Money and Banking Chapter 2

Federal Deposit Insurance Corporation.

The agency that was created to protect depositors after the banking failures of 1930-1933 is the

spreading the cost of writing a standardized contract over many borrowers.

An example of economies of scale in the provision of financial services is

Underwriting

An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called

municipal

Bonds issued by state and local governments are called ________ bonds.

depository

Financial institutions that accept deposits and make loans are called ________ institutions.

financial intermediaries; more

In the United States, loans from ________ are far ________ important for corporate finance than are securities markets.

adverse selection; moral hazard

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.

low transactions costs.

Risk sharing is profitable for financial institutions due to

Germany; Japan

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.

the Federal Reserve System

The regulatory agency that sets reserve requirements for all banks is

asymmetric information.

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

Default

U.S. Treasury bills are considered the safest of all money market instruments because there is a low probability of

a repurchase agreement

Which of the following are short-term financial instruments?

People buy shares of common stock in the primary markets.

Which of the following can be described as involving direct finance?

U.S. Treasury bills

Which of the following instruments are traded in a money market?

Direct

With ________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets.

savers, spenders

With direct finance, funds are channeled through the financial market from the ________ directly to the ________.

Contractual savings

________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis.

Financial markets have the basic function of

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