Professional Documents
Culture Documents
2.Fill in the gaps in the text with the words and word combinations from the
box.
Economists believe there are three key services that the financial system
provides ____collecting and processing information_____: risk sharing, liquidity,
and information. Financial services firms provide these services in different ways,
which makes different financial assets and financial liabilities more or less attractive
to individual savers and borrowers. Let’s have a look briefly at one of these three key
services.
Information. The third service of the financial system is the collection and
communication of information, or facts about borrowers and expectations of __
returns on financial assets __. Your local bank is __ a warehouse __ of
information. It collects information on borrowers __ to forecast their likelihood __
of repaying loans. Borrowers fill out detailed loan applications, and the bank’s __
loan officers __ determine how well each borrower is doing financially. Because the
bank specializes in __ gathering information __, its costs for information gathering
are lower than yours would be if you tried __ to gather information __ on a pool of
borrowers. The profits the bank earns on its loans are partly compensation to it for
investing in information gathering.
Financial markets convey information to both savers and borrowers by ___
determining the prices of stocks___, bonds, and other securities. When the price of
your shares of Apple rises, you know that other investors must expect that Apple’s
profits will be higher. This information can help you decide whether ___ to continue
investing ___ in Apple stock. Likewise, the managers of Apple can use the price of
the firm’s stock to determine how well investors think the firm is doing. For example,
a major increase in Apple’s stock price conveys ___ investors’ positive outlook ___
for the firm. Apple may use this information in deciding whether to sell more stock or
bonds to finance _an expansion of the firm__. The incorporation of available
information into asset prices is _an important feature_ of well-functioning financial
markets.
3. The A is the rate of interest that the issuer must pay and usually fixed for
the duration of the bond and does not fluctuate with market interest rates.
4. A have very low interest rates because they have no default risk and an
original maturity of 10 to 20 years
A) treasury notes C) federal bonds
B) treasury bonds D) secured bonds
5. The bond _____D_____ is a contract that states the lender's rights and privileges
and the borrower's obligations.
A) debenture C) certificate
B) agreement D) indenture
6. The distribution of a firm's capital between debt and equity is its B structure.
A) capital B) financial C) security D) assets
7. D are risky investments, but have speculative appeal because they offer
much higher yields than other bonds.
a) mortgage bonds b) municipal bonds c) treasury bonds D) junk bonds
9. Most convertible bonds will state that the bond can be converted into a certain
number of B at the discretion of the bondholder.
A) assets B) common shares C) preference share D) government bond
10. If the repayment terms of a bond are not met, the holder of a bond has a C
of the issuer.
A) claim of stock B) ownership claims
C) claim on the assets D) claim of
proceeds
.