Financial Markets

1. The main purpose of an economy’s financial system is to facilitate the transfer of funds
from:
 Consumer savers to business investors
2. Financial market activities affect
 All of the choices
- Spending decisions by individuals and business firms
- Personal wealth
- The economy’s location in the business cycle
3. In the structure of the Philippine Financial System, the Development Bank of the
Philippines is an example of a
 Government banking institution
4. A stock is a debt security that promises to make periodic payments for a specific period
of time
 False
5. In the regulatory landscape of the Philippines with regard to alignment with global
standards, this agency just approved amendments to the Corporation Code to enhance
local regulations and conform to international best practices.
 SEC
6. Financial institutions search for ____ has resulted in many financial innovations.
 Higher profits
7. In the structure of the Philippine Financial System, a pawnshop is an example of a
 Private non-banking institution
8. The purpose of diversification is to
 Reduce the votality of a portfolio’s return
9. One of the ways on how financial intermediaries can reduce moral hazard is to
 Imposing restrictive covenants
10. Banks and other financial institutions engage in financial intermediation, which
 Can benefit economic performance
11. Financial intermediaries
 Provide a channel for linking those who want to save with those who want to invest
12. The brokerage commission is an example of a
 Transaction cost
13. Which of the following can be described as involving direct finance?
 None of the above
14. The problem investors experience in distinguishing low-risk borrowers from high-risk
borrowers before making an investment
 Adverse selection
15. This describes the situation in which one party to an economic transaction has better
information than does the other party
 Asymmetric information
16. Which of the following is not a financial institution?
 A business college
17. Poorly performing financial markets can be the cause of
  Poverty
18. Banks are important to the study of money and the economy because they
 Have been a source of rapid financial innovation
19. A security
 Is a claim on the issuer’s future income
20. In the structure of the Philippine Financial System, the Social Security System is an
example of a
 Government non-banking institution
21. The chance that the value of financial assets will change relative to what one expects
 Risk
22. In the study of the current risks in the Philippine Financial System, the 3Rs stand for
 Repricing, refinancing, and repayment risk
23. The reduction in transaction costs per dollar of transactions as the size (scale) of
transactions increases is known as
 Economies of scale
24. In the regulatory landscape of the Philippines with regard to alignment with global
standards, this agency’s priority is the adoption of international reporting practices,
 IC
25. The problem investors experience in verifying that borrowers are using their funds as
intended
 Moral Hazard
26. A financial intermediary borrows funds for people who have saved
 True
27. The presence of transaction costs in financial markets explains, in part, why
 Financial intermediaries and indirect finance play such an important role in financial
markets.
28. The cost that savers incur to determine the creditworthiness of borrowers and to
monitor how they use the funds acquired.
 Information cost
29. Securities are ______ for the person who buys them, but ______ for the individual/firm
that sells them.
 Assets, liabilities
30. Financial markets promote economic efficiency by
 Channeling funds from savers to investors
31. The ease with which an asset can be exchanged for money, which savers view as a
benefit
 Liquidity
32. Financial innovations has provided more options to both investors and borrowers
 True
33. Markets in which funds are transferred from those who have access funds available to
those who have a shortage of available funds are called
 Financial Markets
34. The primary function of financial markets is to:
 Facilitate the movement of cash from savers to companies that need money.
35. Financial markets promote greater economic efficiency by channeling funds from
_______ to _________.
 Savers; borrowers
36. Channeling funds from individuals with surplus funds to those desiring funds when the
saver does not purchase the borrower’s security is known as
 Financial intermediation
37. Financial intermediaries can substantially reduce transaction costs per dollar of
transactions because their large size allows them to take advantage of
 Economies of scale
38. The largest financial intermediaries are
 Banks
39. Financial institutions are among the largest employers in the country and frequently pay
very high salaries
 True
40. In the structure of the Philippine Financial System, a cooperative bank is an example of a
 Private banking institution
41. A key factor in producing high economic growth is
 Well-functioning financial markets
42. _________ markets transfer funds from people who have an excess of available funds to
people who have a shortage
 Financial
43. One of the ways on how financial intermediaries can reduce adverse selection is to
 Require borrowers to disclose material information on their financial performance
and financial position.
44. One of the ways on how financial intermediaries can reduce transaction costs is to:
 Rely on sophisticated software
45. Banks, savings, and loan associations, mutual saving banks, and credit unions
 Have been adept at innovating in response to changes in the regulatory
environment
46. The financial intermediaries that the average person interacts with most frequently are
_______.
 Banks
47. The presence of ______ in financial markets leads to adverse selection and moral
hazards problems that interfere with the efficient functioning of financial markets.
 Asymmetric information
48. Financial markets have the basic function of
 Matching savers and users of funds
49. Well-functioning financial markets promote
 Growth
50. ______ are an example of a financial institution
 All of the choices
- Insurance companies
- Banks
- Finanance Companies