Finance

Chapter 1 Introducing Money, Banking, and Financial Markets D1 Interpretive 1. __________________ generate(s) prices whenever securities are bought or sold. A) Financial markets B) Financial institutions C) The Federal Reserve D) The Securities and Exchange Commission Answer: A D1 Factual 2. The definition of money does not refer to A) coins and currency. B) the monetary economy. C) unemployment. D) a tool used by the central bank to influence aggregate economic activity. Answer: C D1 Applied 3. Which of the following is not a reference to “banking” in “money, banking, and financial markets'” A) Commercial banks B) Savings banks C) Financial intermediaries D) Markets in which financial assets can be traded Answer: D D2 Interpretive 3. Which of the following statements is not true about money' A) Money is sometimes viewed as a lubricant that greases the wheels of economic activity. B) Without money, some transactions would be unimaginably difficult. C) Money influences the behavior of the economy as a whole. D) All of the above are true. Answer: D D2 Interpretive 4. Which of the following statements about banks is false' A) They play a critical role in the economy. B) They provide a place where individuals and businesses can invest their funds to earn interest with a minimum of risk. C) They make loans, and are therefore very different from other financial institutions like finance companies and insurance companies. D) They indirectly issue money in the form of deposits. Answer: C D1 Factual 5. The central bank of the United States is the A) Federal Reserve. B) Securities and Exchange Commission. C) Federal Deposit Insurance Corporation. D) Department of the Treasury Answer: A D3 Applied 6. The Federal Reserve A) is uninvolved with banks. B) has little impact on overall economic activity. C) directly influences the lending and deposit creation activities of banks. D) issues mandates telling businesses how much to invest. Answer: C D1 Applied 7. Studying money, banking, and financial markets will help you to A) answer basic questions about financial relationships from family members. B) better understand financial newspapers. C) get a job after your graduate. D) All of the above Answer: D D2 Factual 8. A __________________ will review a commercial bank’s books to determine whether loans with delinquent payments impair a bank’s capital. A) loan officer B) bank examiner C) broker D) bank teller Answer: B D2 Interpretive 9. Jobs in the private financial sector focus on __________________; jobs in the public financial sector focus on __________________. A) profits; profits B) safety; profits C) profits; safety D) safety; safety Answer: C D3 Applied 10. An insurance company economist would A) forecast interest rates. B) talk only to their direct superiors, but not to the institution’s corporate customers. C) not be concerned about the costs and benefits of some internal investment project. D) have little use for statistical analysis. Answer: A D2 Applied 11. Which of the following is least likely to purchase a large certificate of deposit (over $100,000)' A) Money market mutual funds B) Individual investors C) Large corporations D) Institutional investors Answer: B D3 Applied 12. Retail CDs are most likely marketed by A) people who are comfortable with interest rate calculations. B) people who are comfortable with movements in the term structure of interest rates. C) people with strong interpersonal skills. D) people who interpret monetary policy actions taken by the Federal Reserve. Answer: C D2 Applied 13. Which of the following types of institutions is most likely to be a market maker in mortgage-backed securities' A) A commercial bank B) An investment bank C) A savings and loan association D) A credit union Answer: C D2 Interpretive 14. A dealer earns a profit by A) charging a commission. B) buying at the asked price and selling at the bid price. C) buying at the bid price and selling at the asked price. D) None of the above Answer: C D2 Applied 15. Institutional traders do not typically engage in which of the following activities' A) Quote bids and offers for securities on a continuous basis B) Accommodate incoming purchase and sale orders from financial institutions C) Alter quotes in response to changing market conditions D) Act as stockbrokers Answer: D D2 Factual 16. Account executives work for A) commercial banks. B) securities firms. C) thrift institutions. D) corporations. Answer: B D3 Applied 17. A salesperson does not A) monitor market conditions and alter quotes so he does not get stuck with an unwanted inventory. B) try to uncover information about securities that institutional investors are most interested in. C) provide information to traders about the sentiment within the investment community. D) convince bank customers to buy securities that the bank has already acquired through the activities of its traders. Answer: A D1 Applied 18. Paul is a people-oriented person. Paul would probably function best as a A) trader. B) salesperson. C) financial economist. D) researcher. Answer: B D2 Applied 19. The primary job of a financial economist is to A) conduct statistical analyses. B) provide instant analysis to traders and salespeople. C) alert traders and salespeople of the expected activities of the Federal Reserve. D) construct concrete strategies for institutional investors based on expected interest rate movements. Answer: C D2 Interpretive 20. The prepayment uncertainty associated with __________________ makes the maturity of these securities uncertain. A) corporate bonds B) corporate stocks C) mortgage-related securities D) certificates of deposit Answer: C D1 Factual 21. Which of the following features is not associated with a commercial bank loan' A) Convertibility B) Covenants C) Collateral requirements D) Guarantees Answer: A D2 Factual 22. Which of the following entities does not have an extensive bank examination staff' A) Office of the Comptroller of the Currency B) Federal Deposit Insurance Corporation C) Federal Reserve D) Securities and Exchange Commission Answer: D