Question 1

A counterparty to a financial instrument is always the:

Accepted Answer

A)   issuer of the financial instrument.
B)   government agency guaranteeing the value of the instrument.
C)   person or institution that purchases the financial instrument.
D)   person or institution that is on the other side of the financial contract.

Question 2

Which of the following is not true of over-the-counter markets?

Accepted Answer

A)   Traders are linked by computer.
B)   Dealers buy and sell only for their customers.
C)   Trading does not take place in one physical location.
D)   Traders are willing to buy and sell stocks and bonds at posted prices.

Question 3

The fundamental characteristics influencing the value of a financial instrument include each of the following except:

Accepted Answer

A)   the size of the payment promised.
B)   when the promised payment will be made.
C)   where the instrument is traded.
D)   the likelihood of payment.

Question 4

If financial markets didn't exist:

Accepted Answer

A)   required returns would be lower since fewer instruments would trade.
B)   liquidity would diminish and returns would be lower.
C)   more funds would flow directly between borrowers and savers.
D)   liquidity would diminish, reducing the flow of funds between borrowers and savers.

Question 5

Financial instruments used primarily as stores of value would not include:

Accepted Answer

A)   a car insurance policy.
B)   a U.S. Treasury bond.
C)   shares of General Motors stock.
D)   a home mortgage.

Question 6

Why didn't the over-the-counter (OTC) exchanges suffer the disruption of service that the
New York Stock Exchange did after the terrorist attacks of September 11, 2001?

Accepted Answer

The New York Stock Exchange is a central...

Question 7

Tom obtains a car loan from Old Town Bank.

Accepted Answer

A)   The car loan is Tom's asset and the bank's liability.
B)   The car loan is Tom's asset, but the liability belongs to the bank's depositors.
C)   The car loan is Tom's liability and an asset for Old Town Bank.
D)   The car loan is Tom's liability and a liability of the bank until Tom pays it off.

Question 8

Which of the following is likely to be a primary financial market transaction?

Accepted Answer

A)   You cash the check your grandmother sent you for your birthday.
B)   You call a broker and purchase bonds for your retirement fund.
C)   A city issues bonds to finance new road construction.
D)   A supermarket needs to borrow the funds for a second location and takes out a loan from a commercial bank to pay for it.

Question 9

Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because:

Accepted Answer

A)   we like uncertain payoffs because this adds to the return.
B)   payments that are made when we need them the most are more valuable.
C)   the sooner the payment is to be made the better.
D)   we know when certain events are going to occur and that is when we want the payment.

Question 10

Financial instruments are used to channel funds from:

Accepted Answer

A)   savers to borrowers in financial markets and via financial institutions.
B)   savers to borrowers in financial markets but not through financial institutions.
C)   borrowers to savers in financial markets but not through financial institutions.
D)   borrowers to savers through financial institutions, but not in financial markets.

Question 11

Financial institutions:

Accepted Answer

A)   raise the level of transaction costs relating to borrowing/lending.
B)   can lower the information asymmetry involved with borrowing/lending.
C)   decrease the liquidity to savers.
D)   are required for all financial transactions.

Question 12

All of the following are depository institutions, except:

Accepted Answer

A)   commercial banks.
B)   credit unions.
C)   insurance companies.
D)   savings banks.

Question 13

Loans made between lenders and borrowers are:

Accepted Answer

A)   assets to the borrowers.
B)   liabilities of the lenders.
C)   not taxable in the state of origination.
D)   liabilities of the borrowers.

Question 14

Can a financial instrument be bought and sold in both a primary and secondary financial market? Explain.

Accepted Answer

The answer is yes and highly likely. Whe...

Question 15

Financial instruments used primarily as stores of value do not include:

Accepted Answer

A)   asset backed securities.
B)   U.S. Treasury bonds.
C)   a car insurance policy.
D)   a bank loan.

Question 16

Considering the value of a financial instrument, the more likely it is the payment will be made:

Accepted Answer

A)   the more valuable the financial instrument.
B)   the less valuable is the instrument because risk is lower.
C)   the less valuable is the financial instrument because it is highly liquid.
D)   the greater the uncertainty; therefore the less valuable is the financial instrument.

Question 17

Most individuals borrow:

Accepted Answer

A)   directly without the use of a financial intermediary.
B)   using a financial intermediary because it lowers the cost of borrowing.
C)   using a financial intermediary, but would save money if they financed directly.
D)   without using financial intermediaries, preferring credit cards.

Question 18

A borrower has information that is not available to a prospective lender; this is an example of:

Accepted Answer

A)   a wise borrower and an unwise lender.
B)   a transfer of risk.
C)   information asymmetry.
D)   liquidity risk.

Question 19

Debt instruments that have maturities less than one year are traded in the:

Accepted Answer

A)   primary market exclusively.
B)   bond markets exclusively.
C)   bond market if they are already in existence.
D)   money market.

Question 20

Credit cards usually charge higher rates of interest than most other forms of lending. In terms of information, collateral and monitoring, how might these higher rates be explained?

Accepted Answer

When providing credit cards to customers...

Exam 3: Financial Instruments, Financial Markets, and Financial Institutions

Financial instruments are used to channel funds from:

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If financial markets didn't exist:

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Credit cards usually charge higher rates of interest than most other forms of lending. In terms of information, collateral and monitoring, how might these higher rates be explained?

Correct AnswerverifiedWhen providing credit cards to customers...View AnswerShow Answer

Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because:

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Considering the value of a financial instrument, the more likely it is the payment will be made:

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Can a financial instrument be bought and sold in both a primary and secondary financial market? Explain.

Correct AnswerverifiedThe answer is yes and highly likely. Whe...View AnswerShow Answer

Financial instruments used primarily as stores of value would not include:

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A counterparty to a financial instrument is always the:

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All of the following are depository institutions, except:

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Debt instruments that have maturities less than one year are traded in the:

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The fundamental characteristics influencing the value of a financial instrument include each of the following except:

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Financial instruments used primarily as stores of value do not include:

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Tom obtains a car loan from Old Town Bank.

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Why didn't the over-the-counter (OTC) exchanges suffer the disruption of service that the New York Stock Exchange did after the terrorist attacks of September 11, 2001?

Correct AnswerverifiedThe New York Stock Exchange is a central...View AnswerShow Answer

Which of the following is not true of over-the-counter markets?

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Most individuals borrow:

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Loans made between lenders and borrowers are:

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Financial institutions:

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Which of the following is likely to be a primary financial market transaction?

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A borrower has information that is not available to a prospective lender; this is an example of:

Correct AnswerverifiedShow Answer

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When providing credit cards to customers...
View Answer

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The answer is yes and highly likely. Whe...
View Answer

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The New York Stock Exchange is a central...
View Answer

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