344 Ch1

A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread. a. True b. False

A

A financial market is a market in which financial assets can be purchased or sold. a. True b. False

A

Bonds are long-term debt obligations issued by corporations and government agencies to support their operations. a. True b. False

A

Derivative securities are financial contracts whose values are derived from the values of underlying assets. a. True b. False

A

Financial market participants who borrow funds are called a. deficit units. b. surplus units. c. primary units. d. secondary units.

A

Indiana Bank purchased corporate bonds with a 10-year maturity 3 years ago. If it now needs funds, it could sell those bonds in the ______ market. a. secondary b. primary c. deficit d. surplus

A

Most mutual funds obtain funds by issuing securities, then lend the funds to individuals and small businesses. a. True b. False

B

The federal government commonly acts as a surplus unit. a. True b. False

B

One reason for the __________ was that mortgage lenders did not always properly verify the income, job status, and credit history of mortgage applicants before extending a mortgage. a. credit crisis in the 2008-2009 period b. stock market crash in 2013 c. mutual fund crisis in 2015 d. oil crisis in 2012

A

When a depository institution offers a loan, it is acting as a creditor. a. True b. False

A

Which of the following are considered depository financial institutions? a. credit unions b. pension funds c. mutual funds d. securities firms

A

Which of the following are not considered depository financial institutions? a. finance companies b. savings institutions c. credit unions d. commercial banks e. All of these choices are depository financial institutions.

A

Which of the following financial intermediaries are not major investors in stocks? a. commercial banks b. insurance companies c. mutual funds d. pension funds

A

Which of the following is a money market security? a. six-month treasury bill b. municipal bond c. mortgage d. corporate bond

A

Which of the following is most likely to be described as a depository institution? a. savings institutions b. securities firms c. finance companies d. pension funds e. insurance companies

A

If a corporation wants to borrow funds, it can issue bonds in the ______ market. a. secondary b. primary c. deficit d. surplus

B

Long-term debt securities tend to have a ________ expected return and ________ risk than money market securities. a. higher; lower b. higher; higher c. lower; higher d. lower; lower

B

The main source of funds for ________ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses. a. pension funds b. finance companies c. commercial banks d. savings institutions e. mutual funds

B

Those financial markets that facilitate the flow of long-term funds are known as a. money markets. b. capital markets. c. primary markets. d. secondary markets.

B

Those financial markets that facilitate the flow of short-term funds (with maturities of less than one year) are known as capital markets, while those that facilitate the flow of long-term funds are known as money markets. a. True b. False

B

Which of the following is not a reason why depository institutions are popular financial institutions, according to your text? a. They accept the risk on loans provided. b. They have more expertise than individual deficit units in evaluating the creditworthiness of surplus units. c. They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units. d. They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units. e. All of these choices are reasons why depository institutions are popular financial institutions.

B

Which of the following transactions would not be considered a secondary market transaction? a. An individual investor purchases some existing shares of IBM stock through his broker. b. Microsoft issues new shares of common stock using its investment bank. c. An institutional investor sells some Disney stock through his broker. d. All of these choices would occur in the secondary market.

B

While commercial banks concentrate on commercial loans, credit unions have concentrated on residential mortgage loans. a. True b. False

B

________ accept deposits from households, businesses, and government agencies and purchase government and corporate securities. a. Finance companies b. Answers [Commercial banks] and [Savings institutions] are correct. c. Money market funds d. Savings institutions e. Commercial banks

B

________ maintain a larger amount of assets than the other types of depository institutions. a. Savings institutions b. Commercial banks c. Finance companies d. Life insurance companies e. Credit unions

B

Financial markets a. facilitate the flow of funds from deficit to surplus units. b. are markets in which financial assets such as stocks and bonds can be purchased and sold. c. Only answers [facilitate the flow of funds from surplus to deficit units.] and [are markets in which financial assets such as stocks and bonds can be purchased and sold.] are correct. d. None of these choices are true. e. facilitate the flow of funds from surplus to deficit units.

C

________ are long-term debt obligations issued by corporations and government agencies to support their operations. a. Common stock b. Derivative securities c. Bonds d. None of these choices are correct. Hide Feedback

C

According to your text, credit unions differ from commercial banks and savings institutions because they a. are larger than commercial banks and savings institutions. b. concentrate on residential mortgage loans. c. are profit-oriented. d. restrict their business to credit union members.

D

Because financial markets are ____, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire. a. efficient b. inefficient c. perfect d. imperfect

D

If investors speculate in derivative contracts rather than the underlying asset, they will probably achieve ________ returns, and they are exposed to relatively ________ risk. a. higher; lower b. lower; lower c. lower; higher d. higher; higher

D

Many corporations offer their employees pension plans in which funds are periodically contributed by a. the U.S. government. b. the employers. c. both employers and employees. d. Answers [the employers.], [the employees.], and [both employers and employees.] can be correct. e. the employees.

D

The _______________________ required complete disclosure of relevant financial information for publicly offered securities in the primary market.. a. Glass-Steagall Act b. Federal Reserve Act c. Sarbanes-Oxley Act d. Securities Act of 1933

D

Securities firms a. sometimes act as a broker. b. provide investment banking services. c. sometimes provide advisory services. d. often act as a dealer. e. All of these choices are correct.

E

Which of the following is not a reason why depository financial institutions are popular? a. They accept the risk on loans provided. b. They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units. c. They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units. d. They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units. e. They use their information resources to act as a broker, executing securities transactions between two parties.

E

Many corporations and government agencies offer their employees pension plans that are entirely funded by the employer. T/F

False