Financial Markets & Institutions
Dr. Abeir Abd El-Rahman
Ms. Shada Tarek
Multiple-Choice Questions Lec.1,2
1. Financial markets and institutions
A. involve the movement of huge quantities of money.
B. affect the profits of businesses.
C. affect the types of goods and services produced in an economy.
D. do all of the above
2. Markets in which funds are transferred from those who have excess funds available to
those who have a shortage of available funds are called
A. commodity markets.
B. funds markets.
C. derivative exchange markets.
D. financial markets.
3. 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 rate.
B. exchange rate.
C. interest rate.
D. aggregate price level.
4. The bond markets are important because
A. they are easily the most widely followed financial markets in the United States.
B. they are the markets where interest rates are determined.
C. they are the markets where foreign exchange rates are determined.
D. all of the above.
5. Typically, increasing interest rates
A. discourages individuals from saving.
B. discourages corporate investments.
C. encourages corporate expansion.
D. encourages corporate borrowing.
6. A declining stock market index due to lower share prices
A. reduces people's wealth and as a result may reduce their willingness to spend.
B. increases people's wealth and as a result may increase their willingness to spend.
C. decreases the amount of funds that business firms can raise by selling newly issued stock.
D. both A and C of the above
Financial Markets & Institutions
Dr. Abeir Abd El-Rahman
Ms. Shada Tarek
7. Changes in stock prices
A. affect people's wealth and their willingness to spend.
B. affect firms' decisions to sell stock to finance investment spending.
C. are characterized by considerable fluctuations.
D. all of the above.
8. The price of one country's currency in terms of another's is called
A. the foreign exchange rate.
B. the interest rate.
C. the Dow Jones industrial average.
D. none of the above.
9. Monetary policy is chiefly concerned with
A. how much money businesses earn.
B. the level of interest rates and the nation's money supply.
C. how much money people pay in taxes.
D. whether people have saved enough money for retirement.
10. Economists group commercial banks, savings and loan associations, credit unions, mutual
funds, mutual savings banks, insurance companies, pension funds, and finance companies
together under the heading financial intermediaries. Financial intermediaries
A. act as middlemen, borrowing funds from those who have saved and lending these funds to
others.
B. produce nothing of value and are therefore a drain on society's resources.
C. help promote a more efficient and dynamic economy.
D. do only A and C of the above.
11. ________ are an example of a financial institution.
A. Banks
B. Insurance companies
C. Finance companies
D. All of the above
12. Monetary policy affects
A. interest rates.
B. inflation.
C. business cycles.
D. all of the above.
Financial Markets & Institutions
Dr. Abeir Abd El-Rahman
Ms. Shada Tarek
Multiple-Choice Questions Lec.3,4
1. Financial markets have the basic function of
A. bringing together people with funds to lend and people who want to borrow funds.
B. assuring that the swings in the business cycle are less pronounced.
C. assuring that governments need never resort to printing money.
D. both A and B of the above
2. Which of the following can be described as involving direct finance?
A. A corporation's stock is traded in an over-the-counter market.
B. People buy shares in a mutual fund.
C. A pension fund manager buys commercial paper in the secondary market.
D. None of the above
3. Financial markets improve economic welfare because
A. they allow funds to move from those without productive investment opportunities
to those who have such opportunities.
B. they allow consumers to time their purchases better.
C. they weed out inefficient firms.
D. they do A and B of the above.
4. Which of the following are securities?
A. A certificate of deposit
B. A share of Texaco common stock
C. A Treasury bill
D. All of the above
5. Intermediaries who link buyers and sellers by buying and selling securities at stated
prices are called
A. investment bankers.
B. traders.
C. brokers.
D. dealers.
6. An important financial institution that assists in the initial sale of securities in the
primary market is the
A. investment bank.
B. commercial bank.
C. stock exchange.
D. brokerage house.
Financial Markets & Institutions
Dr. Abeir Abd El-Rahman
Ms. Shada Tarek
7. Which of the following statements about financial markets and securities are true?
A. A bond is a long-term security that promises to make periodic payments called
dividends to the firm's residual claimants.
B. A debt instrument is intermediate term if its maturity is less than one year.
C. A debt instrument is long term if its maturity is ten years or longer.
D. The maturity of a debt instrument is the time (term) that has elapsed since it was
issued.
8. Bonds that are sold in a foreign country and are denominated in that country's
currency are known as
A. foreign bonds.
B. Eurobonds.
C. Eurocurrencies.
D. Eurodollars
9. Bonds that are sold in a foreign country and are denominated in a currency other
than that of the country in which they are sold are known as
A. foreign bonds.
B. Eurobonds.
C. Eurocurrencies.
D. Eurodollars.
10. Financial intermediaries
A. exist because there are substantial information and transaction costs in the
economy.
B. improve the lot of the small saver.
C. are involved in the process of indirect finance.
D. do all of the above
11. The presence of transaction costs in financial markets explains, in part, why
A. financial intermediaries and indirect finance play such an important role in financial
markets.
B. equity and bond financing play such an important role in financial markets.
C. corporations get more funds through equity financing than they get from financial
intermediaries.
D. direct financing is more important than indirect financing as a source of funds.
Financial Markets & Institutions
Dr. Abeir Abd El-Rahman
Ms. Shada Tarek
12. When the lender and the borrower have different amounts of information regarding
a transaction, ________ is said to exist.
A. asymmetric information
B. adverse selection
C. moral hazard
D. fraud
13. When the borrower engages in activities that make it less likely that the loan will
be repaid, ________ is said to exist.
A. asymmetric information
B. adverse selection
C. moral hazard
D. fraud
Multiple-Choice Questions Lec.5
1. 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.
2. ____ 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
3. 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
Financial Markets & Institutions
Dr. Abeir Abd El-Rahman
Ms. Shada Tarek
4. 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 these are correct.
5. ____ are classified as depository institutions.
a. Credit unions
b. Pension funds
c. Finance companies
d. Securities firms
6. 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.
7. Banks providing depositors with checking accounts that enable them to pay their bills
easily is known as
a. liquidity services.
b. asset transformation.
c. risk sharing.
d. transaction costs.
