Nature and Importance of Financial System

1. Financial system is composed of network of inter-related systems of _______, ________,

_______.
a. Liquidation, price, savings
b. Financial markets, intermediaries, services
c. Lenders, borrowers, intermediaries
d. None of the above

Answer: B

2. What do financial system encourages from its stakeholders and transform them
efficiently into investment vehicles that help the economy grow faster?
a. Debts
b. Entrepreneurship
c. Market shares
d. Fund savings

Answer: D

Elements of Financial System

1. In direct financing, the borrower-spenders borrow and deal directly with _______
through selling financial instruments.
a. Lenders
b. Intermediaries
c. Third parties
d. Managers

Answer: A

2. Dealer Market is the classification of financial market based on what element of financial
system?
a. Financial instruments
b. Lenders and Borrowers
 c. Financial Intermediaries
d. Price Discovery

Answer: C

Nature and Importance of Financial Markets

1. All of these describes the nature of financial markets except _______.

a. Financial markets are a global rating table, where every currency, company
and resource is rated by traders to determine what it’s worth.
b. It’s a place where people try to learn how the world’s economy works.
c. It intermediates between the flow of funds belonging to those who save a part
of their income and those who invest in productive assets.
d. Provides additional options to lenders and borrowers on which form they want
their transaction to be in.

Answer: C

2. Without this function of financial market, an investor is forced to hold to financial

instrument up until such time that conditions in the agreement happen that will permit the
disposal of the instrument (e.g, conversion) or the issuer is contractually obligated to pay
for the instrument.
a. Liquidation
b. Price Discovery
c. Reduction of cost
d. None of these

Answer: A

Money market vs. Capital Market

1. State the difference between Money Market and Capital Market.

a. Money market is a constant flow of cash between governments, corporations,
banks, and financial institutions, borrowing and lending for a term as short as
overnight and no longer than a year.
 Capital market encompasses the trade in both stocks and bonds. These are
long-term assets bought by financial institutions, professional brokers, and
individual investors.
b. Money market is a short-term lending system while the capital market is
geared toward long-term investing.
c. The money market is less risky than the capital market but the capital market
is potentially more rewarding.
d. All of these.

Answer: D

2. The instruments used in money market include _____, ______, _____, and ______.
a. Assets, loans, cash, and bills
b. Deposits, collateral loans, acceptances, and bills of exchange
c. Both a and b
d. None of these

Answer: B

Primary Market vs. Secondary Market

1. A company that issues a round of stock or a new bond places it in the _________ for sale
directly to investors or institutions. If and when those buyers decide to sell their shares or
bonds, they do so on the ________.
a. Secondary market / primary market
b. Primary Market / secondary market
c. Primary market / capital market
d. Secondary market / money market

Answer: B

2. How is primary market dependent on secondary market?

a. The primary market refers to the market where securities are created, while
the secondary market is one in which they are traded among investors.
b. Secondary market provides the necessary liquidity for the issued securities.
The prospective investors of secondary market applies in primary market
 based on its experiences in secondary market. By providing safety, stock
market attracts investors in primary market.
c. While the primary market offers avenues for selling new securities to the
investors, the secondary market is the market dealing in securities that are
already issued by the company.
d. All of these

Answer: B