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

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

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A) Flow directly through financial intermediaries
B) Flow through government agencies
C) Flow directly through financial instruments
D) Flow indirectly through financial intermediaries

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A) Requiring that risk-averse investors have access to U.S.Treasury bond markets
B) Allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk
C) Making sure that higher default risk is offset by greater liquidity
D) Enabling even unsophisticated investors to purchase highly complex financial instruments

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A) A share of Microsoft stock
B) A U.S.Treasury Bond
C) An electric bill
D) A life insurance policy

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A) Both can function as a means of payment and a store of value
B) Both can function as a store of value and allow for trading of risk
C) Both can function by acting as a means of payment and allow for trading of risk
D) Both can function as a store of value even though they do not allow for trading of risk

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A) For IRA and other pension plans since they only have value well into the future
B) To shift risk among investors
C) For investors seeking a greater return by taking greater risk
D) To add to the profits an investor obtains through information asymmetry

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A) Are set by government regulators so they cannot vary across firms for the same services
B) Can vary but typically don't because firms tend to set them at the same levels
C) Can differ reflecting the different services being offered
D) Are always a percentage of the amount of the trade

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The average price of stocks would decrea...

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A) Is available only to people who have been at their jobs for more than 5 years
B) Is provided by the government through Social Security
C) Is not that critical since the odds are less than 1 in 10 working adults will be disabled for a period exceeding 90 days
D) Is not a transfer of risk since it seeks to replace wages

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A) Risk transfer
B) Transaction costs
C) Information asymmetry
D) Liquidity

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A) A financial instrument
B) A form of money
C) A transfer of risk from the insurance company to Juan
D) A financial intermediary

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A) Using direct finance
B) By using a financial intermediary
C) Using indirect finance
D) Both through direct and indirect finance

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A) Asset-backed securities
B) Bonds
C) Options
D) Stocks

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A) The current income tax rates
B) The size of the promised payment to be made
C) The likelihood that the payment will be made
D) When the promised payment is to be made

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A) A market just for corporate stocks
B) A market only for AAA rated Securities
C) The New York Stock Exchange
D) Is one in which newly issued securities are sold

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A) The New York Stock Exchange
B) Credit unions
C) Savings banks
D) Commercial banks

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A) Liquidity risk
B) Default risk
C) A lack of diversification for the bank
D) Information asymmetry

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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

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