Financial Markets and Institutions, 6e (Mishkin/Eakins) Chapter 1

1

Why Study Financia l Markets and Instituti 1.1

o n s ?

Mul tipl e Ch oic e

1)

Financia l markets and institutions D)

do all of the above.

Answer: .

D Question Stats: .

Previous Edition 2) .

Financia l market activities affect D) .

Answer: .all of the above.

D Question Status: .

Previous Edition 3) .

Markets funds are transferred from those who have excess funds available to those who in which have a shortage of available funds are called D) .

financial markets. Answer: .

D Question Status: .

Previous Edition 4) .

The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the A) .

inflation B) rate. .

exchange C) rate. .

D) .interest rate.

aggregate price level. Answer: .

C Question Status: .

Previous Edition 5) .

The bond markets are important because A) .

.they are B) easily the most widely followed financial markets in the United States.

they are the markets where interest rates are determined. C) .

D) .they are the markets where foreign exchange rates are determined.

all of the above. Answer: .

B Question Status: .

Previous Edition .

6) .

A) .Interest are important to financial institutions since an interest rate increase _________ the rates cost of acquiring funds and _________ the income from assets.

B) decreases .decreases.

C) increases .increases.

D) increases .decreases.

increases. decreases Answer: .

B Question Status: .

Previous Edition 7) .

Typicall y. increasing interest rates A) .

B) .discourages individuals from saving.

C) .discourages corporate investments.

encourages corporate expansion. D) .

encourages corporate borrowing. E) .

none of the above. Answer: .

B Question Status: .

Previous Edition 8) .

A) . interest rates on _________ ed to fluctuate more and are lower on average.S.Compar interest rates on long-term U. government bonds.

mediumB) quality corporate bonds .

low-quality C) corporate bonds .

high-quality corporate bonds D) .

three-month Treasury bills E) .

none of the above Answer: .

D Question Status: .

Previous Edition 9) .

A) . government bonds. interest rates on three-month ed to Treasury bills fluctuate _________ and are _________ on average.S.Compar interest rates on long-term U.

lower B) .more.

lower C) .less.

higher D) .more.

less. higher Answer: .

A

Question Status:

Previous Edition

10)

The

stock market is important because A)

it is where B)

interest rates are determined.

it is the most widely followed financial market in the United States. C)

it is where D)

foreign exchange rates are determined.

all of the above. Answer: .

B Question Status: .

Previous Edition .

11) .

Stock prices since the 1950s have been A) .

trending upward at a steady pace.relatively B) stable. .

. trending downward at a moderate rate.relatively C) stable.

.extremely D) volatile.

Answer: . trending downward at a moderate rate.unstable.

C Question Status: .

Previous Edition 12) .

The largest one-day drop in the history of the American stock markets occurred in A) .

B) .1929.

1987. C) .

D) .2000.

2001. Answer: .

B Question Status: .

Previous Edition 13) .

A rising stock market index due to higher share prices A) .

increases B) people's wealth and as a result may increase their willingness to spend. .

the amount C) .increases of funds that business firms can raise by selling newly issued stock.

the amount D) .decreases of funds that business firms can raise by selling newly issued stock.

both A and B of the above. Answer: .

D Question Status: .

Previous Edition 14) .

A declining stock market index due to lower share prices A) .

.reduces B) people's wealth and as a result may reduce their willingness to spend.

.increases C) people's wealth and as a result may increase their willingness to spend.

decreases of funds that business firms can raise by selling newly issued stock. the amount D)

both A and C of the above. E)

both B and C of the above. Answer:

D

Question Status:

Previous Edition

15)

Change s in stock prices A)

affect B) people's wealth and their willingness to spend. .

C) .affect firms' decisions to sell stock to finance investment spending.

.are D) characterized by considerable fluctuations.

.all of the E) above.

Answer: .only A and B of the above.

D Question Status: .

Previous Edition .

16) .

(I) Debt are often referred to generically as the bond market. A) . (II) A bond is a security that is markets a claim on the earnings and assets of a corporation.

(I) is true. (II) false. B) .

.(I) is false. C) (II) true.

Both are D) true. .

Both are false. Answer: .

A Question Status: .

Previous Edition 17) .

bond is (II) A stock is a security that is a claim on the earnings and assets of a corporation.(I) A security that promises to make payments periodically for a specified period of time. a debt A) .

(I) is true. (II) false. B) .

C) (II) true.(I) is false. .

Both are D) true. .

Both are false. Answer: .

C Question Status: .

Previous Edition 18) .

The price of one country's currency in terms of another's is called A) .

.the B) exchange rate.

C) .the interest rate.

.the Dow D) Jones industrial average.

none of the above. Answer:

A

Question Status:

Previous Edition

19)

A

stronger dollar benefits _________ and hurts _________ A)

American B)

businesses; American consumers.

American C)

businesses; foreign businesses.

.American D) consumers. American businesses.

foreign businesses. American consumers. Answer: .

C Question Status: .

Previous Edition 20) .

A weaker dollar benefits _________ and hurts _________ A) .

.American B) businesses. American consumers.

. foreign consumers.American C) businesses.

American D) consumers. . American businesses.

Answer: .foreign businesses. American consumers.

A Question Status: .

Previous Edition 21) .

From early 1985 the dollar _________ in value. thereby benefiting American _________ 1980 to A) .

B) .appreciated. businesses.

C) . consumers.appreciated.

businesses.depreciated. D) .

Answer: .depreciated. consumers.

B Question Status: .

Previous Edition 22) .

Money is defined as A) .

anything that is B) generally accepted in payment for goods and services or in the repayment of debt. .

bills of C) exchange. .

.a riskless D) repository of spending power.

.all of the E) above.

Answer: .only A and B of the above.

A Question Status: .

Previous Edition 23) .

The ation responsible for the conduct of monetary policy in the United States is the organiz A) .

Comptroller of the Currency. B) .

S.U. C) Treasury. .

.Federal D) Reserve System.

Answer: .Bureau of Monetary Affairs.

C Question Status: .

Previous Edition 24) .

The central bank of the United States is A) .

Citicorp. B) .

The Fed. C) .

.Bank of D) America.

The E) Treasury. .

Answer: .none of the above.

B Question Status: .

Previous Edition 25) .

Monetar y policy is chiefly concerned with A) .

.how much B) money businesses earn.

the level of interest rates and the nation's money supply. C) .

how much D) money people pay in taxes. .

whether people have saved enough money for retirement. Answer: .

B Question Status: .

Previous Edition 26) .

savings and loan associations. Financial intermediaries A) . credit unions. mutual funds. pension funds. insurance companies. and finance companies group together under the heading financial intermediaries. ists mutual savings banks.Econom commercial banks.

B) . middlemen.act as borrowing funds from those who have saved and lending these funds to others.

.produce C) nothing of value and are therefore a drain on society's resources.

.help D) promote a more efficient and dynamic economy.

E) .do all of the above.

do only A and C of the above. Answer: .

E Question Status: .

Previous Edition

27)

Econom commercial banks, savings and loan associations, credit unions, mutual funds, ists mutual savings banks, insurance companies, pension funds, and finance companies group together under the heading financial intermediaries. Financial intermediaries A)

act as borrowing funds from those who have saved and lending these funds to others. middlemen, B)

play an C)

important role in determining the quantity of money in the economy.

help D)

promote a more efficient and dynamic economy.

E) .do all of the above.

Answer: .do only A and C of the above.

D Question Status: .

Previous Edition 28) .

Banks are important to the study of money and the economy because they A) .

provide a B) channel for linking those who want to save with those who want to invest. .

C) .have been a rapid financial innovation that is expanding the alternatives available to those source of wanting to invest their money.

financial D) .are the only institution to play a role in determining the quantity of money in the economy.

E) .do all of the above.

do only A and B of the above. Answer: .

E Question Status: .

Previous Edition 29) .

and credit unions A) . mutual savings banks.Banks. savings and loan associations.

.are no B) longer important players in financial intermediation.

.have been C) providing services only to small depositors since deregulation.

have been D) adept at innovating in response to changes in the regulatory environment. .

.all of the E) above.

Answer: .only A and C of the above.

C Question Status: .

Previous Edition 30) .

credit unions. (II) The term "banks" includes firms such as commercial banks. A) . insurance companies. and pension funds. mutual savings banks. savings and loan associations.(I) Banks are financial intermediaries that accept deposits and make loans.

B) . (II) false.(I) is true.

C) (II) true. .(I) is false.

Both are D) true. .

Both are false. Answer: .

A Question Status: .

Previous Edition 31) .

A) .____ was the stock market's worst one-day drop in history in the 1980s.

Black Friday B) .

Black C) Monday .

Blackout D) Day .

none of the above Answer: .

B Question Status: .

New 32) .

The largest financial intermediaries are A) .

.insurance B) companies.

.finance C) companies.

banks. D) .

Answer: .all of the above.

C Question Status: .

New 33) .

In recent years A) .

interest B) rates have remained constant. .

C) .success of financial institutions have reached levels unprecedented since the Great Depression.

stock D) markets have crashed. .

Answer: .all of the above.

C Question Status: .

New 34) .

A security A) .

B) .is a claim or price of property that is subject to ownership.

.promises C) that payments will be made periodically for a specified period of time.

D) .is the price paid for the usage of funds.

is a claim on the issuer's future income. Answer: .

D Question Status: .

New 35) .

A) .____ are considered a financial institutions.

Banks B) .

Insurance C) companies .

Finance D) companies .

Investment banks Answer: .

D Question Status: .

New 36) .

Monetar y policy affects A) .

.interest B) rates.

inflation. C) .

business D) cycles. .

all of the above. Answer: .

D Question Status: .

2 .New 1.

Tru 1) .

Answer: .Money is anything accepted by anyone as payment for services or goods.

FALSE Question Status: .

Previous Edition 2) .

Answer: .Interest rates are determined in the bond markets.

TRUE Question Status: .

Previous Edition 3) .

A stock debt security that promises to make periodic payments for a specific period of time. is a Answer: .

FALSE Question Status: .

Previous Edition 4) .

Answer: .Monetar y policy affects interest rates but has little effect on inflation or business cycles.

FALSE Question Status: .

Previous Edition 5) .

Answer: .S. Treasury.The govern ment organization responsible for the conduct of monetary policy in the United States is the U.

FALSE Question Status: .

Previous Edition 6) .

Answer: .Interest rates can be accurately described as the rental price of money.

TRUE Question Status: .

Previous Edition 7) .

as the dollar weakens vacations abroad become less attractive.Holding ng else constant. everythi Answer: .

TRUE Question Status: .

Previous Edition 8) .

In recent years. financial markets have become more stable and less risky. Answer: .

FALSE Question Status: .

Previous Edition 9) .

Answer: .Financia l innovation has provided more options to both investors and borrowers.

TRUE Question Status: .

Previous Edition 10) .

Answer: .A financial intermediary borrows funds from people who have saved.

TRUE Question Status: .

Previous Edition 11) .

everythi Answer: .Holding ng else constant. as the dollar strengthens foreigners will buy more U. exports.S.

FALSE Question Status: .

Previous Edition 12) .

Answer: . on average.In a bull market stock prices are rising.

TRUE Question Status: .

Previous Edition 13) .

Answer: .Financia institutions are among the largest employers in the country and frequently pay l very high salaries.

TRUE Question Status: .

New 14) .

Answer: .Differen t interest rates have a tendency to move in unison.

TRUE Question Status: .

New 15) .

Answer: .Financia l markets are what makes financial institutions work.

FALSE Question Status: .

New 1.3 .

Ess 1) .

Have interest rates been more or less volatile in recent years? Why? Question Status: .

Previous Edition 2) .

Why should consumers be concerned with movements in foreign exchange rates? Question Status: .

Previous Edition 3) .

How does the value of the dollar affect the competitiveness of American businesses? Question Status: .

Previous Edition 4) .

What is monetary policy and who is responsible for its implementation? Question Status: .

Previous Edition 5) .

What are financial intermediaries and what do they do? Question Status: .

Previous Edition 6) .

What is money? Question Status: .

Previous Edition 7) .

How does a bond differ from a stock? Question Status: .

Previous Edition 8) .

and the economy? Question Status: . firms.Why is the stock market so important to individuals.

Previous Edition 9) .

What is the central bank and what does it do? Question Status: .

New .

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