Homework-1
Name___________________________________
MULTIPLE CHOICE. Choo the one alternative that best completes the statement or answers the question.
1)Financial markets promote greater economic efficiency by channeling funds from ________ to
1) ________.
A)savers; lenders B)savers; borrowers
C)investors; savers D)borrowers; savers
2)Stock prices are
2)
A)relatively stable trending downward at a moderate rate.
B)unstable trending downward at a moderate rate.
C)relatively stable trending upward at a steady pace.
D)extremely volatile.
3)
3)When I purcha a corporate ________, I am lending the corporation funds for a specific time.
When I purcha a corporation's ________, I become an owner in the corporation.
A)bond; stock B)stock; debt curity
C)stock; bond D)bond; debt curity
4)
4)A financial crisis is
A)typically followed by an economic boom.
B)a major disruption in the financial markets.
C)not possible in the modern financial environment.
D)a feature of developing economies only.
5) Financial intermediaries
5)
A)produce nothing of value and are therefore a drain on society's resources.
B)hold very little of the average American's wealth.
C)can hurt the performance of the economy.
D)provide a channel for linking tho who want to save with tho who want to invest.
6)Money is defined as
6)
A)bills of exchange.
B)the unrecognized liability of governments.
C)a risk-free repository of spending power.
D)anything that is generally accepted in payment for goods and rvices or in the repayment of
debt.
7)Evidence from business cycle fluctuations in the United States indicates that
7)
A)recessions are usually preceded by a decline in the growth rate of money.
B)a negative relationship between money growth and general economic activity exists.
C)recessions are usually preceded by declines in bond prices.
D)recessions are usually preceded by dollar depreciation.
8)There is a ________ association between inflation and the growth rate of money ________.
8)
A)positive; demand B)negative; supply
C)positive; supply D)negative; demand
9)Countries that experience very high rates of inflation may also have
9)
A)falling money supplies.B)constant money supplies.
C)rapidly growing money supplies.D)balanced budgets.
10)
10)________ policy involves decisions about government spending and taxation.
A)Systemic B)Monetary C)Financial D)Fiscal
11)A budget ________ occurs when government expenditures exceed tax revenues for a particular
11)
time period.
A)deficit B)surge C)surplus D)surfeit
12)
12)Which of the following is most likely to result from a stronger dollar?
A)U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy
fewer of them.
B)Americans will purcha fewer foreign goods.
C)U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy more
of them.
D)U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy
more of them.
13)
13)Which of the following can be described as involving direct finance?
A)People buy shares in a mutual fund.
B)A corporation issues new shares of stock.
C)An insurance company buys shares of common stock in the over-the-counter markets.
D)A pension fund manager buys a short-term corporate curity in the condary market.
14)
14)Which of the following can be described as involving indirect finance?
A)A corporation buys a share of common stock issued by another corporation in the primary
market.
B)You make a loan to your neighbor.
C)You buy a U.S. Treasury bill from the U.S. Treasury.
D)You make a deposit at a bank.
15) 15)Securities are ________ for the person who buys them, but are ________ for the individual or firm
that issues them.
A)nonnegotiable; negotiable B)asts; liabilities
C)negotiable; nonnegotiable D)liabilities; asts
16)Equity holders are a corporation's ________. That means the corporation must pay all of its debt
16)
holders before it pays its equity holders.
A)residual claimants B)brokers
C)underwriters D)debtors
17)
17)A corporation acquires new funds only when its curities are sold in the
A)condary market by a curities dealer.
B)condary market by a commercial bank.
C)primary market by a stock exchange broker.
D)primary market by an investment bank.
18)A liquid ast is
18)
A)always sold in an over-the-counter market.
B)difficult to rell.
C)an ast that can easily and quickly be sold to rai cash.
D)a share of an ocean resort.
19)Secondary markets make financial instruments more
19)
A)liquid.B)risky.C)solid.D)vapid.
20) 20)A financial market in which only short-term debt instruments are traded is called the ________
market.
A)bond B)capital C)money D)stock
21) 21)U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower
purcha price than the amount you receive at maturity.
A)discount B)premium C)default D)collateral
22) 22)U.S. Treasury bills are considered the safest of all money market instruments becau there is
almost no risk of
A)dertion.B)defeat.C)demarcation.D)default.
23)Bonds that are sold in a foreign country and are denominated in the country's currency in which
23)
they are sold are known as
A)Eurobonds.B)country bonds.C)equity bonds.D)foreign bonds.
24)
24)If Microsoft lls a bond in London and it is denominated in dollars, the bond is a
A)foreign bond.B)currency bond.C)Eurobond.D)British bond.
25)
25)An example of economies of scale in the provision of financial rvices is
A)investing in a diversified collection of asts.
B)spreading the cost of writing a standardized contract over many borrowers.
C)spreading the cost of borrowed funds over many customers.
D)providing depositors with a variety of savings certificates.
26)
26)The process of ast transformation refers to the conversion of
A)safer asts into risky asts.B)risky asts into risky liabilities.
C)risky asts into safer asts.D)safer asts into safer liabilities.
27) 27)Typically, borrowers have superior information relative to lenders about the potential returns and
risks associated with an investment project. The difference in information is called
A)asymmetric information.B)moral lection.
C)risk sharing.D)adver hazard
28)Adver lection is a problem associated with equity and debt contracts arising from
28)
A)the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower
defaults.
B)the lender's relative lack of information about the borrower's potential returns and risks of his
investment activities.
C)the borrower's lack of incentive to ek a loan for highly risky investments.
D)the borrower's lack of good options for obtaining funds.
29)An example of the problem of ________ is when a corporation us the funds raid from lling
29)
bonds to fund corporate expansion to pay for Caribbean cruis for all of its employees and their
families.
A)risk sharing B)moral hazard
C)credit risk D)adver lection
30) 30)Increasing the amount of information available to investors helps to reduce the problems of
________ and ________ in the financial markets.
A)moral hazard; transactions costs B)adver lection; risk sharing
C)adver lection; moral hazard D)adver lection; economies of scale
31)
31)Of money's three functions, the one that distinguishes money from other asts is its function as a
A)standard of deferred payment.B)store of value.
C)unit of account.D)medium of exchange.
32)For a commodity to function effectively as money it must be
32)
A)hard to carry around.
B)difficult to make change.
C)deteriorate quickly so that its supply does not become too large.
D)easily standardized, making it easy to ascertain its value.
33) 33)________ is the relative ea and speed with which an ast can be converted into a medium of
exchange.
A)Efficiency B)Specialization C)Deflation D)Liquidity
34)
34)Of the following asts, the least liquid is
A)a hou.B)checking deposits.
C)traveler's checks.D)stocks.
35) 35)Paper currency that has been declared legal tender but is not convertible into coins or precious
metals is called ________ money.
A)funny B)commodity C)electronic D)fiat
36)Monetary aggregates are
36)
A)never redefined since "money" never changes.
B)measures of the money supply reported by the Federal Rerve.
C)measures of the wealth of individuals.
D)reported by the Treasury Department annually.
37)
37)Which of the following is not included in the measure of M1?
A)Currency B)Savings deposits
C)NOW accounts D)Demand deposits
38) 38)Which of the following is not included in the M1 measure of money but is included in the M2
measure of money?
A)Currency B)Demand deposits
C)Small-denomination time deposits D)Traveler's checks
39)If an individual moves money from a small-denomination time deposit to a demand deposit
39)
account,
A)M1 increas and M2 decreas.
B)M1 stays the same and M2 stays the same.
C)M1 stays the same and M2 increas.
D)M1 increas and M2 stays the same.
40)
40)Which of the following statements accurately describes the two measures of the money supply?
A)The two measures' movements cloly parallel each other, even on a month-to-month basis.
B)Short-run movements in the money supply are extremely reliable.
C)The two measures do not move together, so they cannot be ud interchangeably by
policymakers.
D)M2 is the narrowest measure the Fed reports.
Answer Key
Testname: HOMEWORK-1 CH1-CH3
1)B
2)D
3)A
4)B
5)D
6)D
7)A
8)C
9)C
10)D
11)A
12)A
13)B
14)D
15)B
16)A
17)D
18)C
19)A
20)C
21)A
22)D
23)D
24)C
25)B
26)C
27)A
28)B
29)B
30)C
31)D
32)D
33)D
34)A
35)D
36)B
37)B
38)C
39)D
40)C
