Full file at https://testbanku.

eu/
Test Bank for a. deficit units.
Financial Markets
and Institutions
12th Edition by
Madura
Complete
downloadable file
at:
https://testbanku.eu/Test-
Bank-for-Financial-
Markets-and-Institutions-
12th-Edition-by-Madura

b. surplus units.
c. primary units.
d. secondary units.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - OH -
BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - HO - 15.02 - DISC.FMAI.MADU.
United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

2. Which of the following is not an issuer of bonds?

a. households
b. corporations
c. the U.S. Treasury
d. government agencies
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
3. Behavioral finance
a. applies concepts from sociology and anthropology to the behavior of market participants.
b. studies the behavior of financial markets in response to changes in Federal Reserve policy.
c. applies psychology to financial decision making.
d. explains why markets are efficient.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

4. Those financial markets that facilitate the flow of short-term funds are known as
a. money markets.
b. capital markets.
c. primary markets.
d. secondary markets.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.02
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

5. Funds are provided to the initial issuer of securities in the

a. secondary market.
b. primary market.
c. deficit market.
d. surplus market.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
6. Which of the following is a capital market instrument?
a. a six-month certificate of deposit
b. a three-month Treasury bill
c. a ten-year bond
d. an agreement for a bank to loan funds directly to a company for nine months
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

7. Which of the following is a money market security?

a. Treasury note
b. municipal bond
c. mortgage
d. commercial
paper
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

8. The creditors in the federal funds market are

a. households.
b. depository institutions.
c. firms.
d. government agencies.
ANSWER: b

POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
9. Investors in equity securities may earn a return from
a. coupon payments and the return of principal at the maturity date.
b. coupon payments and a capital gain when they sell the securities.
c. quarterly dividends (if paid) and a capital gain when they sell the
securities.
d. quarterly dividends (if paid) and the return of principal at the maturity date.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

10. Money market securities generally have ____.

a. relatively low liquidity, low expected return, and a high degree of credit risk.
b. relatively high liquidity, high expected return, and a high degree of credit risk.
c. relatively low liquidity, high expected return, and a low degree of credit risk.
d. relatively high liquidity, low expected return, and a low degree of credit risk.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

11. If security prices fully reflect all available information, the markets for these securities are
a. efficient.
b. primary.
c. overvalued.
d. undervalued.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
12. If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.
a. perfect
b. active
c. inefficient
d. in equilibrium
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

13. financial markets are efficient, this implies that all securities should earn the same return.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

14. The Securities Act of 1933

a. required complete disclosure of relevant financial information for publicly offered securities in the primary
market.
b. declared trading strategies to manipulate the prices of public secondary securities illegal.
c. imposed heavy penalties for insider trading.
d. required complete disclosure of relevant financial information for securities traded in the secondary market.
e. all of the above
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
15. The Securities and Exchange Commission (SEC) was established by the
a. Federal Reserve Act.
b. McFadden Act.
c. Securities Exchange Act of 1934.
d. Glass-Steagall Act.
e. none of the above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

16. Stock issued by a corporation is an example of a(n)

a. debt security.
b. money market
security.
c. equity security.
d. A and B
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

17. If financial markets were ____, all information about any securities for sale in primary and secondary markets would
be continuously and freely available to investors.
a. efficient
b. inefficient
c. perfect
d. imperfect
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

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 Full file at https://testbanku.eu/
18. Which of the following is not a typical function of securities firms?
a. provide brokerage services
b. provide underwriting services
c. accept deposits that are insured by the federal government and use the funds to provide loans to corporations
d. offer advice on mergers and other corporate restructurings.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

19. Without the participation of financial intermediaries in financial market transactions,

a. information and transaction costs would be lower.
b. transaction costs would be higher but information costs would be
unchanged.
c. information costs would be higher but transaction costs would be
unchanged.
d. information and transaction costs would be higher.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

20. Which of the following is most likely to be described as a depository institution?

a. finance companies
b. securities firms
c. credit unions
d. pension funds
e. insurance
companies
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
21. In aggregate, ____ are the most dominant depository institution, with more total assets than other depository
institutions.
a. commercial banks
b. savings banks
c. credit unions
d. S&Ls
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

22. Which of the following is a nondepository financial institution?

a. savings bank
b. commercial bank
c. savings and loan
association
d. mutual fund
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

23. Which of the following distinguishes credit unions from commercial banks and savings institutions?
a. Credit unions are nonprofit.
b. Credit unions accept deposits but do not make loans.
c. Credit unions make loans but do not accept deposits.
d. Savings institutions restrict their business to members who share a common
bond.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

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 Full file at https://testbanku.eu/
24. When a securities firm acts as a broker, it
a. guarantees the issuer a specific price for newly issued securities.
b. makes a market in specific securities by adjusting its own
inventory.
c. executes securities transactions between two parties.
d. purchases securities for its own account.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

25. When a securities firm acts as a(n) ____, it makes a market in specific securities by maintaining an inventory of those
securities.
a. adviser
b. dealer
c. broker
d. none of the
above
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

26. ____ obtain funds by issuing securities and then lend the funds to individuals and small businesses.
a. Finance companies
b. Securities firms
c. Mutual funds
d. Insurance
companies
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
27. Households with ____ are served by ____.
a. deficient funds; depository institutions and finance companies
b. deficient funds; finance companies only
c. savings; finance companies only
d. savings; pension funds and finance companies
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

28. ____ concentrate on mortgage loans.

a. Finance companies
b. Commercial banks
c. Savings
institutions
d. Credit unions
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

29. ____ securities have a maturity of one year or less; ____ securities generally have relatively high liquidity.
a. Money market; capital market
b. Money market; money market
c. Capital market; money
market
d. Capital market; capital market
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
30. Which of the following are not major investors in stocks?
a. commercial banks
b. insurance
companies
c. mutual funds
d. pension funds
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

31. Which of the following financial intermediaries commonly invests in stocks and bonds?
a. pension funds
b. insurance
companies
c. mutual funds
d. all of the above
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

32. Securities represent a claim on the issuer.

a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
33. Debt securities represent debt (borrowed funds) incurred by the issuer.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

34. A five-year security was purchased two years ago by an investor who plans to resell it. The investor will sell the
security r in the
a. secondary market.
b. primary market.
c. deficit market
d. surplus market.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

35. When security prices fully reflect all available information, the markets for these securities are said to be efficient.
a. True
b. False
ANSWER: a

36. If markets are perfect, securities buyers and sellers to not have full access to information and cannot always break
down securities to the precise size they desire.
a. True
b. False
ANSWER: b

37. A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread.
a. True
b. False
ANSWER: a
POINTS: 1

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 Full file at https://testbanku.eu/
38. The adoption of the euro increased business between European countries and created a more competitive environment
in Europe.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

39. In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of scope.
a. True
b. False
ANSWER: a

40. Securities represent a claim on the provider of funds.

a. True
b. False
ANSWER: b

41. Debt securities include commercial paper, Treasury bonds, and corporate bonds.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

42. Common types of capital market securities include Treasury bills and commercial paper.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
43. Common types of money market securities include negotiable certificates of deposit and Treasury bills.
a. True
b. False
ANSWER: a

44. Money market securities are commonly issued to finance the purchase of assets such as buildings, equipment, or
machinery.
a. True
b. False
ANSWER: b

45. The total asset value of savings institutions is larger than that of commercial banks.
a. True
b. False
ANSWER: b

46. Financial markets facilitating the flow of short-term debt securities with maturities of less than one year are known as
a. secondary markets.
b. capital markets.
c. primary markets.
d. money markets.
e. none of the above
ANSWER: a

47. Which of the following transactions would not be considered a secondary market transaction?
a. An individual investor purchases some existing shares of stock in Apple through her
broker.
b. An institutional investor sells some Disney stock through its broker.
c. A firm that was privately held engages in an offering of stock to the public.
d. All of the above are secondary market transactions.
ANSWER: c

48. If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will
probably achieve ____ returns, and they are exposed to relatively ____ risk.
a. lower; lower
b. lower; higher
c. higher; lower
d. higher; higher
ANSWER: a

49. ____ maintain a larger amount of assets in aggregate than the other types of nondepository institutions.
a. Finance companies
b. Mutual funds
c. Life insurance companies
d. Securities firms
ANSWER: b

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 Full file at https://testbanku.eu/
50. An asymmetric information problem arises when one party to a transaction has information that is not available to the
other party, as when a corporation fails to tell investors the full extent of its losses.
a. True
b. False
ANSWER: a

51. Bonds issued by corporations have a ____ expected return and ____ risk than Treasury bonds.
a. lower; lower
b. lower; higher
c. higher; lower
d. higher; higher
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

52. Systemic risk is the risk that a large decline in one stock’s price could cause investors to sell their stock in other
companies.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

53. The Sarbanes-Oxley Act requires firms to provide complete and accurate financial information and imposes penalties
on key executives of the firm if financial fraud is detected.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
54. Capital market securities are commonly issued in order to finance the purchase of assets such as buildings, equipment,
or machinery.
a. True
b. False
ANSWER: a

55. Commercial banks in aggregate have more assets than credit unions.

a. True
b. False
ANSWER: a

56. Those participants who receive more money than they spend are referred to as
a. deficit units.
b. surplus units.
c. borrowing units.
d. government units.
ANSWER: b

57. Equity securities
a. have a maturity.
b. pay interest on a periodic basis.
c. represent ownership in the issuer.
d. repay the principal amount at maturity.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

58. ____ involve(s) decisions such as how much funding to obtain and what types of securities to issue when financing
operations.
a. Corporate finance
b. Investment management
c. Financial markets and
institutions
d. none of the above
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
59. There is a ____ relationship between the risk of a security and the expected return from investing in the security.
a. positive
b. negative
c. indeterminable
d. none of the
above
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

60. If a security is undervalued, some investors would capitalize on this by purchasing that security. As a result, the
security's price will ____, resulting in a ____ return for those investors.
a. rise; lower
b. fall; higher
c. fall; lower
d. rise; higher
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

61. The credit crisis in the 2008–2009 period was caused by weak economies in Asia.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
62. ____ are classified as depository institutions.
a. Credit unions
b. Pension funds
c. Finance companies
d. Securities firms
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

63. The main reason that depository institutions experienced financial problems during the credit crisis was their
investment in:
a. mortgages
b. Money market
securities.
c. stock
d. Treasury bonds.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

64. Those financial markets that facilitate the flow of short-term funds (with maturities of less than one year) are known as
capital markets, while those that facilitate the flow of long-term funds are known as money markets.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
65. Bonds commonly have maturities of one to three years.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

66. Since markets are efficient, institutional and individual investors should ignore the various investment instruments
available.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

67. Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns
than speculating in the underlying asset itself.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

68. When security prices fully reflect all available information, the markets for these securities are said to be perfect.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
69. Securities that are not as safe and liquid as other securities are never considered for investment by anyone.
a. True
b. False
ANSWER: b

70. By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions.
a. True
b. False
ANSWER: b

71. When a depository institution offers a loan, it is acting as a creditor.

a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

72. Savings institutions are a type of nondepository institution.

a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

73. Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
74. Institutional investors not only provide financial support to companies but also exercise some degree of governance
over them.
a. True
b. False
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

75. Which of the following is not a reason why depository financial institutions are popular?
a. They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most
surplus units.
b. They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units.
c. They accept the risk on loans provided.
d. They use their information resources to act as a broker, executing securities transactions between two parties.
e. They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Analysis

76. Which of the following are not considered money market securities?

a. Treasury bills
b. mortgage-backed securities
c. negotiable certificates of
deposit
d. commercial paper
ANSWER: b

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 Full file at https://testbanku.eu/
77. ____ are not considered capital market securities.
a. Derivative securities
b. Treasury bonds
c. Corporate bonds
d. Equity securities
e. Mortgages
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

78. ____ are long-term debt obligations issued by corporations and government agencies to support their operations.
a. Common stock
b. Derivative securities
c. Bonds
d. None of the above
ANSWER: c

79. Which of the following is an example of an asymmetric information problem?

a.A corporation releases toxic wastes into a river.
b A corporation relocates to Ireland to take advantage of lower corporate tax rates.
.
c.A stock analyst rates a stock higher than it deserves because the securities firm she works for wants to obtain
business from the corporation that issued the stock.
d A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China.
.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

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 Full file at https://testbanku.eu/
80. If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve ____
returns, and they are exposed to relatively ____ risk.
a. lower; lower
b. lower; higher
c. higher; lower
d. higher; higher
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

81. When particular securities are perceived to be ____ by the market, their prices decrease when they are sold by
investors.
a. undervalued
b. overvalued
c. fairly priced
d. efficient
e. none of the
above
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

82. Which of the following are not considered depository financial institutions?

a. finance companies
b. commercial banks
c. savings institutions
d. credit unions
e. All of the above are depository financial
institutions.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
83. The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main
use of funds is providing loans to households and businesses.
a. savings institutions
b. commercial banks
c. mutual funds
d. finance companies
e. pension funds
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

84. Which of the following statements is incorrect?

a. Financial markets attract funds from investors and channel the funds to corporations.
b. Money markets enable corporations to borrow funds on a short-term basis so that they can support their
existing operations.
c. Financial institutions serve solely as intermediaries with the financial markets and never serve as investors.
d. Investors seek to invest their funds in the stock of firms that are presently undervalued and have much potential
to improve.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.03
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Analysis

85. Which of the following requires mortgage lenders to verify the income, job status, and credit history of mortgage
applicants before extending a mortgage?
a. Mortgage Lenders Reform Act
b. Financial Reform Act of 2010
c. Securities Act of 1933
d. Sarbanes-Oxley Act
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
86. Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those
securities.
a. liquid; many
b. liquid; not many
c. illiquid; not many
d. illiquid; many
ANSWER: c

87. Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific
payments at regular intervals.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

88. ____________ applies psychology to financial decisions and offers an explanation for why markets are not always
efficient.
a. Psychological marketing
b. Behavioral finance
c. Inefficient markets
theory
d. Financial psychology
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

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 Full file at https://testbanku.eu/
89. International integration of securities markets allows:
a. governments and corporations to have easier access to funding from creditors and investors in other
countries.
b. investors and creditors to benefit from investment opportunities in other countries.
c. one’s country’s financial problems to adversely affect other countries.
d. All of the above
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Analysis

90. The foreign exchange market facilitates the exchange of:

a. information between investors in different
countries.
b. debt securities.
c. equity securities.
d. currencies.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

91. Which of the following is not an example of the government’s recent increased role in financial markets?
a. the Federal Reserve’s purchase of debt securities during the credit crisis
b. regulations changing the way that the credit risk of bonds is assessed
c. regulations setting maximum rates for Treasury securities
d. increased monitoring of stock trading and prosecution of those who trade on inside
information
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

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 Full file at https://testbanku.eu/
92. Most of the funds that insurance companies receive from premiums are invested in short-run money market securities.
a. True
b. False
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.02
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Comprehension

93. The risk that financial problems could spread among financial institutions and across financial markets, causing a
collapse of the financial system, is known as:
a. systemic risk.
b. leverage risk.
c. financial meltdown risk.
d. credit risk.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.01.04
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge

94. Systemic risk exists because:

a.there is no government regulation of financial markets.
b.financial institutions invest in similar securities and therefore are similarly exposed to large declines in prices of
those securities.
c.financial institutions borrow using long-term debt securities but lend their funds for short-term periods.
d.financial institutions invest heavily in Treasury securities and therefore are exposed to the possibility that the
government will default on its debts.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: FMAI.MADU.15.01.04
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Analysis

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