/2.
Financial markets promote greater economic efficiency by channeling funds from ________
to ________.
A. investors; savers
B. borrowers; savers
C. savers; borrowers
D. savers; lenders
Answer: C
/5. Markets in which funds are transferred from those who have excess funds available to those
who have a shortage of available funds are called
A. commodity markets.
B. fund-available markets.
C. derivative exchange markets.
D. financial markets.
Answer: D
/6. ________ markets transfer funds from people who have an excess of available funds to
people who have a shortage.
A. Commodity
B. Fund-available
C. Financial
D. Derivative exchange
Answer: C
/8. The bond markets are important because they are
A. easily the most widely followed financial markets in the United States.
B. the markets where foreign exchange rates are determined.
C. the markets where interest rates are determined.
D. the markets where all borrowers get their funds.
Answer: C
/9. The price paid for the rental of borrowed funds (usually expressed as a percentage of the
rental of $100 per year) is commonly referred to as the
A. inflation rate.
B. exchange rate.
C. interest rate.
D. aggregate price level.
Answer: C
/10. Compared to interest rates on long-term U.S. government bonds, interest rates on three-
month Treasury bills fluctuate ________ and are ________ on average.
A. more; lower
B. less; lower
C. more; higher
D. less; higher
Answer: A
/12. Everything else held constant, a decline in interest rates will cause spending on housing to
A. fall.
B. remain unchanged.
C. either rise, fall, or remain the same.
D. rise.
Answer: D
/13. High interest rates might ________ purchasing a house or car but at the same time high
interest rates might ________ saving.
A. discourage; encourage
B. discourage; discourage
C. encourage; encourage
D. encourage; discourage
Answer: A
/14. An increase in interest rates might ________ saving because more can be earned in interest
income.
A. encourage
B. discourage
C. disallow
D. invalidate
Answer: A
/17. The stock market is important because it is
A. where interest rates are determined.
B. the most widely followed financial market in the United States.
C. where foreign exchange rates are determined.
D. the market where most borrowers get their funds.
Answer: B
/18. Stock prices are
A. relatively stable trending upward at a steady pace.
B. relatively stable trending downward at a moderate rate.
C. extremely volatile.
D. unstable trending downward at a moderate rate.
Answer: C
/19. A rising stock market index due to higher share prices
A. increases peopleʹs wealth, but is unlikely to increase their willingness to spend.
B. increases peopleʹs wealth and as a result may increase their willingness to spend.
C. decreases the amount of funds that business firms can raise by selling newly -issued stock.
D. decreases peopleʹs wealth, but is unlikely to increase their willingness to spend.
Answer: B
/20. When stock prices fall
A. an individualʹs wealth is not affected nor is their willingness to spend.
B. a business firm will be more likely to sell stock to finance investment spending.
C. an individualʹs wealth may decrease but their willingness to spend is not affected.
D. an individualʹs wealth may decrease and their willingness to spend may decrease.
Answer: D
/21. Changes in stock prices
A. do not affect peopleʹs wealth and their willingness to spend.
B. affect firmsʹ decisions to sell stock to finance investment spending.
C. occur in regular patterns.
D. are unimportant to decision makers.
Answer: B
/25. A share of common stock is a claim on a corporationʹs
A. debt.
B. liabilities.
C. expenses.
D. earnings and assets.
Answer: D
/1. Channeling funds from individuals with surplus funds to those desiring funds when the saver
does not purchase the borrowerʹs security is known as
A. barter.
B. redistribution.
C. financial intermediation.
D. taxation.
Answer: C
/3. Banks are important to the study of money and the economy because they
A. channel funds from investors to savers.
B. have been a source of rapid financial innovation.
C. are the only important financial institution in the U.S. economy.
D. create inflation.
Answer: B
/4. Financial intermediaries
A. provide a channel for linking those who want to save with those who want to invest.
B. produce nothing of value and are therefore a drain on societyʹs resources. C. can hurt the
performance of the economy.
D. hold very little of the average Americanʹs wealth.
Answer: A
/8. Financial institutions that accept deposits and make loans are called ________.
A. exchanges
B. banks
C. over-the-counter markets
D. finance companies
Answer: B
/9. The financial intermediaries that the average person interacts with most frequently are
________.
A. exchanges
B. over-the-counter markets
C. finance companies
D. banks
Answer: D
/10. Which of the following is not a financial institution?
A. a life insurance company
B. a pension fund
C. a credit union
D. a business college
Answer: D
/1. Money is defined as
A. bills of exchange.
B. anything that is generally accepted in payment for goods and services or in the repayment of
debt.
C. a risk-free repository of spending power.
D. the unrecognized liability of governments.
Answer: B
/3. The market where one currency is converted into another currency is called the ________
market.
A. stock
B. bond
C. derivatives
D. foreign exchange
Answer: D
/1. Which of the following statements about the characteristics of debt and equity is false?
A. They can both be long-term financial instruments.
B. They can both be short-term financial instruments.
C. They both involve a claim on the issuerʹs income.
D. They both enable a corporation to raise funds.
Answer: B
/2. Which of the following statements about the characteristics of debt and equities is true?
A. They can both be long-term financial instruments.
B. Bond holders are residual claimants.
C. The income from bonds is typically more variable than that from equities.
D. Bonds pay dividends.
Answer: A
/3. Which of the following statements about financial markets and securities is true?
A. A bond is a long-term security that promises to make periodic payments called dividends
to the firmʹs residual claimants.
B. A debt instrument is intermediate term if its maturity is less than one year.
C. A debt instrument is intermediate term if its maturity is ten years or longer.
D. The maturity of a debt instrument is the number of years (term. to that instrumentʹs
expiration date.
Answer: D
/4. Which of the following is an example of an intermediate-term debt?
A. A thirty-year mortgage.
B. A sixty-month car loan.
C. A six month loan from a finance company.
D. A Treasury bond.
Answer: B
/5. If the maturity of a debt instrument is less than one year, the debt is called ________.
A. short-term
B. intermediate-term
C. long-term
D. prima-term
Answer: A
/6. Long-term debt has a maturity that is ________.
A. between one and ten years.
B. less than a year.
C. between five and ten years.
D. ten years or longer.
Answer: D
/7. When I purchase ________, I own a portion of a firm and have the right to vote on issues
important to the firm and to elect its directors.
A. bonds
B. bills
C. notes
D. stock
Answer: D
/8. Equity holders are a corporationʹs ________. That means the corporation must pay all of its
debt holders before it pays its equity holders.
A. debtors
B. brokers
C. residual claimants
D. underwriters
Answer: C
/9. Which of the following benefit directly from any increase in the corporationʹs profitability?
A. a bond holder
B. a commercial paper holder
C. a shareholder
D. a T-bill holder
Answer: C
/10. A financial market in which previously issued securities can be resold is called a ________
market.
A. primary
B. secondary
C. tertiary
D. used securities
Answer: B