ECON 303: Chapter 2 Quiz

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) common market C) over-the-counter market D) barter market

exchange

Financial markets have the basic function of A) assuring that the swings in the business cycle are less pronounced B) getting people with funds to lend together with people who want to borrow funds C) assuring that governments need never resort to printing money D) providing a risk-free repository of spending power

getting people with funds to lend together with people who want to borrow funds

The principal lender-savers are A) governments B) households C) businesses D) foreigners

households

_____________ are short-term loans in which Treasury bills serve as collateral. A) Negotiable certificates of deposit B) U.S. government agency securities C) Repurchase agreements D) Federal funds

Repurchase agreements

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 both enable a corporation to raise funds C) They can both be short-term financial instruments D) They both involve a claim on the issuer's income

They can both be short-term financial instruments

Which of the following instruments are traded in a money market? A) corporate bonds B) state and local government bonds C) U.S. Treasury Bills D) U.S. government agency securities

U.S. Treasury Bills

Well-functioning financial markets A) cause inflation B) eliminate the need for indirect finance C) allow the economy to operate more efficiently D) cause financial crises

allow the economy to operate more efficiently

Collateral is ________ the lender receives if the borrowed does not pay back the loan A) a liability B) an offering C) an asset D) a present

an asset

The concept of diversification is captured by the statement A) it never rains, but it pours B) make hay while the sun shines C) don't put all your eggs in one basket D) don't look a gift horse in the mouth

don't put all your eggs in one basket

Which of the following is NOT a goal of financial regulation? A) ensuring the soundness of the financial system B) ensuring that investors never suffer losses C) reducing moral hazard D) reducing adverse selection

ensuring that investors never suffer losses