978-0133427073 Test Bank Chapter 1 Part 2

31) ________ was the stock market’s worst one-day drop in history in the 1980s.

A) Black Friday

B) Black Monday

C) Blackout Day

D) none of the above

32) The largest financial intermediaries are

A) insurance companies.

B) finance companies.

C) banks.

D) all of the above.

33) In recent years

A) interest rates have remained constant.

B) the success of financial institutions has reached levels unprecedented since the Great

Depression.

C) stock markets have crashed.

D) all of the above.

34) A security

A) is a claim or price of property that is subject to ownership.

B) promises that payments will be made periodically for a specified period of time.

C) is the price paid for the usage of funds.

D) is a claim on the issuers future income.

35) ________ are an example of a financial institution.

A) Banks

B) Insurance companies

C) Finance companies

D) All of the above

36) Monetary policy affects

A) interest rates.

B) inflation.

C) business cycles.

D) all of the above.

37) A rising stock market index due to higher share prices

A) increases people’s wealth and as a result may increase their willingness to spend.

B) increases the amount of funds that business firms can raise by selling newly issued stock.

C) decreases the amount of funds that business firms can raise by selling newly issued stock.

D) both A and B of the above.

38) From the peak of the high-tech bubble in 2000, the stock market ________ by over

________ by late 2002.

A) collapsed; 75%

B) rose; 35%

C) collapsed; 30%

D) rose; 50%

39) The Dow fell below 7,000 in 2009, only to start a bull market run, reaching new highs above

________ in 2013.

A) 12,000

B) 10,000

C) 15,000

D) 19,000

10

1.2 True/False

1) Money is anything accepted by anyone as payment for services or goods.

2) Interest rates are determined in the bond markets.

3) A stock is a debt security that promises to make periodic payments for a specific period of

time.

4) Monetary policy affects interest rates but has little effect on inflation or business cycles.

5) The government organization responsible for the conduct of monetary policy in the United

States is the U.S. Treasury.

6) Interest rates can be accurately described as the rental price of money.

7) Holding everything else constant, as the dollar weakens vacations abroad become less

attractive.

8) In recent years, financial markets have become more stable and less risky.

9) Financial innovation has provided more options to both investors and borrowers.

10) A financial intermediary borrows funds from people who have saved.

11) Holding everything else constant, as the dollar strengthens foreigners will buy more U.S.

exports.

12) In a bull market stock prices are rising, on average.

13) Financial institutions are among the largest employers in the country and frequently pay very

high salaries.

14) Different interest rates have a tendency to move in unison.

15) Financial markets are what makes financial institutions work.

16) In recent years, financial markets have become more risky. However, only a limited number

of tools (such as derivatives) are available to assist in managing this risk.

12

17) Although the internet has changed many aspects of our lives, it hasn’t proven very useful for

collecting and/or analyzing financial and economic data.

1) Have interest rates been more or less volatile in recent years? Why?

Topic: Chapter 1.1 Why Study Financial Markets