Question 1

When the lender and the borrower have different amounts of information regarding a transaction,________ is said to exist.

Accepted Answer

A)   asymmetric information
B)   adverse selection
C)   moral hazard
D)   fraud

Question 2

The government agency that insures each depositor at a commercial bank,savings and loan association,or mutual savings bank up to a loss of $100,000 per account ($250,000 for individual retirement accounts)is the Securities and Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

Question 3

Asymmetric information can lead to widespread collapse of financial intermediaries,referred to as a

Accepted Answer

A)   bank holiday.
B)   financial panic.
C)   financial disintermediation.
D)   financial collapse.

Question 4

The money market is the market in which ________ are traded.

Accepted Answer

A)   new issues of securities
B)   previously issued securities
C)   short-term debt instruments
D)   long-term debt and equity instruments

Question 5

The largest depository institution (value of assets) at the end of 2012 was

Accepted Answer

A)   commercial banks.
B)   pension funds.
C)   credit unions.
D)   mutual funds.

Question 6

Financial intermediaries

Accepted Answer

A)   exist because there are substantial information and transaction costs in the economy.
B)   improve the lot of the small saver.
C)   are involved in the process of indirect finance.
D)   do all of the above.
E)   do only A and B of the above.

Question 7

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

Accepted Answer

A)   foreign bonds.
B)   Eurobonds.
C)   Eurocurrencies.
D)   Eurodollars.

Question 8

Which of the following are primary markets?

Accepted Answer

A)   The New York Stock Exchange
B)   The U.S. government bond market
C)   The over-the-counter stock market
D)   The options markets
E)   None of the above E

Question 9

In financial markets,lenders typically have inferior information about potential returns and risks associated with any investment project.This difference in information is called

Accepted Answer

A)   comparative informational disadvantage.
B)   asymmetric information.
C)   variant information.
D)   caveat venditor.

Question 10

Financial markets have the basic function of

Accepted Answer

A)   bringing together people with funds to lend and people who want to borrow funds.
B)   assuring that the swings in the business cycle are less pronounced.
C)   assuring that governments need never resort to printing money.
D)   both A and B of the above.
E)   both B and C of the above.

Question 11

Which of the following financial intermediaries are depository institutions?

Accepted Answer

A)   A savings and loan association
B)   A commercial bank
C)   A credit union
D)   All of the above
E)   Only A and C of the above

Question 12

The concept of adverse selection helps to explain

Accepted Answer

A)   which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets.
B)   why indirect finance is more important than direct finance as a source of business finance.
C)   why direct finance is more important than indirect finance as a source of business finance.
D)   only A and B of the above.
E)   only A and C of the above.

Question 13

A pension fund is not a contractual savings institution.

Accepted Answer

A) True 
 B)False

Question 14

The major differences between financial regulation in the United States and abroad relate to bank regulation. Specifically,in the past,the U.S.was the only industrialized country to subject banks to restrictions on ________.

Accepted Answer

A)   branching
B)   lending
C)   assets they may hold
D)   the size they could grow to

Question 15

The process of financial intermediation is also known as direct finance.

Accepted Answer

A) True 
 B)False

Question 16

Asymmetric information can lead to the widespread collapse of financial intermediaries,referred as financial ________.

Accepted Answer

A)   panic
B)   bubble
C)   asset
D)   transaction A

Question 17

Which of the following is a contractual savings institution?

Accepted Answer

A)   A life insurance company
B)   A credit union
C)   A savings and loan association
D)   A mutual fund

Question 18

Bonds that are sold in a foreign country and are denominated in that country's currency are known as

Accepted Answer

A)   foreign bonds.
B)   Eurobonds.
C)   Eurocurrencies.
D)   Eurodollars.

Question 19

An investor who puts all her funds into one asset ________ her portfolio's ________.

Accepted Answer

A)   increases; diversification
B)   decreases; diversification
C)   increases; average return
D)   decreases; average return B

Question 20

A bond denominated in euros and issued in a country that uses the euro as its currency is an example of a Eurobond.

Accepted Answer

A) True 
 B)False

Exam 2: Overview of the Financial System

When the lender and the borrower have different amounts of information regarding a transaction,________ is said to exist.

Correct AnswerverifiedShow Answer

The government agency that insures each depositor at a commercial bank,savings and loan association,or mutual savings bank up to a loss of $100,000 per account ($250,000 for individual retirement accounts)is the Securities and Exchange Commission (SEC).

Correct AnswerverifiedShow Answer

Asymmetric information can lead to widespread collapse of financial intermediaries,referred to as a

Correct AnswerverifiedShow Answer

The money market is the market in which ________ are traded.

Correct AnswerverifiedShow Answer

The largest depository institution (value of assets) at the end of 2012 was

Correct AnswerverifiedShow Answer

Financial intermediaries

Correct AnswerverifiedShow Answer

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as

Correct AnswerverifiedShow Answer

Which of the following are primary markets?

Correct AnswerverifiedE

In financial markets,lenders typically have inferior information about potential returns and risks associated with any investment project.This difference in information is called

Correct AnswerverifiedShow Answer

Financial markets have the basic function of

Correct AnswerverifiedShow Answer

Which of the following financial intermediaries are depository institutions?

Correct AnswerverifiedShow Answer

The concept of adverse selection helps to explain

Correct AnswerverifiedShow Answer

A pension fund is not a contractual savings institution.

Correct AnswerverifiedShow Answer

The major differences between financial regulation in the United States and abroad relate to bank regulation. Specifically,in the past,the U.S.was the only industrialized country to subject banks to restrictions on ________.

Correct AnswerverifiedShow Answer

The process of financial intermediation is also known as direct finance.

Correct AnswerverifiedShow Answer

Asymmetric information can lead to the widespread collapse of financial intermediaries,referred as financial ________.

Correct AnswerverifiedA

Which of the following is a contractual savings institution?

Correct AnswerverifiedShow Answer

Bonds that are sold in a foreign country and are denominated in that country's currency are known as

Correct AnswerverifiedShow Answer

An investor who puts all her funds into one asset ________ her portfolio's ________.

Correct AnswerverifiedB

A bond denominated in euros and issued in a country that uses the euro as its currency is an example of a Eurobond.

Correct AnswerverifiedShow Answer

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E

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A

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An investor who puts all her funds into one asset her portfolio's .

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B

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