Chapter 2 Homework

Which of the following are secondary markets? (they are) The over-the-counter stock market The U.S. government bond market The options markets The New York Stock Exchange

All of the above

Which of the following statements about the characteristics of debt and equity are true? (they are) They both enable a corporation to raise funds. They both involve a claim on the issuer's income. They both can be long-term financial instruments.

All of the above.

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

Eurobonds.

U.S. dollars deposited in foreign banks outside the United States or in foreign branches of U.S. are referred to as

Eurodollars

Every financial market performs the following function:

It channels funds from lenders-savers to borrowers-spenders.

Which of the following are primary markets? (not) The over-the-counter stock market The options markets The New York Stock Exchange The U.S. government bond market

None of the above

Which of the following can be described as involving direct finance? (no) A pension fund manager buys commercial paper in the secondary market. People buy shares in a mutual fund. A corporation's stock is traded in an over-the-counter market. An insurance company buys shares of common stock in the over-the-counter markets.

None of the above.

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist.

adverse selection

The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.

asymmetric information

Intermediaries who are agents of investors and match buyers with sellers of securities are called

brokers

Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called

dealers

Financial intermediaries (do) improve the lot of the small saver. exist because there are substantial information and transaction costs in the economy. are involved in the process of indirect finance.

do all of the above.

The presence of transaction costs in financial markets explains, in part, why

financial intermediaries and indirect finance play such an important role in financial markets.

Bonds that are sold in a foreign country and are denominated in that country's currency are known as

foreign bonds

When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist.

moral hazard

The money market is the market in which ________ are traded.

short-term debt instruments