Assignment 3

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? a) -10 percent b) 5 percent c) 10 percent d) -5 percent

d) -5 percent

Which of the following is a contractual savings institution? a) A credit union b) A mutual fund c) A savings and loan association d) A life insurance company

d) A life insurance company

________ is the narrowest monetary aggregate that the Fed reports. a) M3 b) M0 c) M2 d) M1

d) M1

The agency that restricts insider trading is the a) Federal Deposit Insurance Corporation. b) Federal Reserve System. c) Office of the Comptroller of the Currency. d) Securities and Exchange Commission.

d) Securities and Exchange Commission.

Which of the following are investment intermediaries? a) Mutual funds b) Life insurance companies c) Pension funds d) State and local government retirement funds

a) Mutual funds

________ are the time and resources spent trying to exchange goods and services. a) Transaction costs b) Contracting costs c) Barter costs d) Bargaining costs

a) Transaction costs

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: a) asymmetric information. b) adverse hazard c) risk sharing. d) moral selection.

a) asymmetric information

Equity and debt instruments with maturities greater than one year are called ________ market instruments. a) capital b) money c) federal d) benchmark

a) capital

A disadvantage of ________made from precious metals is that it is very heavy and hard to transport from one place to another. a) commodity money b) paper money c) fiat money d) electronic money

a) commodity money

The primary assets of credit unions are a) consumer loans. b) municipal bonds. c) mortgages. d) business loans.

a) consumer loans.

In the United States, loans from ________ are far ________ important for corporate finance than are securities markets. a) financial intermediaries; more b) government agencies; more c) financial intermediaries; less d) government agencies; less

a) financial intermediaries; more

If merchants in the country Zed choose to close their doors, preferring to be stuck with rotting merchandise rather than worthless currency, then one can conclude that Zed is experiencing a: a) hyperinflation b) disinflation c) hyperdeflation d) superdeflation

a) hyperinflation

Federal funds are: a) loans made by banks to each other. b) funds raised by the federal government in the bond market. c) loans made by the Federal Reserve System to banks. d) loans made by banks to the Federal Reserve System.

a) loans made by banks to each other.

When compared to exchange systems that rely on money, disadvantages of the barter system include a) the requirement of a double coincidence of wants. b) lowering the cost of exchanging goods over time. c) encouraging specialization and the division of labor. d) lowering the cost of exchange to those who would specialize.

a) the requirement of a double coincidence of wants.

When compared to exchange systems that rely on money, disadvantages of the barter system include: a) the requirement of a double coincidence of wants. b) lowering the cost of exchanging goods over time. c) encouraging specialization and the division of labor. d) lowering the cost of exchange to those who would specialize.

a) the requirement of a double coincidence of wants.

The primary assets of a pension fund are: a) money market instruments. b) corporate bonds and stock. c) consumer and business loans. d) mortgages.

b) corporate bonds and stock.

If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is: a) 2.5 percent. b) 5 percent. c) 7.5 percent. d) 10 percent.

b) 5 percent.

U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called ________. a) Atlantic dollars b) Eurodollars c) foreign dollars d) outside dollars

b) Eurodollars

The agency that was created to protect depositors after the banking failures of 1930-1933 is the: a) Federal Reserve System. b) Federal Deposit Insurance Corporation. c) Treasury Department. d) Office of the Comptroller of the Currency.

b) Federal Deposit Insurance Corporation.

Which of the following is included in M2 but not in M1? a) Currency b) Money market mutual fund shares (retail) c) Demand deposits d) NOW accounts

b) Money market mutual fund shares (retail)

Which of the following financial intermediaries is NOT a depository institution? a) a commercial bank b) a finance company c) a credit union d) a savings and loan association

b) a finance company

If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of a) free-riding. b) adverse selection. c) costly state verification. d) moral hazard.

b) adverse selection.

Money market mutual fund shares function like: a) corporate bonds. b) commercial paper. c) municipal bonds. d) commercial mortgages.

b) commercial paper

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a: a) fixed-payment loan. b) simple loan. c) coupon bond. d) discount bond.

b) simple loan.

The time and money spent in carrying out financial transactions are called: a) economies of scale. b) transaction costs. c) liquidity services. d) financial intermediation.

b) transaction costs.

________ is the relative ease and speed with which an asset can be converted into a medium of exchange. a) Specialization b) Efficiency c) Liquidity d) Deflation

c) Liquidity

Which of the following instruments is not traded in a money market? a) U.S. Treasury Bills. b) Commercial paper. c) Residential mortgages. d) Negotiable bank certificates of deposit.

c) Residential mortgages.

Which of the following sequences accurately describes the evolution of the payments system? a) barter, checks, paper currency, coins made of precious metals, electronic funds transfers b) barter, checks, paper currency, electronic funds transfers c) barter, coins made of precious metals, paper currency, checks, electronic funds transfers d) barter, coins made of precious metals, checks, paper currency, electronic funds transfers

c) barter, coins made of precious metals, paper currency, checks, electronic funds transfers

The process of indirect finance using financial intermediaries is called a) resource allocation. b) financial liquidation. c) financial intermediation. d) direct lending.

c) financial intermediation.

Of money's three functions, the one that distinguishes money from other assets is its function as a: a) store of value. b) standard of deferred payment. c) medium of exchange. d) unit of account.

c) medium of exchange.

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are: a) bank deposits. b) loanable funds. c) money. d) reserves.

c) money

The yield to maturity for a discount bond is ________ related to the current bond price. a) positively b) not c) negatively d) directly

c) negatively

Money ________ transaction costs, allowing people to specialize in what they do best. a) increases b) eliminates c) reduces d) enhances

c) reduces

When money prices are used to facilitate comparisons of value, money is said to function as a a) store of value. b) payments-system ruler. c) unit of account. d) medium of exchange.

c) unit of account.

The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________. a) free-riding; costly state verification b) costly state verification; free-riding c) moral hazard; adverse selection d) adverse selection; moral hazard

d) adverse selection; moral hazard

Money market mutual fund shares function like: a) currency. b) stocks. c) bonds. d) checking accounts that pay interest.

d) checking accounts that pay interest.

Financial institutions that accept deposits and make loans are called ________ institutions. a) contractual savings b) underwriting c) investment d) depository

d) depository

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a: a) discount bond. b) simple loan. c) coupon bond. d) fixed-payment loan

d) fixed-payment loan

Defining money becomes ________ difficult as the pace of financial innovation ________. a) more; stops b) less; quickens c) more; slows d) more; quickens

d) more; quickens

Which of the following is NOT included in the measure of M1? a) currency b) NOW accounts c) demand deposits d) savings deposits

d) savings deposits