Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
60. Roles served by financial markets include the following, except:
D. Sharing of risk
61. Which of the following is not a reason why interbank lending dried up during the financial
crisis of 2007-2009?
A. Banks preferred to hold on to their liquid assets in case their own need for them increased
62. If financial markets didn’t exist:
A. Required returns would be lower since fewer instruments would trade
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
63. The high volume of shares of stock that are traded on a normal day on stock markets
D. The high transactions costs and low liquidity associated with these markets
64. The pool of information collected by financial markets is usually:
D. More than a borrower needs to make a loan
65. Financial markets:
D. Do not allow for the transfer of risk but do help reduce it
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
66. Commissions paid to a stock broker are an example of:
D. Liquidity
67. Brokerage commissions:
A. Are set by government regulators so they cannot vary across firms for the same services
68. A primary financial market is:
A. A market just for corporate stocks
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
D. One that can only deal in the highest investment grade securities
70. Newly issued U.S. Treasury Securities are sold in:
D. Secondary markets but only using registered bond dealers
71. Most of the buying and selling in primary markets:
A. Is in the public view
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
72. Secondary financial markets:
D. Are only for stock
73. A primary financial market is a market:
A. Where only corporate bonds are sold
74. A collection of assets is known as a(n):
A. Asset-backed security
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
75. One benefit of centralized exchanges compared to over-the-counter (OTC) markets is
that:
D. Centralized exchanges make use of electronic communications networks (ECNs), whereas
OTC markets do not
76. Which of the following would not be an example of a secondary financial market
D. You call a broker and purchase a bond issued by General Motors
77. Which of the following is likely to be a primary financial market transaction?
A. You cash the check your grandmother sent you for your birthday
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
78. An over-the-counter (OTC) market is:
A. Made up of dealers who only sell government bonds
79. The New York Stock Exchange (NYSE) is:
D. The only centralized stock exchange in the world
80. Over-the-counter (OTC) markets:
A. Employ specialists to minimize price volatility
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
81. Which of the following is not true of over-the-counter markets?
D. Traders are willing to buy and sell stocks and bonds at posted prices
82. Equity markets:
A. Are markets of U.S. Treasury bonds
83. Debt instruments that have maturities less than one year are traded in:
A. The primary market exclusively
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
84. Money markets are where trades occur for:
A. Stocks
85. Well-run financial markets:
A. Keep transactions costs high to benefit brokers
86. Countries that lack well-defined property laws and legal structures:
D. Will not have any financial markets at all
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
87. Financial institutions:
D. Are required for all financial transactions
88. An insurance company is an example of a financial institution that:
D. Sells derivative securities
89. All of the following are depository institutions, except:
A. Commercial banks
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
90. Which of the following are depository institutions?
D. Insurance companies
91. Nondepository institutions:
A. Do not serve as intermediaries
92. Non-depository institutions would include all of the following except:
A. Finance companies
Chapter 03 – Financial Instruments, Financial Markets, and Financial Institutions
93. Small savers would rather use financial institutions than lend directly to borrowers
because:
A. Financial institutions will offer the savers higher interest rates than the savers could obtain
directly from borrowers
94. Financial intermediaries pool funds of:
A. Many small savers and provide it to a few large borrowers
95. Financial intermediaries handle a larger flow of funds than do primary markets primarily
because financial intermediaries:
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96. Derivative markets exist to allow for:
D. Reduced information asymmetry
97. Financial intermediaries include each of the following, except:
D. Commercial banks
D. Money-market mutual funds
Short Answer Questions