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1) Financial markets promote greater economic efficiency by channeling funds from to A) investors; savers B) borrowers; savers C) savers; borrowers D) savers; lenders 2) Poorly performing financial markets can be the cause of A) wealth B) poverty C) financial stability D) financial expansion 3) The bond markets are important because they are A) easily the most widely followed financial markets in the United States B) the markets where foreign exchange rates are determined C) the markets where interest rates are determined D) the markets where all borrowers get their funds 4) Everything else held constant, an increase in interest rates on student loans A) increases the cost of a college education B) reduces the cost of a college education C) has no effect on educational costs D) increases costs for students with no loans 5) An increase in interest rates might _ saving because more can be earned in interest income A) encourage B) discourage C) disallow D) invalidate 6) Stock prices are A) relatively stable trending upward at a steady pace B) relatively stable trending downward at a moderate rate C) extremely volatile D) unstable trending downward at a moderate rate 7) When stock prices fall A) an individualʹs wealth is not affected nor is their willingness to spend B) a business firm will be more likely to sell stock to finance investment spending C) an individualʹs wealth may decrease but their willingness to spend is not affected D) an individualʹs wealth may decrease and their willingness to spend may decrease 8) Changes in stock prices A) not affect peopleʹs wealth and their willingness to spend B) affect firmsʹ decisions to sell stock to finance investment spending C) occur in regular patterns D) are unimportant to decision makers 9) Banks, savings and loan associations, mutual savings banks, and credit unions A) are no longer important players in financial intermediation B) since deregulation now provide services only to small depositors C) have been adept at innovating in response to changes in the regulatory environment D) produce nothing of value and are therefore a drain on societyʹs resources 10) If ten years ago the prices of the items bought last month by the average consumer would have been much higher, then one can likely conclude that A) the aggregate price level has declined during this ten-year period B) the average inflation rate for this ten-year period has been positive C) the average rate of money growth for this ten-year period has been positive D) the aggregate price level has risen during this ten-year period 11) policy involves decisions about government spending and taxation A) Monetary B) Fiscal C) Financial D) Systemic 12) When tax revenues are greater than government expenditures, the government has a budget - A) crisis B) deficit C) surplus D) revision 13) A breakdown of financial markets can result in A) financial stability B) rapid economic growth C) political instability D) stable prices 14) Assume that you borrow $2000 at 10% annual interest to finance a new business project For this loan to be profitable, the minimum amount this project must generate in annual earnings is A) $400 B) $201 C) $200 D) $199 15) Which of the following can be described as involving direct finance? A) A corporation issues new shares of stock B) People buy shares in a mutual fund C) A pension fund manager buys a short-term corporate security in the secondary market D) An insurance company buys shares of common stock in the over-the-counter markets 16) Securities are for the person who buys them, but are for the individual or firm that issues them A) assets; liabilities B) liabilities; assets C) negotiable; nonnegotiable D) nonnegotiable; negotiable 17) When an investment bank securities, it guarantees a price for a corporationʹs securities and then sells them to the public A) underwrites B) undertakes C) overwrites D) overtakes 18) A financial market in which only short-term debt instruments are traded is called the market A) bond B) money C) capital D) stock 19) One reason for the extraordinary growth of foreign financial markets is A) decreased trade B) increases in the pool of savings in foreign countries C) the recent introduction of the foreign bond D) slower technological innovation in foreign markets 20) Economies of scale enable financial institutions to A) reduce transactions costs B) avoid the asymmetric information problem C) avoid adverse selection problems D) reduce moral hazard 21) The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as A) risk sharing B) risk aversion C) risk neutrality D) risk selling 22) Reducing risk through the purchase of assets whose returns not always move together is A) diversification B) intermediation C) intervention D) discounting 23) If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of A) moral hazard B) adverse selection C) free-riding D) costly state verification 24) Although the dominance of over is clear in all countries, the relative importance of bond versus stock markets differs widely A) financial intermediaries; securities markets B) financial intermediaries; government agencies C) government agencies; financial intermediaries D) government agencies; securities markets 25) In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from A) owning municipal bonds B) making real estate loans C) making personal loans D) owning common stock 26) New information that might lead to a decrease in an assetʹs price might be A) an expected decrease in the level of future dividends B) a decrease in the required rate of return C) an expected increase in the dividend growth rate D) an expected increase in the future sales price 27) A monetary expansion stock prices due to a decrease in the and an increase in the , everything else held constant A) reduces; future sales price; expected rate of return B) reduces; current dividend; expected rate of return C) increases; required rate of return; future sales price D) increases; required rate of return; dividend growth rate 28) According to the efficient markets hypothesis, the current price of a financial security A) is the discounted net present value of future interest payments B) is determined by the highest successful bidder C) fully reflects all available relevant information D) is a result of none of the above 29) If a market participant believes that a stock price is irrationally high, they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price This practice is called A) short selling B) double dealing C) undermining D) long marketing 30) To say that stock prices follow a ʺrandom walkʺ is to argue that stock prices A) rise, then fall, then rise again B) rise, then fall in a predictable fashion C) tend to follow trends D) cannot be predicted based on past trends 31) When a $10 check written on HSBC is deposited in an account at ANZ, then A) the liabilities of HSBC decrease by $10 B) the reserves of HSBC increase by $10 C) the liabilities of ANZ decrease by $10 D) the assets of ANZ decrease by $10 32) If a bank has $10 million of checkable deposits, a required reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of A) $1.2 million B) $1.1 million C) $1 million D) $900,000 33) The account that shows international transactions involving financial transactions (stocks, bonds, bank loans, etc.) is called the A) trade balance B) current account C) balance of payments D) capital account ... reserves to support a deposit outflow of A) $1.2 million B) $1.1 million C) $1 million D) $900,000 33) The account that shows international transactions involving financial transactions (stocks,
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