Question 1

It is important to be able to resell financial claims in a secondary market because it allows:
A)DSUs to finance a project with successive issues of financial claims.
B)DSUs to implement projects with horizon shorter than the SSUs' investment horizon.
C)SSUs to purchase financial claims with maturities that are longer than their investment horizon.
D)SSUs to purchase financial claims with maturities that are shorter than their investment horizon.

Accepted Answer

Reselling financial claims in a secondary market allows Surplus Spending Units (SSUs) to invest in claims with longer maturities than their investment horizon, as they can sell these claims before maturity if needed.

Question 2

A surplus budget position means that an entity's:
A)income and expenditures are the same.
B)income for the period exceeds expenses.
C)expenditures for the period exceed revenues.
D)none of the above.

Accepted Answer

Income for the period exceeds expenses.

Question 3

The ASX is an example of:
A)an over-the-counter market exchange.
B)an electronic organised exchange.
C)a physical exchange.
D)all of the above.

Accepted Answer

The ASX (Australian Securities Exchange) is an electronic organized exchange where securities are traded electronically.

Question 4

An over-the-counter market:
A)is a primary market.
B)is regulated by the RBA.
C)has no central location.
D)allows investors in financial claims to trade directly among themselves.

Accepted Answer

The answer of An over-the-counter market:
A)is a primary market.
B)is regulated...

Question 5

Which of the following statements best describes the concept of "two faces of debt"?
A)Government debt requires higher taxation in the future to repay the principal and interests of the debt.
B)Intermediaries issue financial claims to SSUs and own financial claims issued by DSUs.
C)Every financial asset is someone else's liability/equity.
D)DSUs in one period can be SSUs in another one.

Accepted Answer

The concept of "two faces of debt" refers to the idea that every financial asset is simultaneously a liability for someone else, highlighting the dual nature of financial instruments.

Question 6

An economy with a large flow of funds requires:
A)a tightly controlled central bank.
B)an efficient financial system.
C)a lot of gold reserves.
D)all of the above.

Accepted Answer

An efficient financial system is crucial for managing and facilitating the large flow of funds in an economy, ensuring that capital is allocated effectively and financial transactions are processed smoothly.

Question 7

A deficit spending unit is an economic unit:
A)who has negative income.
B)whose income is less than planned saving.
C)who can provide funds to the financial system.
D)whose planned expenditure in a period exceeds current income.

Accepted Answer

A deficit spending unit is an economic unit whose planned expenditure in a period exceeds its current income, leading it to borrow or seek funds to cover the shortfall.

Question 8

A sale of an entire security issue to a small group of surplus spending units is:
A)a dealer arrangement.
B)a private placement.
C)an underwriting.
D)indirect finance.

Accepted Answer

A private placement involves selling securities directly to a small group of investors rather than through a public offering.

Question 9

During 2017,Michael and Jenny Jones expect total income of $215,000 and are budgeting total expenditure of $195,000.For this budget period,the Jones family is most specifically a:
A)deficit spending unit.
B)a recipient of funds from the financial system.
C)surplus spending unit.
D)financial intermediary.

Accepted Answer

A surplus spending unit is one where income exceeds expenditure, which is the case for the Jones family as their income ($215,000) is greater than their expenditure ($195,000).

Question 10

Which of the following would most likely be involved in underwriting public securities?
A)A broker.
B)A dealer.
C)A regional commercial banker.
D)None of the above are involved in underwriting.

Accepted Answer

The answer of Which of the following would most likely...

Question 11

Which one of the following statements is NOT true?
A)Prices in the corporate bond market tend to be more volatile than the market for shares.
B)Corporate bonds are more marketable than the securities that have higher daily trading volumes.
C)The market for corporate bonds is thin.
D)Life insurance companies and superannuation funds are the largest investors in corporate bonds.

Accepted Answer

Corporate bonds are more marketable than the securities that have higher daily trading volumes.

Question 12

The functions of a financial system include:
A)facilitating the flow of funds.
B)providing means for the transfer and management of risks.
C)providing the mechanism for the settlement of transactions.
D)all of the above.

Accepted Answer

A financial system facilitates the flow of funds, manages risks, and provides mechanisms for transaction settlements, encompassing all the functions listed.

Question 13

Which of the following financial claims does NOT belong to the capital market?
A)Corporate bond.
B)Bank bill.
C)Shares.
D)Government bond.

Accepted Answer

Bank bills are short-term debt instruments issued by banks and are considered part of the money market, not the capital market.

Question 14

Which of the following are NOT financial claims?
A)commodities.
B)bonds.
C)shares.
D)loans.

Accepted Answer

Commodities are not financial claims because they do not represent a debt or ownership interest in a company.

Question 15

The major players in the direct financial markets are:
A)regional banks.
B)commercial banks.
C)investment banks.
D)both B and C.

Accepted Answer

Commercial banks and investment banks are the major players in the direct financial markets. Commercial banks accept deposits from the public and make loans to businesses and individuals. Investment banks underwrite and sell new securities for corporations and governments.

Question 16

Corporate bonds:
A)provide funding for capital expenditure.
B)have a very active secondary market.
C)have a maturity less than one year.
D)are issued by governments.

Accepted Answer

Corporate bonds are debt securities issued by corporations to raise capital for various purposes, including capital expenditures.

Question 17

The functions of the financial system include:
A)providing ways of dealing with the incentive problems that arise in financial contracting.
B)generating and disseminating information that assists decision making.
C)facilitating the flow of funds.
D)all of the above.

Accepted Answer

The financial system encompasses all these functions: it addresses incentive problems in financial contracts, generates and disseminates information for decision-making, and facilitates the flow of funds between savers and borrowers.

Question 18

Which of the following is not a role of financial markets:
A)matching borrowers and lenders.
B)facilitation of business and trade.
C)to increase the poverty gap.
D)facilitation of savings by individuals to allow for future consumption.

Accepted Answer

Financial markets do not increase the poverty gap.

Question 19

The financial system's primary concern is funnelling money from ________ to _________.
A)SSUs,DSUs.
B)DSUs,SSUs.
C)wealthy individuals,individuals.
D)the government,wealthy individuals.

Accepted Answer

The financial system's primary concern is funnelling money from Surplus Spending Units (SSUs), who have excess funds, to Deficit Spending Units (DSUs), who need funds.

Question 20

An important function of the financial system is:
A)to direct money to the best investment opportunities in the economy.
B)to allow the federal government to view all financial transactions.
C)to help state governments to coordinate state tax levies.
D)all of the above.

Accepted Answer

The primary function of the financial system is to allocate resources efficiently by directing money to the best investment opportunities, thereby facilitating economic growth and development.

Quiz 1: The Financial System

It is important to be able to resell financial claims in a secondary market because it allows:

A surplus budget position means that an entity's:

The ASX is an example of:

An over-the-counter market:

Which of the following statements best describes the concept of "two faces of debt"?

An economy with a large flow of funds requires:

A deficit spending unit is an economic unit:

A sale of an entire security issue to a small group of surplus spending units is:

During 2017,Michael and Jenny Jones expect total income of $215,000 and are budgeting total expenditure of $195,000.For this budget period,the Jones family is most specifically a:

Which of the following would most likely be involved in underwriting public securities?

Which one of the following statements is NOT true?

The functions of a financial system include:

Which of the following financial claims does NOT belong to the capital market?

Which of the following are NOT financial claims?

The major players in the direct financial markets are:

Corporate bonds:

The functions of the financial system include:

Which of the following is not a role of financial markets:

The financial system's primary concern is funnelling money from to _.

An important function of the financial system is: