chapter 9 macro
The most common type of defined-contribution plan is a
401(k).
Within the financial system, which of the following is true?
Banks serve as financial intermediaries. Stock exchanges serve as financial intermediaries.
How do businesses and entrepreneurs fuel the financial system?
Borrowing for investment projects.
Identify the major players in financial institutions.
Businesses Savers Banks Speculators
Which of the following affect the demand for loanable funds?
Changes in the government's budget deficit Uncertainty about future economic conditions Expectations about future economic conditions
Indicate which of the following shift the supply curve for loanable funds (savings).
Cultural expectations Wealth Current economic conditions Uncertainty about future economic conditions Social welfare policies Borrowing constraints Expectations about future economic conditions
What is the main alternative to equity?
Debt
Suppose you need a loan for $200,000. Rather than going to a bank, you seek out 200 people who are each willing to loan you $1000. When this fails, you realize that banks play an important role in lending. What is this role?
Financial intermediary
Specialized investment funds tend to employ what type of analysis?
Fundamental analysis
Indicate the roles of the financial system.
Intermediation Liquidity Diversification of risk
Indicate one way a company might transform an illiquid asset into a liquid one.
Issue stock
How do banks function as a financial intermediary?
It matches people who want loans with people who have money to loan.
How does the stock market function as a financial intermediary?
It matches people who want to buy stock with companies looking to sell stock.
When you borrow a large amount of money from a bank (for a new house, for example), how does the bank act as a financial intermediary?
It removes the complexity of many, smaller loans required to borrow money from more than one source.
In order to solve mistiming issues, banks must do which of the following?
Loan out money to people who would like to spend more than they earn Collect money from people who earn more than they currently spend
Which of the following results from banks' intermediation?
Lower transaction costs A single lender dominates
When banks match borrowers and savers, what problem are they solving?
Mistiming of financial actions
Indicate which of the following savers use as proxies in financial markets.
Mutual funds Pension funds Life insurance companies
Identify approaches used to predict returns in a financial market.
Net present value Efficient-market hypothesis Fundamental analysis
When we borrow money for a period of time, what is the price of borrowing?
The interest rate
Describe the effect on the supply of loanable funds when interest rates decrease.
The quantity of loanable funds supplied decreases.
Describe the effect on the supply of loanable funds when interest rates increase.
The quantity of loanable funds supplied increases.
Private savings refers to which of the following?
The savings of individuals The savings of corporations
When banks match lenders and borrowers, what is the effect on transaction costs?
Transaction costs fall
The process of taking advantage of market inefficiencies is called arbitrage.
True
In the market for loanable funds, demand for loanable funds is given by
a downward-sloping curve.
The financial system refers to
a group of institutions that brings together savers, borrowers, investors, and insurers together in order to trade financial products.
Consider the statement: "There is no such thing as a single interest rate." This statement is
accurate in the sense that all borrowers do not face the same interest rate.
A stock is common name for ____________ and represents ___________.
an equity asset; partial ownership of a company
In the market for loanable funds, supply of loanable funds is given by
an upward-sloping curve.
The process of taking advantage of market inefficiencies is called
arbitrage.
Non-price factors that affect the demand for loanable funds
cause a shift in the demand curve.
The identity between national savings and investment holds only in a(n) _____ economy.
closed
The identity between national savings and investment holds only in a
closed economy.
Typically, __________ bonds have maturities of 10-30 years while __________ bonds tend to have maturities from 1-10 years.
corporate; government
Lenders tend to charge higher interest rates when there is a greater risk of __________.
default
When a borrower does not repay a loan as agreed, it is called __________.
default
Suppose Jonathan has worked for his company for 35 years. As such, he has met his company's entry requirements for a retirement plan and receives payments based on fixed payout. Jonathan is part of a
defined-benefit plan.
Suppose Jonathan pays a certain amount in to a retirement plan each year and, in retirement, receives payments based on the performance of the fund. Jonathan is part of a
defined-contribution plan.
In the market for loanable funds, the __________ curve demonstrates the fact that as interest rates rise, people are willing to borrow less.
demand
In the market for loanable funds, the __________ curve demonstrates the fact that as interest rates rise, people are willing to borrow less. As a result, this curve is __________.
demand; downward-sloping
Suppose that Wendy buys stock in many different companies and in many different industries. Doing this constitutes ____________.
diversification
Profits paid to stockholders are called __________ and are distributed ____________.
dividends; based on ownership stake
Stockholders are considered to be the owners of a company. As such, they
elect a board of directors.
In the market for loanable funds, the intersection of the supply and demand curves produces
equilibrium interest rate and quantity of loanable funds.
In the market for loanable funds, the intersection of supply and demand provides the _____________ interest rate. In reality, potential borrowers face ___________ interest rates.
equilibrium; different
A __________ market is a market where individuals trade future claims on funds.
financial
A group of institutions that brings together savers, borrowers, investors, and insurers together in order to trade financial products is called the ____________ system.
financial
When investors face high potential risk in an asset, they tend to require
high potential reward.
Stocks tend to be __________ investments and carry a relatively ___________ of return.
high-risk; high rates
Privately-held companies are __________ assets; public companies are ___________ assets.
illiquid; liquid
If a fund manager buys all of the stocks represented in the NASDAQ with the goal replicating return, then the portfolio is called a(n) __________ fund.
index
When businesses spend money on goods and services that are designed to improve the future productivity of the firm, they are engaging in
investment.
A savings strategy that pays out after you die is _____ _____ called .
life insurance
Savings strategies that pay out after you die are called
life insurance.
A(n) _____ is an agreement whereby a lender supplies money to a borrower in exchange for repayment of the sum plus interest.
loan
The most common type of debt that companies accrue is called a(n) _____.
loan
Banks, savers, businesses, and speculators are all
major players in financial institutions.
Bonds tend to be _________ regular loans.
more liquid than
Loans that are standardized into more easily tradable assets tend to be ___________ other loan types.
more liquid than
A portfolio of stocks and other assets that is managed by a fund manager on behalf of his or her clients is called a(n) _________ fund.
mutual
Equity refers to
partial ownership in a company.
Financial markets match
people who have funds with people who want funds.
The interest rate is also known as the
price of borrowing.
The savings of individuals or corporations is called ________ savings.
private
When savers give their money to another entity to lend out, they are giving their money to
proxies.
A company for which anyone can buy a share is called a __________ company and is generally a(n) __________ asset.
public; liquid
Companies issue stock in order to
raise capital without borrowing.
Low-risk investments tend to carry
relatively low returns.
Net present value and efficient market hypothesis are two approaches used to predict _____ in a financial market.
returns
Money that is left over after households pay taxes and consume goods and services is called
savings.
Changes in social welfare policies, changes in expectations about future economic conditions, and overall wealth will
shift the supply of loanable funds curve.
When a fund manager carefully researches and selects particular companies and stocks in hope of generating the highest possible return for investors, it is called a ____________ fund.
specialized
People who buy and sell assets solely for financial gain are called ____________.
speculators
In the market for loanable funds, the _________ curve demonstrates the fact that as the interest rate rises, people are willing to save more.
supply
In the market for loanable funds, the _________ curve demonstrates the fact that as the interest rate rises, people are willing to save more. As a result, this curve is ________.
supply; upward-sloping
Unexpected inflation is an example of
systemic risk.
Evaluating past changes in a stock's price in order to predict future changes in the stock's price is called
technical analysis.
A "fixed-income" security refers to
the set interest rate on bonds.
You earn $3,000 per month, pay $600 per month in taxes, and spend $2,300 on expenses. By definition, your savings equals $_____
100
What is the basic trade-off in valuing any asset?
Risk and return
Investment refers to which of the following?
Spending by businesses on physical capital
Which of the following is exchanged in a financial market?
Student loans and insurance policies
Which of the following entities likely faces the lowest interest rates?
The U.S. government