Finance Lesson 1
Long-term debt and equity instruments are traded in the ________ market.
Capital
Monetary policy is chiefly concerned with _____.
The level of interest rates and the nation's money supply.
Interest rates are important to financial institutions since an increase in the interest rate _____ the cost of acquiring funds and _____ the income from assets.
increases; increases
The stock market is important because _____.
It is the most widely followed financial market in the United States.
Which of the following is a contractual savings institution?
A life insurance company
When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the ________
Adverse selection problem
Changes in stock prices _____.
All of the above
Economists group commercial banks, savings and loan associations, credit unions, mutual funds, insurance companies, pension funds, and finance companies together under the heading financial intermediaries. Financial intermediaries _____.
All of the above
Financial intermediaries _____.
All of the above
Financial market activities affect _____.
All of the above
Financial markets and institutions _____.
All of the above
Which of the following are securities?
All of the above
Which of the following financial intermediaries is a depository institution?
All of the above
Which of the following statements about the characteristics of debt and equity are true?
All of the above
When the lender and the borrower have different amounts of information regarding a transaction, ________ is said to exist.
Asymmetric information
An important financial institution that assists in the initial sale of securities in the primary market is the _____.
Investment bank
Financial markets _____.
Bring together people with funds to lend and people who want to borrow funds.
Intermediaries who are agents of investors and match buyers with sellers of securities are called ______.
Brokers
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 _____.
Eurobonds
The organization responsible for conducting monetary policy in the United States is the _____.
Federal Reserve System
The presence of transaction costs in financial markets explains, in part, why _____.
Financial intermediaries and indirect finance play such an important role in financial markets.
When the borrower engages in activities that make it less likely that the loan will be repaid, _____ is said to exist.
Moral hazard
The purpose of diversification is to _____.
Reduce the volatility of a portfolio's return.
The money market is the market in which _____ are traded.
Short-term debt instruments
The bond markets are important because _____.
They are the markets where interest rates are determined.
