Financial Management, 12e (Titman/Keown/Martin)
Chapter 2 Firms and the Financial Market
2.1 The Basic Structure of the U.S. Financial Markets
1) The principal savers in the inancial markets are
A) businesses.
B) banks.
C) individuals.
D) governments.
Question Status: New question
Objective: 2.1 Describe the structure and functions of inancial markets
Keywords: inancial intermediaries
Principles: Principle 2: There Is a Risk-Return Tradeof
2) The principal participants in the inancial markets are
A) businesses, banks, government.
B) borrowers, savers, inancial institutions.
C) mutual funds, hedge funds, investment bankers.
D) dealers, brokers, regulators.
Question Status: New question
Objective: 2.1 Describe the structure and functions of inancial markets
Keywords: inancial intermediaries
Principles: Principle 2: There Is a Risk-Return Tradeof
3) Financial intermediaries help bring savers and borrowers together.
Question Status: Previous edition
Objective: 2.1 Describe the structure and functions of inancial markets
Keywords: inancial intermediaries
Principles: Principle 2: There Is a Risk-Return Tradeof
4) Individuals are often savers because they wish to save for things such as a down
payment on a home or graduate school.
Question Status: Previous edition
Objective: 2.1 Describe the structure and functions of inancial markets
Keywords: inancial markets
Principles: Principle 2: There Is a Risk-Return Tradeof
5) The purpose of inancial markets is to bring borrowers and savers together.
Question Status: Revised
Objective: 2.1 Describe the structure and functions of inancial markets
Keywords: inancial markets
Principles: Principle 2: There Is a Risk-Return Tradeof
1
2.2 The Financial Marketplace: Financial Institutions
1) All of the following operate as inancial intermediaries EXCEPT
A) commercial banks.
B) mutual funds.
C) insurance companies.
D) public universities.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
2) All of the following are true about insurance companies EXCEPT
A) They invest their reserves.
B) They may guarantee to reimburse lenders should lenders’ loans go into default.
C) They participate in equipment leasing.
D) They may only invest their reserves in interest paying bank accounts under Federal law.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
2
3) Which of the following is true regarding Investment Banks?
A) As a result of the inancial crisis of 2008, all stand alone Investment banks either failed,
were merged into commercial banks, or became commercial banks.
B) Under the Glass-Steagal act, commercial banks were allowed to operate as Investment
banks.
C) When Glass-Steagal was repealed in 1999, commercial banks and Investment banks had
to be separate entities.
D) As of 2010, stand alone Investment banks are numerous.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
4) Each of the following is true of Mutual Funds EXCEPT
A) Funds can be classiied as load or no-load funds.
B) Mutual Fund shares must be bought from or sold to the Fund by investors.
C) An index fund is the fund with the highest expenses payable by investors.
D) The NAV is the total value of stock held by the fund divided by the number of
outstanding shares in the mutual fund.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
5) Insurance companies have a great deal of money to invest because
A) there proit margins are so high.
B) because they are reluctant to cover insurable losses.
C) because they must hold large reserves to pay potential claims.
D) insurance do not actually have large sums to invest.
Question Status: New question
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
3
6) All of the following are classiied as non-bank inancial intermediaries except
A) stock brokerages.
B) investment banks.
C) insurance companies.
D) hedge funds.
Question Status: New question
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
7) In inancial markets, borrowers pay savers by giving them a return on investment.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
8) All inancial intermediaries are banks.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
9) Mutual Funds and ETFs provide the investor a chance to diversify without having to buy
shares in numerous corporations.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
10) Private equity irms are inancial intermediaries that are not traded on public capital
markets.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
4
11) Capital markets are markets for short term debt instruments maturing in less than one
year, and money markets are markets for long term debt instruments maturing in more
than one year.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
12) Banks that are inancial intermediaries generate earnings when they facilitate the
transfer of money from savers to borrowers by paying savers a smaller return than they
demand from borrowers.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
13) In Financial markets, borrowers and lenders most both be located in the same country.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
14) The diference between mutual funds and ETFs is that ETFs are traded on exchanges
and mutual funds are not.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
15) Venture capital funds play an important role in the initial inancing of new businesses.
Question Status: New question
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
5
16) Investment banks are similar to commercial banks except that they invest deposits in
stocks and bonds rather than loans.
Question Status: New question
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
17) Describe the costs and beneits to investors of owning Mutual Funds.
Question Status: Previous edition
Objective: 2.2 Distinguish between commercial banks and other inancial institutions in the inancial
marketplace.
Keywords: inancial intermediaries
Principles: Principle 3: Cash Flows Are the Source of Value
6