Test Bank For Financial Markets and Institutions 11th Edition By Jeff Madura

Chapter 1—Role of Financial Markets and Institutions

 

1. Financial market participants who provide funds are called

a.	deficit units.
b.	surplus units.
c.	primary units.
d.	secondary units.

ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.01

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

2. The main provider(s) of funds to the U.S. Treasury is (are)

a.	households and businesses.
b.	foreign financial institutions.
c.	the Federal Reserve System.
d.	foreign nonfinancial sectors.

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.01

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

3. The largest deficit unit is (are)

a.	households and businesses.
b.	foreign financial institutions.
c.	the U.S. Treasury.
d.	foreign nonfinancial sectors.

ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.01

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

4. Those financial markets that facilitate the flow of short-term funds are known as

a.	money markets.
b.	capital markets.
c.	primary markets.
d.	secondary markets.

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.02     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

5. Funds are provided to the initial issuer of securities in the

a.	secondary market.
b.	primary market.
c.	deficit market.
d.	surplus market.

ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.01

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

6. Which of the following is a capital market instrument?

a.	a six-month CD
b.	a three-month Treasury bill
c.	a ten-year bond
d.	an agreement for a bank to loan funds directly to a company for nine months

ANS:  C                    PTS:   1                    DIF:    Moderate        OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Comprehension

 

7. Which of the following is a money market security?

a.	Treasury note
b.	municipal bond
c.	mortgage
d.	commercial paper

ANS:  D                    PTS:   1                    DIF:    Moderate        OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Comprehension

 

8. The creditors in the federal funds market are

a.	households.
b.	depository institutions.
c.	firms.
d.	government agencies.

ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.03

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

9. Equity securities have a ____ expected return than most long-term debt securities, and they exhibit a ____ degree of risk.

a.	higher; higher
b.	lower; lower
c.	lower; higher
d.	higher; lower

ANS:  A                    PTS:   1                    DIF:    Moderate        OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Comprehension

 

10. Money market securities generally have ____. Capital market securities are typically expected to have a ____.

a.	less liquidity; higher annualized return
b.	more liquidity; lower annualized return
c.	less liquidity; lower annualized return
d.	more liquidity; higher annualized return

ANS:  D                    PTS:   1                    DIF:    Moderate        OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Comprehension

 

11. If security prices fully reflect all available information, the markets for these securities are

a.	efficient.
b.	primary.
c.	overvalued.
d.	undervalued.

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

12. If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

a.	perfect
b.	active
c.	inefficient
d.	in equilibrium

ANS:  C                    PTS:   1                    DIF:    Moderate        OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

13. If financial markets are efficient, this implies that all securities should earn the same return.
14. True
15. False

ANS:  F                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Comprehension

 

14. The Securities Act of 1933

a.	required complete disclosure of relevant financial information for publicly offered securities in the primary market.
b.	declared trading strategies to manipulate the prices of public secondary securities illegal.
c.	declared misleading financial statements for public primary securities illegal.
d.	required complete disclosure of relevant financial information for securities traded in the secondary market.
e.	all of the above

ANS:  A                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge

 

15. The Securities Exchange Commission (SEC) was established by the

a.	Federal Reserve Act.
b.	McFadden Act.
c.	Securities Exchange Act of 1934.
d.	Glass-Steagall Act.
e.	none of the above

ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   FMAI.MADU.15.01.02

NAT:  BUSPROG.FMAI.MADU.15.03     STA:   DISC.FMAI.MADU.15.02

KEY:  Bloom’s: Knowledge