Chapter 1 3323

Which of the following is/are capital market instruments?

10 year corporate bonds 30 year mortgages 20 year treasury bonds 15 year US government agency bonds

A negotiable CD is

A marketable bank issued time deposits that specifies the interest rate earned and a fixed maturity date

Morgan Stanley is acting as a(n)

Asset broker

The Securities Exchange Commission (SEC) does NOT

Decide whether a public issue is fairly priced

The most diversified type of depository institutions are

Commercial banks

A corporation seeking to sell new equity securities to the public for the first time in order to raise cash for capital investment would most likely

Conduct an IPO with the assistance of an investment banker

The largest capital market security outstanding in 2010 measure by market value was

Corporate stocks

______ and _______ allow a financial intermediary to offer safe, liquid liabilities such as deposits while investing the depositors' money in riskier illiquid assets

Monitoring Diversification

Which of the following is/are money instruments?

Negotiable CDs

Financial intermediaries can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because

FIs can diversify away some of their risk FIs closely monitor the riskiness of their assets

T/F Privately placed securities are usually sold to one or more investment bankers and then resold to the general public

False

T/F Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period

False

T/F There are three types of major financial markets today: primary, secondary, and derivatives markets. The NYSE and NASDAQ are both examples of derivates markets

False

IBM creates and sells additional stock to the investment banker, Morgan Stanley, Morgan Stanley then resells the issue to the US public This transaction is an example of a(n)

Primary market transaction

As of 2010, which of the following derivatives instruments had the greatest amount of national principle outstanding?

Swaps

Liquidity risk at a financial intermediary (FI) is the risk

That a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices

T/F Financial intermediaries such as banks typically have assets that are riskier than their liabilities

True

T/F In a private placement, the issuer typically sells the entire issue to one, or only a few institutional buyers

True

T/F Money markets are the markets for securities with an original maturity of one year or less

True

T/F Primary markets are markets where users of funds raise cash by selling securities to funds' suppliers

True

T/F The NYSE is an example of a secondary market

True

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because

US DI's compete with foreign financial institutions

Commercial paper is

a short term unsecured promissory note issued by a company to raise funds for a short period of time

Depository institutions include:

Banks Thrifts

Insolvency risk at a financial intermediary is the risk

that an FI may not have enough capital to offset a sudden decline in the value of its assets