ch1 MCQ
ch1 MCQ
ch1 MCQ
Practice Quiz
Chapter 1: An Overview of Financial Markets and Institutions
Ans: d
Difficulty: Easy
Response: See page 5
Ref: The Financial System: Preview of the Financial System
2. Which of the following is not one of the main groups of economic units?
a. households
b. depository institutions
c. business firms
d. governments
e. foreign investors
Ans: b
Difficulty: Easy
Response: See page 6
Ref: The Financial System: Budget Position (Table 1)
Ans: d
Difficulty: Medium
Response: See pages 7-8
Ref: Financial Markets and Direct Financing
5. For investment banks, a major consequence of the 2008 crisis was that they were
a. all forced out of business
b. prohibited from participating in mortgage markets
c. forced to acquire failed depository institutions
d. prohibited from offering trading or brokerage services
e. brought under Federal Reserve oversight
Ans: e
Difficulty: Medium
Response: See pages 9
Ref: Financial Markets and Direct Financing: Investment Banking Today
Ans: b
Difficulty: Hard
Response: See page 12
Ref: Types of Financial Markets: Primary and Secondary Markets
7. Public and private markets differ significantly in all the following except
a. regulation
b. marketability of securities
c. types of costs incurred by participants
d. pricing mechanism
e. ultimate purpose
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Ans: e
Difficulty: Hard
Response: See page 13
Ref: Types of Financial Markets: Public and Private Markets
8. Money and capital markets differ significantly in all the following except
a. importance of financial institutions
b. types of financial claims
c. motives of participants
d. importance to the economy
e. ultimate purpose
Ans: d
Difficulty: Hard
Response: See pages 14-17
Ref: Money Markets; Capital Markets
Ans: a
Difficulty: Medium
Response: See pages 17-18
Ref: Financial Intermediaries and Indirect Financing
10. To understand why financial intermediaries exist, we need to understand the role of
a. adverse selection and moral hazard
b. supply and demand
c. transactions costs and information costs
d. debt and equity
e. risk and return
Ans: c
Difficulty: Easy
Response: See pages 18-19
Ref: Financial Intermediaries: Economics of Financial Intermediation
4
Ans: b
Difficulty: Easy
Response: See pages 20-21
Ref: Economic of Intermediation: Asymmetric Information
Ans: d
Difficulty: Easy
Response: See pages 21-22
Ref: Types of Intermediation Services
Ans: b
Difficulty: Medium
Response: See pages 23-25; 27
Ref: Types of Financial Intermediaries: Deposit-Type Institutions; Other Types of Financial
Institutions
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14. A financial institution which fails even though it is profitable has probably mismanaged
a. credit risk
b. interest rate risk
c. liquidity risk
d. foreign exchange risk
e. political risk
Ans: c
Difficulty: Easy
Response: See pages 28-29
Ref: Risks Financial Institutions Manage
15. The two fundamental reasons for heavily regulating the financial system are
a. protecting consumers and stabilizing the financial system
b. stabilizing inflation and stabilizing interest rates
c. promoting exports and protecting consumers
d. strengthening the currency and stabilizing price levels
e. promoting liquidity and eliminating risk
Ans: a
Difficulty: Easy
Response: See page 29
Ref: Regulation of the Financial System