Chapter 6 Quiz

Which statement is NOT true of the loanable funds theory?

Is a model that is rarely used to explain interest rates & interest rate movement.

How is the shadow banking system the same as the traditional banking system?

It intermediates the flow of funds between net savers & net borrowers.

Financial intermediaries provide which of the following?

Purchase the financial claims that fund users issues . Finance purchases by selling financial claims to household investors & other fund suppliers.

When monetary policy objectives are to contract the economic growth, which of the following occurs?

The Federal Reserve decreases the supply of funds available in the financial markets.

Which of these statements is true?

The higher the default risk, the higher the interest rate that security buyers will demand.

Which of the following are money market securities to obtain short-term funds?

U.S. Treasury Bills & Commercial Paper

Which of the following is NOT a capital market instrument?

U.S. Treasury bills

Which of these is NOT a participant in the shadow banking system?

credit unions

Which of the following is the risk that a security issuer will miss an interest or principal payment or continue to miss such payments?

default risk

Which of these formalizes an agreement between two parties to exchange a standard quantity of an asset at a predetermined price on a specified date in the future?

derivative security

Which of these markets trade currencies for immediate or for some future stated delivery?

foreign exchange markets

Which of the following are demanders of loanable funds?

households, businesses, governments

Which of the following are suppliers of loanable funds?

households, government units, foreign investors

Which of the following is the continual increase in the price level of a basket of goods & services?

inflation

Primary market financial instruments include stock issues from firms allowing their equity shares to be publicly traded on the stock market for the first time. We usually refer to these first-time issues as which of the following?

initial public offerings

In the United States, which of these financial institutions arrange most primary market transactions for businesses?

investment banks

Which of these refer to the ease with which an asset can be converted into cash?

liquidity

Which of the these feature debt securities or instruments with maturities of one year or less?

money markets

Which of these capital market instruments are long-term loans to individuals or businesses to purchase homes, pieces of land, or other real property?

mortgages

Which of these is the interest rate that is actually observed in financial markets?

nominal interest rates

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks & bonds?

primary markets

Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these?

secondary markets

Which of the following factors cause the supply of funds curve to shift?

total wealth, risk of the financial security, & future spending needs

Which of the following factors cause the demand for funds curve to shift?

utility derived from assets purchased with borrowed funds, restrictiveness of non-price conditions of borrowing, domestic & foreign economic conditions

Which of the following is NOT a money market instrument?

corporate bonds

Which of the following is the risk that an asset's sale price will be lower than its purchase price?

price risk

Which of these is the interest rate that would exist on a default-free security if no inflation were expected?

real interest rate