FIN 3100 - Chapter 1 SmartBook
The daily volume of electronic payments processed through the Fedwire and CHIPS systems is approximately
$4.5 trillion.
From 1992 through 2019, foreign investors' holdings of U.S. financial market debt securities increased by a factor of about
12x.
True or false: In the U.S., most money market securities are traded "over the counter" rather than on organized exchanges.
True
The term "Brexit" refers to
the decision of the people of the United Kingdom to leave the European Union after 43 years.
From 1992 through 2019, U.S. investors' holdings of foreign financial market debt securities increased by a factor of about
13x.
Which of the following IS a responsibility of the SEC?
Detecting and prosecuting insider trading. Managing the registration of new securities. Ensuring that full disclosure of information is made for new securities.
Which of the following is NOT a responsibility of the SEC?
Ensuring that investors make good decisions
True or false: The original issuers of financial instruments obtain additional funds when those instruments are resold on the secondary market.
False
________ are sold in secondary financial markets by _________.
Financial instruments; agents in need of funds
The passage of the Securities Act of 1934 designated that the _________ would be the regulator of financial markets and exchanges in the U.S.
Securities and Exchange Commission (SEC)
As a result of increased globalization, movements in foreign financial markets now have _______ impact on U.S. financial markets.
a much greater
Financial institutions encourage investment by savers by offering investments in _________, __________ and __________.
annuities, pension funds, and life insurance.
Two of the important payment services provided by financial institutions to the economy are _________ and _________.
check clearing and wire transfers
In primary markets, the users of funds are frequently
corporations needing funds for new projects.
The risk that an asset held by a financial institution may default and not be repaid is called
credit risk.
When a financial institution hires employees to monitor fund users on behalf of fund providers, they are said to be acting as
delegated monitors.
Financial institutions frequently pool small deposits from individual savers and invest the funds in large denomination securities. This is called
denomination intermediation.
A primary conduit through which monetary policy actions of the Federal Reserve are transmitted to the economy are
depository institutions.
A significant component of the money supply that is under the supervision of financial institutions is
deposits at commercial banks and thrifts.
Financial institutions are able to guarantee the liquidity and safety of investors' funds despite investing in risky assets by
diversifying investments across many uncorrelated assets.
"Depreciation" of a foreign currency relative to the U.S. dollar means that
each unit of foreign currency is worth fewer U.S. dollars.
"Appreciation" of a foreign currency relative to the U.S. dollar means that
each unit of foreign currency is worth more U.S. dollars.
A financial institution's average cost of monitoring is lower than the individual investor's due to
economies of scale.
Other than residential mortgages, another area in which U.S. financial institutions have been encouraged by government policy to provide financing is
farming.
In primary markets, fund users raise new capital through the sale of
financial securities.
Two benefits to individual small savers of denomination intermediation are _________ and _________.
higher returns; lower risks
The major supplier of funds for secondary markets are
households.
The first-time issue of stock by a corporation going public is called a(n)
initial public offering (IPO).
Maturity intermediation may expose financial institutions to
interest rate risk.
Following the Brexit vote in June 2016, the British Pound dropped in value to its lowest point since 1985. This was due to
investors selling off pound-denominated assets and investing the funds in safe assets like gold and U.S. government bonds.
The claims issued by financial institutions to investors often guarantee the investors immediate access to their funds on demand. This relieves the investors from
liquidity risk.
The risk that a financial institution may have inadequate cash to meet requests for demand deposit withdrawal is called
liquidity risk.
Two important characteristics of money market securities are
low interest rate risk and maturity of one year or less.
A financial institution's average cost of monitoring fund users is _________ than the individual investor's cost.
lower
Financial institutions frequently transform short-maturity liabilities provided by investors into a portfolio of long-maturity assets. This is know as
maturity intermediation.
Financial institutions reduce individual investor's monitoring costs by
pooling their funds and hiring employees to monitor the fund users.
IPO's are issued on the ____________ and facilitated by ____________.
primary market; investment banks
In the U.S., savings banks and savings associations have been directed to provide financing primarily for
residential mortgages.
In the secondary market transactions, funds are exchanged with the help of _________ acting as an intermediary between the buyer and seller of an instrument.
securities brokers
Which of the following is the correct ranking from largest to smallest dollar value in capital markets in 2019?
stocks; mortgages; corporate bonds
The problem that arises when individual investors leave it to each other to collect information and monitor the fund users is called
the free rider problem.
The main issuers of money market securities are
the government and corporations.
The service that financial institutions provide to those who want to save for their future or for future generations is called
time intermediation.
Primary financial markets bring together ________ with _________.
users of funds; providers of funds
