Financial Institutions, Markets, and Money, 11th Edition BY Kidwell, Blackwell, Whidbee, Sias
Email: richard@qwconsultancy.com
CHAPTER 1 TRUE/FALSE QUESTIONS (T)
1.
The purpose of the financial system is to bring savers and borrowers together.
(F)
2.
Businesses are never deficit spending units (DSUs).
(T)
3.
A financial claim is an “IOU” from a deficit spending unit.
(T)
4.
Investment bankers help deficit spending units (DSUs) bring new primary security issues to market.
(F)
5.
Deposits in a credit union by a household are an example of direct finance.
(F)
6.
When a surplus spending units (SSU) owns a financial claim created by financial intermediation, its residual claim is against a deficit spending units (DSU).
(F)
7.
Assets of financial intermediaries include direct financial claims only.
(F)
8.
Finance companies take small consumer deposits and make large consumer loans.
(T)
9.
Liabilities of financial intermediaries are indirect financial claims.
(T)
10.
Direct finance requires a more or less exact match of preferences.
(F)
11.
There must be an equal number of DSUs and surplus spending units ( SSUs) in a period.
(T)
12.
Every financial claim appears on two balance sheets.
(T)
13.
Without a financial sector, real investment must be financed internally by the deficit spending unit.
(T)
14.
Depository intermediaries issue claims that are for the most part highly liquid.
(T)
15.
A household is a surplus spending units when income for the period exceeds spending.
(F)
16.
A surplus spending units surplus spending unit (SSU) must hold a claim until its scheduled maturity.
(T)
17.
Financial claims or securities are written for the mutual benefit of both SSU and DSU.
(F)
18.
Deficit spending units (DSUs) and surplus spending units (SSUs) always have some contact with each other in financial markets.
(T)
19.
Commercial banks lend to businesses in direct financial markets.
(F)
20.
“Futures contract” and “forward contract” are interchangeable terms.
(T)
21.
Mortgages are capital market debt securities.
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(T)
22.
Households are the major source of funds to the financial system.
(F)
23.
Secondary markets are important because they provide funds directly to deficit spending units (DSUs).
(F)
24.
Primary markets offer liquidity and ways for investors to alter the risk of their portfolios.
(T)
25.
The New York Stock Exchange is an example of an organized exchange.
(T)
26.
The money market provides short-term liquidity; the capital market finances long-term corporate growth.
(T)
27.
Private placements are the simplest form of direct finance.
(T)
28.
Competition among financial intermediaries tends to force interest rates downward.
(T)
29.
Money markets have a greater variety of investors than borrowers.
(F)
30.
Every asset is someone else’s liability, but not every liability is someone else’s asset.
(T)
31.
All money market instruments are short-term debt.
(T)
33.
The money market is a dealer market, not an exchange, and has no specific location.
(T)
34.
Money market borrowers are small in number compared to money market lenders.
(T)
35.
The money market is a market where liquidity is bought and sold.
(T)
36.
Commercial banks are the major issuer and investor of money market securities.
(F)
37.
Federal funds are the funds provided by the Federal Government for domestic corporations for long-term growth.
(F)
38.
Dealers bring buyer and seller together; brokers make a market.
(F)
39.
OTC markets are not very important any more.
(T)
40.
When a stock is listed on an exchange, members may trade it on the floor of the exchange.
(T)
41.
Primary markets are markets where users of funds raise cash by selling securities to funds suppliers.
(F)
42.
Privately placed securities are usually sold to one or more investment bankers and then resold to the general public.
(T)
43.
Financial institutions such as commercial banks typically have assets that are riskier than their liabilities.
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MULTIPLE CHOICE QUESTIONS (b)
1.
A surplus spending unit’s a. income and expenditures for the period are equal. b. income for the period exceeds expenditures. c. expenditures for the period exceed receipts. d. spending is entirely financed by credit cards
(c)
2.
Which of the following is an example of indirect financing? a. a surplus spending unit (SSU) purchasing a financial claim from a deficit spending unit (SSU) spending unit (DSU) b. a surplus spending unit (SSU) purchasing a financial claim from a dealer c. a surplus spending unit (SSU) purchasing a financial claim from a commercial bank d. a surplus spending unit (SSU) purchasing a financial claim from an underwriter
(d)
3.
Which of the following does not take deposits? a. commercial banks. b. savings and loan associations. c. credit unions. d. finance companies.
(c)
4.
When the financial system has achieved a high degree of efficiency, a. Borrowers are able to finance at the highest possible cost. b. Surplus spending units are able to receive the lowest return on their savings. c. Transaction and intermediation costs are low. d. Lenders will have a limited choice of financial investments.
(c)
5.
An efficient financial system a. eliminates search and transactions costs b. is a mere theoretical possibility c. promotes economic growth and social progress d. depends on high volumes of “direct” transactions
(a)
6.
Pension funds tend to invest in a. higher-yielding long-term securities b. money market securities exclusively c. government securities exclusively d. none of the above
(d)
7.
Financial institutions facilitate the flow of investment funds a. from savers to borrowers b. from Surplus spending units (SSUs) to deficit spending units (DSUs) c. from the household sector to the business sector d. any of the above
(d)
8.
Which sector has been most consistently in a surplus budget position? a. Business b. Government c. Foreign d. Household
(d)
9.
Which of the following are “economic units”? 3
a. b. c. d.
households businesses governments all of the above
(b)
10.
Which of the following best describes the "two faces of debt" concept? a. Deficit spending units (DSUs) are sometimes Surplus spending units (SSUs). b. Every financial asset is someone else’s liability. c. Intermediaries may own both direct and indirect financial assets. d. The government is unable to control its federal spending.
(a)
11.
A dealer offers to buy shares of IBM at $116 and sell to investors at $118. The “bid” is a. $116 b. $118 c. $2 d. none of the preceding
(d)
12.
Most financial intermediaries: a. issue direct claims and purchase direct financial assets. b. issue indirect claims and purchase indirect financial assets. c. purchase large amounts of real, tangible assets. d. purchase direct financial claims and issue indirect securities.
(a)
13.
Profitability of financial intermediaries derives from all of the following except a. government regulation of interest rates b. economies of scale c. ability to manage credit risk d. control of transactions costs
(c)
14.
Denomination intermediation is best exemplified by a. issuing insured deposits and making risky business loans. b. bringing together investors of different religions c. issuing five $3,000 CDs and making one $15,000 loan. d. promising liquidity to surplus spending units (SSUs) while investing the funds long-term
(a)
15.
All but one of the following is comparative advantage of financial intermediaries: a. ability to finance businesses and governments. b. ability to achieve economies of scale. c. ability to reduce transaction costs. d. ability to find confidential information.
(a)
16.
Which of the following would tend to hold corporate bonds in significant amounts? a. life insurance company b. credit union c. mutual savings bank d. commercial bank
(d)
17.
All but one of the following is a standard characteristic of financial claims: a. They are recognized on two balance sheets. b. They are intangible assets. c. They are IOU's traded for funds. d. They represent ownership of real assets.
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