Question 1

Secondary financial markets:

Accepted Answer

A)  Are financial markets for all financial instruments rated less than investment grade
B)  Are financial markets where existing securities are bought and sold
C)  Eliminate the transaction costs for buyers and sellers
D)  Are only for stockE) C) and D)
F) B) and C)

Question 2

Standardization of financial instruments has occurred as a result of:

Accepted Answer

A)  The rule of 70
B)  The law of demand
C)  Economies of scale
D)  The law of supplyE) A) and C)
F) None of the above

Question 3

What are the four fundamental characteristics that determine the value of a financial instrument?

Accepted Answer

The four fundamental characteristics tha...

Question 4

Many countries of the former Soviet Union are finding the transformation to a market-based economy to be quite difficult and economic growth rates for many of these countries are quite low.Explain what role the lack of financial market development may play in these countries.

Accepted Answer

Financial markets really did not exist for many of these countries when they were under a command and control system.As the countries seek to become more market oriented, financial markets will need to develop just like other markets.One problem that will need to be overcome is the creation of a system of property rights and laws on which all markets, especially financial markets, can rely.Many of us in industrialized market economies take the system of property rights and laws that protect investors for granted.It is the extensive system of property rights, laws, and investor protection that has many people quite comfortable placing their funds with financial intermediaries or lending their funds directly to other individuals or firms, knowing that there is legal recourse should the counterparty not do what he/she was supposed to do.In developing market economies it is not surprising that many people who may have funds to invest may be quite reluctant to do so until they are comfortable that there is adequate legal protection, methods to minimize information asymmetry, and the development of financial intermediaries to reduce the risk of lending.Until this happens these economies will not operate as efficiently or grow as rapidly as they otherwise might.

Question 5

Over-the-counter (OTC)  markets:

Accepted Answer

A)  Employ specialists to minimize price volatility
B)  Are centralized exchanges but you must be a dealer to be part of an exchange
C)  Only deal in the stocks of companies with over $100 million in capital
D)  Are networks of security dealers linked electronicallyE) A) and C)
F) A) and D)

Question 6

The New York Stock Exchange (NYSE)  is:

Accepted Answer

A)  A decentralized electronic market made up of dealers all over the world
B)  An example of a centralized exchange
C)  A financial market where nearly 100 million shares of stock are traded every business day
D)  The only centralized stock exchange in the worldE) All of the above
F) B) and D)

Question 7

Financial markets:

Accepted Answer

A)  Enable buyers and sellers to exchange financial instruments but not risk
B)  Enable buyers and sellers to exchange risk by buying and selling financial instruments
C)  Only allow the transfer of risk through derivative securities
D)  Do not allow for the transfer of risk but do help reduce itE) C) and D)
F) None of the above

Question 8

The high volume of shares of stock that are traded on a normal day on stock markets reflects:

Accepted Answer

A)  The high transaction costs associated with these financial markets
B)  The low transaction costs and high liquidity associated with these markets
C)  The low transaction costs and low liquidity associated with these markets
D)  The high transactions costs and low liquidity associated with these marketsE) A) and B)
F) B) and C)

Question 9

Where would you expect prices to be more volatile, on instruments traded in the money market or instruments traded in the bond market? Explain.

Accepted Answer

We learned in previous chapters that pri...

Question 10

Considering the value of a financial instrument, the more likely it is the payment will be made:

Accepted Answer

A)  The more valuable the financial instrument
B)  The less valuable is the instrument because risk is lower
C)  The less valuable is the financial instrument because it is highly liquid
D)  The greater the uncertainty; therefore the less valuable is the financial instrumentE) None of the above
F) A) and D)

Question 11

An insurance company is an example of a financial institution that:

Accepted Answer

A)  Transforms assets
B)  Acts as a broker
C)  Serves as a depository institution
D)  Sells derivative securitiesE) A) and B)
F) B) and C)

Question 12

A collection of assets is known as a(n) :

Accepted Answer

A)  Asset-backed security
B)  Derivative
C)  Futures contract
D)  PortfolioE) C) and D)
F) A) and B)

Question 13

A financial instrument would include:

Accepted Answer

A)  Only a written obligation and a transfer of value
B)  Only a written obligation and a specified date
C)  A written obligation, a transfer of value, a future date, and certain conditions
D)  A written obligation, a transfer of value, a specific date for payment, uncertain conditionsE) B) and D)
F) None of the above C

Question 14

Loans made between borrowers and lenders are:

Accepted Answer

A)  Usually not taxable at the federal level
B)  Legal only in the state of origination
C)  Assets of the lenders
D)  Assets of the borrowersE) A) and C)
F) B) and C)

Question 15

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Accepted Answer

Probably the best evidence is the volume...

Question 16

Explain why most financial instruments are fairly complex, while at the same time quite standardized.

Accepted Answer

Most financial instruments are complex i...

Question 17

Financial instruments used primarily as stores of value would not include:

Accepted Answer

A)  A car insurance policy
B)  A U.S.Treasury bond
C)  Shares of General Motors stock
D)  A home mortgageE) None of the above
F) C) and D)

Question 18

Credit cards usually charge higher rates of interest than most other forms of lending.In terms of information, collateral and monitoring, how might these higher rates be explained?

Accepted Answer

When providing credit cards to customers...

Question 19

The better the information provided to financial markets:

Accepted Answer

A)  The less the amount of funds transferred between savers and borrowers
B)  The greater the amount of funds transferred between savers and borrowers, though risk increases
C)  The higher the return required by lenders
D)  The greater will be the flow of funds in these marketsE) None of the above
F) A) and C)

Question 20

The value of a financial instrument rises as:

Accepted Answer

A)  The size of the payment promised decreases
B)  The promised payment is made sooner rather than later
C)  It is less likely the payment will be made
D)  The payments are made when the prospective investor needs them leastE) B) and C)
F) A) and D) B

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

Secondary financial markets:

Correct Answer
verified

Standardization of financial instruments has occurred as a result of:

Correct Answer
verified

What are the four fundamental characteristics that determine the value of a financial instrument?

Correct Answer
verified
The four fundamental characteristics tha...
View Answer

Many countries of the former Soviet Union are finding the transformation to a market-based economy to be quite difficult and economic growth rates for many of these countries are quite low.Explain what role the lack of financial market development may play in these countries.

Over-the-counter (OTC) markets:

Correct Answer
verified

The New York Stock Exchange (NYSE) is:

Correct Answer
verified

Financial markets:

Correct Answer
verified

The high volume of shares of stock that are traded on a normal day on stock markets reflects:

Correct Answer
verified

Where would you expect prices to be more volatile, on instruments traded in the money market or instruments traded in the bond market? Explain.

Correct Answer
verified
We learned in previous chapters that pri...
View Answer

Considering the value of a financial instrument, the more likely it is the payment will be made:

Correct Answer
verified

An insurance company is an example of a financial institution that:

Correct Answer
verified

A collection of assets is known as a(n) :

Correct Answer
verified

A financial instrument would include:

Correct Answer
verified
C

Loans made between borrowers and lenders are:

Correct Answer
verified

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Correct Answer
verified
Probably the best evidence is the volume...
View Answer

Explain why most financial instruments are fairly complex, while at the same time quite standardized.

Correct Answer
verified
Most financial instruments are complex i...
View Answer

Financial instruments used primarily as stores of value would not include:

Correct Answer
verified

Credit cards usually charge higher rates of interest than most other forms of lending.In terms of information, collateral and monitoring, how might these higher rates be explained?

Correct Answer
verified
When providing credit cards to customers...
View Answer

The better the information provided to financial markets:

Correct Answer
verified

The value of a financial instrument rises as:

Correct Answer
verified
B

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

Secondary financial markets:

Correct AnswerverifiedShow Answer

Standardization of financial instruments has occurred as a result of:

Correct AnswerverifiedShow Answer

What are the four fundamental characteristics that determine the value of a financial instrument?

Correct AnswerverifiedThe four fundamental characteristics tha...View AnswerShow Answer

Many countries of the former Soviet Union are finding the transformation to a market-based economy to be quite difficult and economic growth rates for many of these countries are quite low.Explain what role the lack of financial market development may play in these countries.

Over-the-counter (OTC) markets:

Correct AnswerverifiedShow Answer

The New York Stock Exchange (NYSE) is:

Correct AnswerverifiedShow Answer

Financial markets:

Correct AnswerverifiedShow Answer

The high volume of shares of stock that are traded on a normal day on stock markets reflects:

Correct AnswerverifiedShow Answer

Where would you expect prices to be more volatile, on instruments traded in the money market or instruments traded in the bond market? Explain.

Correct AnswerverifiedWe learned in previous chapters that pri...View AnswerShow Answer

Considering the value of a financial instrument, the more likely it is the payment will be made:

Correct AnswerverifiedShow Answer

An insurance company is an example of a financial institution that:

Correct AnswerverifiedShow Answer

A collection of assets is known as a(n) :

Correct AnswerverifiedShow Answer

A financial instrument would include:

Correct AnswerverifiedC

Loans made between borrowers and lenders are:

Correct AnswerverifiedShow Answer

What evidence is there that the transaction costs involved with the buying and selling of stocks is low?

Correct AnswerverifiedProbably the best evidence is the volume...View AnswerShow Answer

Explain why most financial instruments are fairly complex, while at the same time quite standardized.

Correct AnswerverifiedMost financial instruments are complex i...View AnswerShow Answer

Financial instruments used primarily as stores of value would not include:

Correct AnswerverifiedShow Answer

Credit cards usually charge higher rates of interest than most other forms of lending.In terms of information, collateral and monitoring, how might these higher rates be explained?

Correct AnswerverifiedWhen providing credit cards to customers...View AnswerShow Answer

The better the information provided to financial markets:

Correct AnswerverifiedShow Answer

The value of a financial instrument rises as:

Correct AnswerverifiedB

Correct Answer
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Correct Answer
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Correct Answer
verified
The four fundamental characteristics tha...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
We learned in previous chapters that pri...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
verified
Probably the best evidence is the volume...
View Answer

Correct Answer
verified
Most financial instruments are complex i...
View Answer

Correct Answer
verified

Correct Answer
verified
When providing credit cards to customers...
View Answer

Correct Answer
verified

Correct Answer
verified
B