Chapter 1 Quiz- Money and Banking

The NYSE is an example of

A secondary market

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 A. Conduct an IPO with the assistance of an investment banker. B. Engage in a secondary market sale of equity. C. Conduct a private placement to a large number of potential buyers. D. Place an ad in the Wall Street Journal soliciting retail suppliers of funds. E. Issue bonds with the assistance of a dealer.

A. Conduct an IPO with the assistance of an investment banker.

Financial intermediaries (FIs) 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 and closely monitor the riskiness of their assets.

Financial intermediation provides direct transfer of funds to the users.

False

In the United States the SEC provides deposit insurance for $250,000 per person per bank.

False

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

False

There are three types of major financial markets today: primary, secondary, and derivatives markets. The NYSE and NASDAQ are both examples of derivatives markets. Group starts

False

Depository Institutions

Financial institutions that accept deposits from individuals and provide loans -Banks/ Thrifts

What factors are encouraging financial institutions to offer overlapping financial services such as banking, investment banking, brokerage, etc.?

I. Regulatory changes allowing institutions to offer more services II. Technological improvements reducing the cost of providing financial services III. Increasing competition from full-service global financial institutions

T or F: One of the factors responsible for globalization of financial markets and institutions is deregulation.

True

Money markets

are the markets for securities with an original maturity of one year or less.

Which of the following are capital market instruments? A. 10-year corporate bonds B. 30-year mortgages C. 20-year Treasury bonds D. 15-year U.S. government agency bonds E. All of these choices are correct

E. All of these choices are correct

The Securities Exchange Commission (SEC) does not A. Decide whether a public issue is fairly priced B. Decide whether a firm making a public issue has provided enough information for investors to decide whether the issue is fairly priced. C. Require exchanges to monitor trading to prevent insider trading. D. Attempt to reduce excessive price fluctuations E. Monitor the major securities exchanges

decide whether a public issue is fairly priced.

The Volcker Rule

prohibits U.S. depository institutions from engaging in proprietary trading.