Economies of scale enable financial institutions to A) reduce transactions costs. B) avoid the asymmetric information problem. C) avoid adverse selection problems. D) reduce moral hazard. | back 79 Answer: A |
front 80 An example of economies of scale in the provision of financial services is A) investing in a diversified collection of assets. B) providing depositors with a variety of savings certificates. C) hiring more support staff so that customers don't have to wait so long for assistance. D) spreading the cost of writing a standardized contract over many borrowers. | back 80 Answer: D |
front 81 Financial intermediaries provide customers with liquidity services. Liquidity services A) make it easier for customers to conduct transactions. B) allow customers to have a cup of coffee while waiting in the lobby. C) are a result of the asymmetric information problem. D) are another term for asset transformation. | back 81 Answer: A |
front 82 The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as A) risk sharing. B) risk aversion. C) risk neutrality. D) risk selling. | back 82 Answer: A |
front 83 The process of asset transformation refers to the conversion of A) safer assets into risky assets. B) safer assets into safer liabilities. C) risky assets into safer assets. D) risky assets into risky liabilities. | back 83 Answer: C |
front 84 Reducing risk through the purchase of assets whose returns do not always move together is A) diversification. B) intermediation. C) intervention. D) discounting. | back 84 Answer: A |
front 85 The concept of diversification is captured by the statement A) don't look a gift horse in the mouth. B) don't put all your eggs in one basket. C) it never rains, but it pours. D) make hay while the sun shines. | back 85 Answer: B |
front 86 Risk sharing is profitable for financial institutions due to A) low transactions costs. B) asymmetric information. C) adverse selection. D) moral hazard. | back 86 Answer: A |
front 87 Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called A) moral selection. B) risk sharing. C) asymmetric information. D) adverse hazard. | back 87 Answer: C |
front 88 If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of A) moral hazard. B) adverse selection. C) free-riding. D) costly state verification. | back 88 Answer: B |
front 89 The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________. A) adverse selection; moral hazard B) moral hazard; adverse selection C) costly state verification; free-riding D) free-riding; costly state verification | back 89 Answer: A |
front 90 Adverse selection is a problem associated with equity and debt contracts arising from 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% loss if the borrower defaults. C) the borrower's lack of incentive to seek a loan for highly risky investments. D) the borrower's lack of good options for obtaining funds. | back 90 Answer: A |
front 91 An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families. A) adverse selection B) moral hazard C) risk sharing D) credit risk | back 91 Answer: B |
front 92 Banks can lower the cost of information production by applying one information resource to many different services. This process is called A) economies of scale. B) asset transformation. C) economies of scope. D) asymmetric information. | back 92 Answer: C |
front 93 Conflicts of interest are a type of ________ problem that can happen when an institution provides multiple services. A) adverse selection B) free-riding C) discounting D) moral hazard | back 93 Answer: D |
front 94 Studies of the major developed countries show that when businesses go looking for funds to finance their activities they usually obtain these funds from A) government agencies. B) equities markets. C) financial intermediaries. D) bond markets. | back 94 Answer: C |
front 95 The countries that have made the least use of securities markets are ________ and ________; in these two countries finance from financial intermediaries has been almost ten times greater than that from securities markets. A) Germany; Japan B) Germany; Great Britain C) Great Britain; Canada D) Canada; Japan | back 95 Answer: A |
front 96 Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely. A) financial intermediaries; securities markets B) financial intermediaries; government agencies C) government agencies; financial intermediaries D) government agencies; securities markets | back 96 Answer: A |
front 97 Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems. | back 97 Answer: Adverse selection is the asymmetric information problem that exists before the transaction occurs. For lenders, it is the difficulty in judging a good credit risk from a bad credit risk. Moral hazard is the asymmetric information problem that exists after the transaction occurs. For lenders, it is the difficulty in making sure the borrower uses the funds appropriately. Financial intermediaries can reduce adverse selection through intensive screening and can reduce moral hazard by monitoring the borrower. |
front 98 Financial institutions that accept deposits and make loans are called ________ institutions. A) investment B) contractual savings C) depository D) underwriting | back 98 Answer: C |
front 99 Thrift institutions include A) banks, mutual funds, and insurance companies. B) savings and loan associations, mutual savings banks, and credit unions. C) finance companies, mutual funds, and money market funds. D) pension funds, mutual funds, and banks. | back 99 Answer: B |
front 100 Which of the following is a depository institution? A) a life insurance company B) a credit union C) a pension fund D) a mutual fund | back 100 Answer: B |
front 101 Which of the following is a depository institution? A) a life insurance company B) a mutual savings bank C) a pension fund D) a finance company | back 101 Answer: B |
front 102 Which of the following financial intermediaries is NOT a depository institution? A) a savings and loan association B) a commercial bank C) a credit union D) a finance company | back 102 Answer: D |
front 103 The primary assets of credit unions are A) municipal bonds. B) business loans. C) consumer loans. D) mortgages. | back 103 Answer: C |
front 104 The primary liabilities of a commercial bank are A) bonds. B) mortgages. C) deposits. D) commercial paper. | back 104 Answer: C |
front 105 The primary liabilities of depository institutions are A) premiums from policies. B) shares. C) deposits. D) bonds. | back 105 Answer: C |
front 106 ________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis. A) Investment B) Contractual savings C) Thrift D) Depository | back 106 Answer: B |
front 107 Which of the following is a contractual savings institution? A) a life insurance company B) a credit union C) a savings and loan association D) a mutual fund | back 107 Answer: A |
front 108 Contractual savings institutions include A) mutual savings banks. B) money market mutual funds. C) commercial banks. D) life insurance companies. | back 108 Answer: D |
front 109 Which of the following are NOT contractual savings institutions? A) life insurance companies B) credit unions C) pension funds D) state and local government retirement funds | back 109 Answer: B |
front 110 Which of the following is NOT a contractual savings institution?
D) a fire and casualty insurance company | back 110 Answer: C |
front 111 The primary assets of a pension fund are A) money market instruments. B) corporate bonds and stock. C) consumer and business loans. D) mortgages. | back 111 Answer: B |
front 112 Which of the following are investment intermediaries? A) life insurance companies B) mutual funds C) pension funds D) state and local government retirement funds | back 112 Answer: B |
front 113 An investment intermediary that lends funds to consumers is A) a finance company. B) an investment bank. C) a finance fund. D) a consumer company. | back 113 Answer: A |
front 114 The primary assets of a finance company are A) municipal bonds. B) corporate stocks and bonds. C) consumer and business loans. D) mortgages. | back 114 Answer: C |
front 115 ________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds. A) Mutual funds B) Investment banks C) Finance companies D) Credit unions | back 115 Answer: A |
front 116 Money market mutual fund shares function like A) checking accounts that pay interest. B) bonds. C) stocks. D) currency. | back 116 Answer: A |
front 117 An important feature of money market mutual fund shares is A) deposit insurance. B) the ability to write checks against shareholdings. C) the ability to borrow against shareholdings. D) claims on shares of corporate stock. | back 117 Answer: B |
front 118 The primary assets of money market mutual funds are A) stocks. B) bonds. C) money market instruments. D) deposits. | back 118 Answer: C |
front 119 An investment bank helps ________ issue securities. A) a corporation B) the United States government C) the SEC D) foreign governments | back 119 Answer: A |
front 120 An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called A) underwriting. B) underhanded. C) understanding. D) undertaking. | back 120 Answer: A |
front 121 A mutual fund that is organized as a limited partnership with high minimum investments is called a A) hedge fund. B) investment bank. C) mutual savings bank. D) money market mutual fund. | back 121 Answer: A |
front 122 Hedge funds require large minimum investments ranging from ________ to ________ or more. A) $100,000; $1 million B) $1000; $10,000 C) $100; $1000 D) $$10,000; $25,000 | back 122 Answer: A |
front 123 The limited memberships and high dollar minimums for hedge funds means that these funds are A) subject to weaker regulation than other mutual funds. B) more stringently regulated for fear of collapse. C) limited in the types of assets they can purchase. D) under the control of the U.S. Treasury. | back 123 Answer: A |
front 124 Which of the following is NOT a goal of financial regulation? A) ensuring the soundness of the financial system B) reducing moral hazard C) reducing adverse selection D) ensuring that investors never suffer losses | back 124 Answer: D |
front 125 Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets. A) adverse selection; moral hazard B) adverse selection; risk sharing C) moral hazard; transactions costs D) adverse selection; economies of scale | back 125 Answer: A |
front 126 A goal of the Securities and Exchange Commission is to reduce problems arising from A) competition. B) banking panics. C) risk. D) asymmetric information. | back 126 Answer: D |
front 127 The purpose of the disclosure requirements of the Securities and Exchange Commission is to A) increase the information available to investors. B) prevent bank panics. C) improve monetary control. D) protect investors against financial losses. | back 127 Answer: A |
front 128 Government regulations to reduce the possibility of financial panic include all of the following EXCEPT A) transactions costs. B) restrictions on assets and activities. C) disclosure. D) deposit insurance. | back 128 Answer: A |
front 129 Which of the following do NOT provide charters? A) the Office of the Comptroller of the Currency B) the Federal Reserve System C) the National Credit Union Administration D) state banking and insurance commissions | back 129 Answer: B |
front 130 A restriction on bank activities that was repealed in 1999 was A) the prohibition of the payment of interest on checking deposits. B) restrictions on credit terms. C) minimum down payments on loans to purchase securities. D) separation of commercial banking from the securities industries. | back 130 Answer: D |
front 131 In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from A) owning municipal bonds. B) making real estate loans. C) making personal loans. D) owning common stock. | back 131 Answer: D |
front 132 The primary purpose of deposit insurance is to A) improve the flow of information to investors. B) prevent banking panics. C) protect bank shareholders against losses. D) protect bank employees from unemployment. | back 132 Answer: B |
front 133 The agency that was created to protect depositors after the banking failures of 1930-1933 is the A) Federal Reserve System. B) Federal Deposit Insurance Corporation. C) Treasury Department. D) Office of the Comptroller of the Currency. | back 133 Answer: B |
front 134 The agency that restricts insider trading is the A) Federal Reserve System. B) Securities and Exchange Commission. C) Office of the Comptroller of the Currency. D) Federal Deposit Insurance Corporation. | back 134 Answer: B |
front 135 The regulatory agency that sets reserve requirements for all banks is A) the Federal Reserve System. B) the Federal Deposit Insurance Corporation. C) the Office of Thrift Supervision. D) the Securities and Exchange Commission. | back 135 Answer: A |
front 136 Asymmetric information is a universal problem. This would suggest that financial regulations A) in industrial countries are an unqualified failure. B) differ significantly around the world. C) in industrialized nations are similar. D) are unnecessary. | back 136 Answer: C |
front 137 How do regulators help to ensure the soundness of financial intermediaries? | back 137 Answer: Regulators restrict who can set up a financial intermediary, conduct regular examinations, restrict assets, and provide insurance to help ensure the soundness of financial intermediaries. |