Deck 4: Financial Markets, Instruments, and Market Makers

Question 1

Which is an example of a financial instrument that is traded?

A)stocks
B)corporate bonds
C)Treasury bills
D)Treasury bonds
E)All of the above are financial instruments that are traded.

Answer 1

E

Question 2

Stocks are traded in the

A)money market.
B)commercial paper market.
C)capital market.
D)Eurodollar market.

Answer 2

C

Question 3

Commercial paper is traded in the

A)money market.
B)commercial paper market.
C)capital market.
D)Eurodollar market.

Answer 3

A

Question 4

The __________ is the market for financial assets with an original maturity of one year or less.

A)money market
B)commercial paper market
C)capital market
D)Eurodollar market

Question 5

The separation of the money market from the capital market is based on the ______ of the instruments traded there.

A)SEC registration number
B)length of term
C)rate of return
D)All of the above are correct.

Question 6

The __________ market is where a security is sold for the first time.

A)money
B)spot
C)primary
D)secondary

Question 7

The __________ market is where previously-issued financial securities are bought and sold.

A)money
B)spot
C)primary
D)secondary

Question 8

The __________ market is where the trading of financial securities takes place instantaneously.

A)money
B)spot
C)primary
D)secondary

Question 9

In high quality secondary markets, securities are traded at relatively ___ cost and _____ inconvenience.

A)low, little
B)high, little
C)low, great
D)high, great

Question 10

The lack of a smoothly functioning secondary market will ______ the financing of planned deficits in the primary market and thus have _______ affect on investment and economic growth over time.

A)enhance, an adverse
B)inhibit, an adverse
C)enhance, a positive
D)inhibit, a positive

Question 11

__________ markets are markets where the terms of a transaction, including price, are agreed upon today for a transaction that will take place on a specified date in the future.

A)Money
B)Fed funds
C)Capital
D)Financial futures

Question 12

Financial futures and forward markets are also known as

A)primary markets.
B)secondary markets.
C)derivatives markets.
D)spot markets.

Question 13

What are the basic functions of financial futures and forward markets?

A)reduction of risk associated with price changes that occurred in the past
B)speculation in hopes of profiting from past price changes and mistakes that were made
C)elimination of future price changes
D)reduction of risk associated with future price changes and speculation in hopes of profiting from future price changes

Question 14

The financial markets perform the important role of channeling funds from _____ to _______.

A)net lenders, net borrowers
B)net borrowers, net lenders
C)gross lenders, gross borrowers
D)gross borrowers, gross lenders

Question 15

__________ are short-term debt instruments of the U.S. Government with typical maturities of three to twelve months.

A)Treasury bills (T-Bills)
B)U.S. Government Bonds
C)U.S. Government Agency Securities
D)Asset-backed securities

Question 16

A U.S. Treasury bill has which of the following characteristics?

A)short-term debt
B)sells at a discount
C)is very liquid and very safe
D)All of the above are characteristics of a Treasury bill.

Question 17

Which of the following are characteristics of Certificates of Deposit (CDs)?

A)CDs pay annual interest payments equal to a fixed percentage of the original purchase price.
B)The original purchase price of the CD is repaid at maturity.
C)CDs are debt instruments sold by depository institutions.
D)All of the above are characteristics of CDs.

Question 18

Commercial paper was developed to

A)ease the wear and tear of paper currency.
B)interest consumers in the stock market.
C)finance corporations' short-term borrowing needs.
D)finance the government's short-term borrowing needs.

Question 19

Since 1960, the growth of commercial paper has risen impressively due to

A)the increase in commercial paper issued by non-financial firms and, more recently, by small and medium size firms.
B)the increase in commercial paper issued by financial firms.
C)the rise of government deficit spending.
D)the increase in the quantity of money provided by the Treasury Department.

Question 20

Bankers' acceptances are

A)capital money market instruments created in the course of financing international trade.
B)money market instruments created in the course of financing international trade.
C)money market instruments created in the course of financing domestic trade.
D)capital market instruments created in the course of financing domestic trade.

Question 21

Since 1984, the trading of bankers' acceptances has

A)Declined.
B)remained the same.
C)risen slightly.
D)remained the same, and then risen sharply.

Question 22

Repurchase agreements are

A)long-term agreements to buy a government security that will then be sold back to the original seller.
B)long-term agreements to buy a corporate bond that will then be sold back to the original seller.
C)short term agreements in which the seller sells a government security with the simultaneous agreement to buy the security back at a higher price on a later date.
D)short-term agreements to sell a corporate bond that will then be bought back by the original buyer.

Question 23

Overnight loans among depository institutions of their deposits at the Fed are called

A)discount loans.
B)federal funds.
C)demand on request loans.
D)repurchase agreements.

Question 24

The term Eurodollar refers to

A)any deposit made in Asia and denominated in the euro.
B)any deposit made in Europe denominated in the euro.
C)dollar-denominated deposits held in banks outside the United States.
D)Both a and b are correct.

Question 25

The capital market is extremely important because

A)a smoothly functioning capital market influences how fast the economy grows.
B)it raises the funds needed by net borrowers to carry out their spending and investment plans.
C)it provides the only stage upon which capital goods can easily be traded.
D)Both a and b are correct.

Question 26

Income that is received from equity claims on corporations is called which of these?

A)dividends
B)interest
C)net income
D)incremental profit

Question 27

Preferred stock pays a ________ dividend.

A)fixed
B)variable
C)lower
D)higher

Question 28

Common stock pays a ______ dividend.

A)fixed
B)variable
C)lower
D)higher

Question 29

Loans to purchase housing, land, or other real structures are called which of the following?

A)home equity loans
B)mortgages
C)variable rate loans
D)fixed rate loans

Question 30

The two government sponsored enterprises (GSEs) that sell bonds and use the proceeds to purchase mortgages are

A)Fannie Mae and Freddie Mac
B)Ginnie Mae and Housing and Urban Development (HUD)
C)Ginnie Mae and Daisy Mae
D)Freddie Mac and Housing and Urban Development (HUD)

Question 31

Which of the following is not a characteristic of corporate bonds?

A)short-term
B)issued by corporations
C)pay interest twice a year
D)principal repaid at maturity

Question 32

U.S. government securities

A)are short-term debt instruments only.
B)have maturities ranging from 2 to 30 months only.
C)finance the deficits of the federal government.
D)All of the above are correct.

Question 33

In 1997, the U.S. government began issuing

A)100 year maturity securities.
B)inflation-indexed securities.
C)certificates of deposit.
D)corporate bonds.

Question 34

Which of the following is false?

A)Financial forward agreements are transactions that are consummated today for the purchase or sale of financial instruments on a date in the future where the quantities and delivery dates are standardized.
B)Financial futures can be used to hedge or speculate.
C)The money market is where securities with original maturities of one year or less are traded.
D)The spot market is the market for the purchase or sale of securities for immediate delivery.

Question 35

For investors living in the issuing state, a positive aspect of municipal bonds is that

A)the interest they earn is taxed deferred until the bonds are sold.
B)they are considered tax-deductible losses.
C)they have zero tractability.
D)the interest they earn is exempt from federal and state income taxes.

Question 36

Revenue bonds are

A)used to finance specified projects.
B)issued at yields that are usually below taxable bonds of similar maturity.
C)paid off with the proceeds of specific projects.
D)All of the above

Question 37

General obligation bonds are backed by

A)the full faith and credit of the purchaser.
B)The full faith and credit of issuing state; taxes that can be raised to pay the interest and principal.
C)households in high tax brackets.
D)All of the above

Question 38

Market makers function as

A)coordinators who link up buyers and sellers of financial instruments.
B)guarantors of full-faith and credit of the financial instruments they market.
C)executors of exchanges on Wall Street.
D)All of the above

Question 39

What is the difference between a broker and a dealer?

A)There is no difference.
B)The broker takes a position in a transaction while a dealer for a fee merely arranges trades between buyers and sellers.
C)The broker sells stocks and bonds, whereas the dealer only deals in bonds.
D)The dealer sometimes takes a position (becomes a principal) in a transaction, in addition to arranging trades; the broker only arranges trades for a fee.

Question 40

Those who disseminate information to potential buyers and sellers are called

A)Bartenders.
B)Securitizers.
C)market makers.
D)jacks-of-all-trade.

Question 41

In order to make markets, which of the following are true about the activities of the market maker?

A)Market makers charge a brokerage fee for each transaction.
B)Market makers hold an inventory of securities in which they deal.
C)Markets makers raise funds to finance deficits.
D)All of the above are true.

Question 42

All financial claims are which of the following?

A)Claims on money
B)Mutual funds
C)Bank deposits subject to withdrawal by writing a check
D)insured by the FDIC

Question 43

Money represents current purchasing power. Other financial claims represent

A)future purchasing power.
B)other forms of money.
C)current debt claims.
D)future claims on money.

Question 44

The price at which a market maker is willing to buy securities is called the

A)asked price.
B)bid price.
C)equilibrium price.
D)neutral price.

Question 45

The __________ is the price at which a market maker is willing to sell securities

A)bid price
B)primary market price
C)broker price
D)asked price

Question 46

The __________ is the price at which a market maker is willing to buy securities

A)bid price
B)primary market price
C)broker price
D)asked price

Question 47

The __________ is the market for financial assets with an original maturity of greater than one year.

A)money market
B)commercial paper market
C)capital market
D)Eurodollar market

Question 48

The __________ is the market for financial assets with an original maturity of one year or less.

A)money market
B)commercial paper market
C)capital market
D)Eurodollar market

Question 49

The borrowing and loaning of reserves among depository institutions, typically overnight, occurs in the

A)money market.
B)fed funds market.
C)capital market.
D)Eurodollar market.

Question 50

A person who arranges trades between buyers and sellers and who stands ready to be a principal in the transaction is a

A)dealer.
B)broker.
C)market maker.
D)Both a and c are correct.

Question 51

A person who for a fee arranges trades between buyers and sellers but does not act as a principal in the transaction is a

A)dealer.
B)broker.
C)market maker.
D)Both a and c

Question 52

Long-term debt instruments issued by corporations are called

A)revenue bonds.
B)corporate stocks.
C)corporate bonds.
D)commercial paper.

Question 53

Corporate bonds are traded in the

A)money market.
B)fed funds market.
C)capital market.
D)Eurodollar market.

Question 54

Money-market instruments created in the course of international trade to guarantee bank drafts are called

A)revenue bonds.
B)corporate stocks.
C)bankers' acceptances.
D)commercial paper.

Question 55

Dollar-denominated deposits held abroad are called

A)eurodollars.
B)corporate stocks.
C)banker's acceptances.
D)commercial paper.

Question 56

__________ markets are markets where the terms of a transaction, including price, are agreed upon today for a transaction that will take place on a specified date in the future.

A)Money
B)Fed funds
C)Capital
D)Financial futures

Question 57

__________ are municipal bonds paid out of the general revenues of the issuer and backed by the full faith and credit of the issuer.

A)Negotiable certificates of deposit
B)General obligation bonds
C)Revenue bonds
D)Repurchase agreements

Question 58

__________ are used to finance specific projects where the proceeds of those projects are used to pay off holders of the security.

A)Negotiable certificates of deposit
B)General obligation bonds
C)Revenue bonds
D)Repurchase agreements

Question 59

__________ are long-term debt instruments of the U.S. government with original maturities from two to thirty years.

A)T-Bills
B)General Revenue Bonds
C)U.S. Government Securities
D)Asset-backed securities

Question 60

Short-term agreements, where the seller sells a government security to a buyer with the simultaneous agreement to buy it back on a later date at a higher price, are called

A)negotiable certificates of deposit.
B)general revenue bonds.
C)repurchase agreements.
D)asset-backed securities.

Question 61

The money market includes those markets that trade securities with original maturities of __________.

A)1 month or less
B)6 months or less
C)8 months or less
D)12 months or less

Question 62

The capital market includes those markets that trade securities with original maturities of __________.

A)1 month or less.
B)6 months or less.
C)12 months or less.
D)more than 1 year

Question 63

Which market is often referred to as the long-term market?

A)the capital market
B)the primary market
C)the money market
D)the discount market

Question 64

Which market is often referred to as the short-term market?

A)the capital market
B)the primary market
C)the money market
D)the stock market

Question 65

Term to maturity refers to which of the following?

A)the length of time from the issuance of a financial security to its maturity
B)net present value from the issuance of a security
C)the length of time for expected depreciation of the security
D)the time remaining on a Fed Governor's term

Question 66

A security may be called which of the following?

A)a financial claim
B)an IOU
C)a financial instrument
D)All of the above may be securities.

Question 67

A primary market is which of these?

A)Where stocks are sold and resold.
B)Where bonds are sold and resold.
C)Where intermediaries are the buyers and sellers.
D)Where a security is initially sold for the first time.

Question 68

If Michelle wanted to purchase newly issued stock from a new computer company, she would purchase this in a

A)primary market.
B)secondary market.
C)money market.
D)CD market.

Question 69

Nearly all transactions in financial markets occur in the

A)money market.
B)secondary market.
C)CD market.
D)primary market.

Question 70

The secondary market does not

A)have a strong effect on investment and economic growth.
B)have a strong effect on the primary market.
C)generate additional funds for the economy as a whole.
D)All of the above are correct.

Question 71

The spot market is where

A)future trading of financial instruments takes place.
B)future trading of options takes place.
C)instantaneous trading of financial instruments takes place.
D)All of the above are true.

Question 72

Trading of financial securities for delivery on some date in the future at a price determined today is done in the

A)spot markets.
B)financial futures market.
C)money market.
D)fed funds market.

Question 73

Which of the following basic functions do financial futures markets fulfill?

A)They reduce risk connected with future price changes.
B)They reduce reverse the risks connected with prior price changes.
C)They allow for speculation.
D)Both a and c are correct.

Question 74

Treasury bills (T-bills) are

A)long-term debt instruments with maturities of 6 to 24 months.
B)long-term debt instruments with maturities of 3 to 12 months.
C)short-term debt instruments with maturities of 4 weeks to 12 months.
D)short-term debt instruments with maturities of 6 to 24 months.

Question 75

Treasury bills (T-bills) pay

A)a fixed amount at maturity and no explicit interest payments; T-bills sell at a discount.
B)a fixed amount at maturity and explicit interest payments.
C)a fluctuating amount at maturity and no explicit interest payments.
D)a fluctuating amount at maturity and explicit interest payments.

Question 76

Treasury bills (T-bills) are

A)the most liquid of all the money market instruments.
B)traded very actively in the secondary market.
C)the safest of all money market instruments.
D)All of the above

Question 77

Treasury bills (T-bills) are initially sold

A)in the municipal securities market.
B)in the secondary market.
C)at a discount.
D)in the capital market.

Question 78

Which does not characterize a certificate of deposit (CD)?

A)A CD is sold at a discount.
B)A CD is sold by a depository institution.
C)A CD pays annual interest payments equal to a fixed percent of the original purchase price.
D)At maturity, the original purchase price is returned.

Question 79

Bankers' acceptances are used in financing which of these?

A)interstate trade
B)domestic trade
C)international trade
D)All of the above are correct.

Question 80

Equity claims that represent ownership of the net assets and income are called

A)bonds.
B)debtors' equity.
C)stocks.
D)repurchase agreements.