Your Go To Finance Exam About Money And Banking

35 Questions | Total Attempts: 219

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Money Quizzes & Trivia

Finance is the process of channeling money from savers and investors to entities that need it. Savers and investors have money available which could earn interest or dividends if put to productive use. This is your Go To Finance Exam about Money and Banking!


Questions and Answers
  • 1. 
    Financial markets improve efficiency by channeling funds to those with productive uses for them from those with no investments opportunities.
    • A. 

      True

    • B. 

      False

  • 2. 
    When an individual buys a bond issued by General Motors through a Merrill Lynch bond dealer, we have sen a demonstration of indirect finance.
    • A. 

      True

    • B. 

      False

  • 3. 
    Securities are liabilities for the person that buys them, but assets for the individual or company that issues them.
    • A. 

      True

    • B. 

      False

  • 4. 
    The primary market is where new issues of securities are sold, and the secondary market is where previously issued securities are resold.
    • A. 

      True

    • B. 

      False

  • 5. 
    Bonds are sold in the equity market while stocks are sold in the debt market
    • A. 

      True

    • B. 

      False

  • 6. 
    Stocks are a less risky investment for savers than bonds because stockholders are residual claimants
    • A. 

      True

    • B. 

      False

  • 7. 
    Commercial paper is considered to be the most liquid money market instrument
    • A. 

      True

    • B. 

      False

  • 8. 
    Eurodollars are dollars denominated deposits in foreign banks that are outside the United States or in foreign branches of U.S. banks.
    • A. 

      True

    • B. 

      False

  • 9. 
    Individuals may find it efficient to save their funds in a financial intermediary because financial intermediaries have lower transaction costs when making loans due to economies of scale in making loans.
    • A. 

      True

    • B. 

      False

  • 10. 
    Moral hazard occurs when risky individuals that are least likely to repay their loans and therefore have the most to gain from getting the loan are the ones that tend to actively seen loans.
    • A. 

      True

    • B. 

      False

  • 11. 
    Asymmetric information in financial markets exists because borrowers know more about the true likelihood of the repayment of the loan than do lenders.
    • A. 

      True

    • B. 

      False

  • 12. 
    More funds flow to corporations through the corporate bond market than through financial intermediaries.
    • A. 

      True

    • B. 

      False

  • 13. 
    Life insurance companies are the largest financial intermediaries in the United States when measured by the size of their assets
    • A. 

      True

    • B. 

      False

  • 14. 
    Mutual funds sell shares and use the funds to buy diversified portfolios of stocks and bonds.
    • A. 

      True

    • B. 

      False

  • 15. 
    To increase information available to investors and to insure the soundness of the financial system, the government heavily regulates the financial system.
    • A. 

      True

    • B. 

      False

  • 16. 
    Which of the following would be considered direct finance?
    • A. 

      You pay life insurance premiums to Franklin Life and Franklin Life makes a mortage to a homebuyer

    • B. 

      You buy a bond issued by General Electric through a broker at Smith Barney.

    • C. 

      You deposit $100,000 in First National Bank and First National Bank lends $100,000 to Ace Hardware

    • D. 

      None of the above would be considered direct finance.

  • 17. 
    Which of the following statements regarding direct finance is true?
    • A. 

      Direct finance occurs when borrowers sell securities directly to lenders.

    • B. 

      Direct finance requires the use of financial intermediaries

    • C. 

      In the United States, more funds flow through the direct financial channels than through indirect financial channels

    • D. 

      Securities are assets for the firm that issues them and liabilities for the individual that buys them.

  • 18. 
    Which of the following is true regarding primary and secondary markets?
    • A. 

      Primary markets are for stocks while secondary markets are for bonds

    • B. 

      Primary markets are for long-term securities while secondary markets are for short-term securities.

    • C. 

      Primary markets are where new issues of securities are sold while secondary markets are where previously issued securities are resold

    • D. 

      Primary markets are exchanges while secondary markets are over-the-counter

  • 19. 
    Investment banks facilitate the sale of securities in the
    • A. 

      Over-the-counter market

    • B. 

      Stock exchange

    • C. 

      Secondary market

    • D. 

      Primary market

  • 20. 
    Which of the following is an example of a money market instrument?
    • A. 

      A mortgage

    • B. 

      A share of stock in IBM

    • C. 

      A John Deere bond with 20 years to maturity

    • D. 

      U.S. government treasury bill with 6 months to mature

  • 21. 
    Which of the follwoing is likely to generate the least risk to the purchaser?
    • A. 

      A 30-year mortgage

    • B. 

      A share of stock in IBM

    • C. 

      A short-term bond

    • D. 

      A long-term bond

  • 22. 
    Which of the following is true regarding the characteristics of debt and equity?
    • A. 

      Equity holders are residual claimants.

    • B. 

      Bond holders receive dividends

    • C. 

      Equity securities are considered short term

    • D. 

      A bond is an asset to the firm that issues it

  • 23. 
    When a bond denominated in dollars is sold in Great Britain, it is known as 
    • A. 

      A foreign bond

    • B. 

      A Eurobond

    • C. 

      Eurodollars

    • D. 

      Foreign exchange

  • 24. 
    FInancial intermediaries
    • A. 

      Reduce transaction costs for lender-savers and borrower-spenders

    • B. 

      Allow for risk sharing for the lender-savers

    • C. 

      Solve some of the problems caused by asymmetric information

    • D. 

      Achieve all of the above

  • 25. 
    Which of the following is an example of indiriect finance?
    • A. 

      You pay life insurance premiums to Franklin Life, and Franklin Life makes a mortgage to a homebuyer.

    • B. 

      You buy a bond issued by General Electric through a broker at Smith Barney.

    • C. 

      You buy stock in Microsoft through a local OTC dealer

    • D. 

      None of the above would be considered indirect finance.

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