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1. (1) A financial intermediary:, Is an agency that guarantees a loan, Is involved in indirect finance, Would be used in direct finance, Must be a depository institution,,2. (1) Tom obtains a car loan from Old Town Bank., The car loan is Tom’s asset and the bank’s liability, The car loan is Tom’s asset, but the liability belongs to the bank’s depositors, The car loan is Tom’s liability and an asset for Old Town Bank, The car loan is Tom’s liability and a liability of the bank until Tom pays it off,,3. (1) The ultimate role of the financial system of a country is to:, Provide a place for wealthy households to save, Be a low-cost source of funds for government, Facilitate production, employment, and consumption, Provide jobs in the financial sector,,4. (1) A financial instrument would include:, Only a written obligation and a transfer of value, Only a written obligation and a specified date, A written obligation, a transfer of value, a future date, and certain conditions, A written obligation, a transfer of value, a specific date for payment, uncertain conditions,,5. (1) Sue has a checking account at the First National Bank; her checking account:, Is an asset to the bank and a liability to Sue, Is an asset to Sue and a liability to the bank, Is an asset to Sue but actually a liability to the Federal Reserve, Is a liability to Sue until she spends the funds,,6. (1) Financial instruments and money share which of the following characteristics?, Both can function as a means of payment and a store of value, Both can function as a store of value and allow for trading of risk, Both can function by acting as a means of payment and allow for trading of risk, Both can function as a store of value even though they do not allow for trading of risk,,7. (1) Financial instruments are different from money because:, They can act as a store of value and money cannot, They can’t be a means of payment but money can, They can allow for the transfer of risk, They have greater liquidity,,8. (1) Most funds that flow between lenders and borrowers:, Flow directly through financial intermediaries, Flow through government agencies, Flow directly through financial instruments, Flow indirectly through financial intermediaries,,9. (1) Which of the following statements is most correct?, When a risk is difficult to predict, financial instruments are created to transfer these risks, Financial instruments are created to transfer risks that are relatively easy to predict, Financial instruments require certainty of an event to be able to transfer risk, Financial instruments eliminate the risk from uncertainty, they do not transfer it,,10. (1) Many financial instruments are standardized because:, It is believed that most parties to a contract do not read them anyway, Complexity is costly, the more complex a contract, the more it costs to create, The standardization of contracts makes them harder to understand, It is required by the government,,11. (1) The information concerning the issuer of a financial instrument:, Needs to be complete and closely monitored by the buyers of the instrument for change, Is somewhat non-standardized to minimize the cost of the instrument, Is usually standardized to the essential information required by the buyers, Is closely monitored by the buyers of these instruments for change,,12. (1) Asymmetric information in financial markets is a potential problem usually resulting from:, Borrowers having more information than the lenders, and not disclosing this information, Lenders having more information than borrowers and not disclosing this information, The fact that people are basically dishonest, The uncertainty about Federal Reserve monetary policy,,13. (1) Financial markets enable the transfer of risk by:, Requiring that risk-averse investors have access to U.S. Treasury bond markets, Allowing individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk, Making sure that higher default risk is offset by greater liquidity, Enabling even unsophisticated investors to purchase highly complex financial instruments,,14. (1) A borrower has information that it does not make available to a prospective lender; this is an example of:, A wise borrower and an unwise lender, A transfer of risk, Information asymmetry, Liquidity risk,,15. (1) A derivative instrument:, Comes into existence after the underlying instrument is in default, Is a low-risk financial instrument used by highly risk-averse savers, Gets its value and payoff from the performance of the underlying instrument, Should be purchased prior to purchasing the underlying security,,16. (1) A futures contract is an example of:, A derivative instrument, An instrument used solely by financial institutions, A high-risk security that will only have value if certain events occur, A contract that is traded but is not a financial instrument,,17. (1) Considering the value of a financial instrument, the sooner the promised payment is made:, The less valuable is the promise to make it since time is valuable, The greater the risk, therefore the promise has greater value, The more valuable is the promise to make it, The less relevant is the likelihood that the payment will be made,,18. (1) Considering the value of a financial instrument, the circumstances under which the payment is to be made influence the value because:, We like uncertain payoffs because this adds to the return, Payments that are made when we need them the most are more valuable, The sooner the payment is to be made the better, We know when certain events are going to occur and that is when we want the payment,,19. (1) Financial instruments used primarily to transfer risk would include all of the following, except:, An insurance contract, A futures contract, Options, A bank loan,,20. (1) Which of the following financial instruments is used mainly to transfer risk?, Asset-backed securities, Bonds, Options, Stocks,,21. (1) The pool of information collected by financial markets is usually:, Only available to lenders, Summarized in the form of a price, Valuable and not made available until the parties pay for it, More than a borrower needs to make a loan,,22. (1) Financial markets:, Enable buyers and sellers to exchange financial instruments but not risk, Enable buyers and sellers to exchange risk by buying and selling financial instruments, Only allow the transfer of risk through derivative securities, Do not allow for the transfer of risk but do help reduce it,,23. (1) Commissions paid to a stock broker are an example of:, Risk transfer, Transaction costs, Information asymmetry, Liquidity,,24. (1) Most of the buying and selling in primary markets:, Is in the public view, Is highly transparent and closely monitored by the SEC, Involve an investment bank, Is done by the Federal Reserve,,25. (1) Which of the following would not be an example of a secondary financial market transaction?, You call a broker and purchase 100 shares of McDonald’s Corp. stock, You go to the bank and purchase a $5000 certificate of deposit, You call a broker and purchase a U.S. Treasury bond, You call a broker and purchase a bond issued by General Motors,,26. (1) Which of the following is likely to be a primary financial market transaction?, You cash the check your grandmother sent you for your birthday, You call a broker and purchase bonds for your retirement fund, A city issues bonds to finance new road construction, A supermarket needs to borrow the funds for a second location and takes out a loan from a commercial bank to pay for it,,27. (1) Which of the following is not true of over-the-counter markets?, Traders are linked by computer, Dealers buy and sell only for their customers, Trading does not take place in one physical location, Traders are willing to buy and sell stocks and bonds at posted prices,,28. (1) Money markets are where trades occur for:, Stocks, Bonds of all maturities, Derivatives, Bonds issued by both the government and private companies,,29. (1) Well-run financial markets:, Keep transactions costs high to benefit brokers, Prevent the widespread pooling of information, Ensure that resources are allocated efficiently, Are usually the result of little or no government regulation,,30. (1) Financial intermediaries pool funds of:, Many small savers and provide it to a few large borrowers, Few large savers and provide it to many small borrowers, Few large savers a few large borrowers, Many small savers and provide it to many borrowers,

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