EC 303 - Financial Markets Overview: Chp. 1 Homework

EC 303 - Financial Markets Overview: Chapter 1

A: A corporation has to pay all bondholders before paying stockholders.
B: A bond is a debt instrument that entitles the owner to receive periodic amounts of money until its maturity​ date, whereas a common stock represents a share of ownership of the institution that has issued the stock.

Which of the following are differences between a bond and a common​ stock? ​(Select all that​ apply.)

A: A corporation has to pay all bondholders before paying stockholders.

B: A bond is a debt instrument that entitles the owner to receive periodic amounts of money until its maturity​ date, whereas a common stock represents a share of ownership of the institution that has issued the stock.

C: A corporation has to pay all stockholders before paying bondholders.

D: A bond is a claim on the earnings and assets of a​ corporation, whereas a common stock promises to make periodic payments for a specified period of time.

Foreign goods are now relatively more​ expensive; British consumers are hurt

How does a fall in the value of the pound sterling affect British​ consumers?

A: Foreign goods are now relatively more​ expensive; British consumers are hurt

B: Foreign goods are now relatively​ cheaper; British consumers will benefit

C: Domestic interest rates​ increase; British consumers find it more expensive to borrow

D: Domestic goods are now relatively more​ expensive; British consumers are hurt

worse off.

A fall in the value of the pound will cause American businesses to be ____________.

American made products.

When the dollar is worth less in relation to currencies of other​ countries, are you more likely to buy​ American-made or​ foreign-made electronics?

You are more likely to purchase ______________.

weaker.

Are US companies that manufacture​ semi-conductors happier when the dollar is strong or when it is​ weak?

​Semi-conductor manufacturers are happier when the dollar is ________.

stronger.

What about an American company that is in the business of importing electronic consumer goods into the United​ States?

Importers of electronic goods into the United States are happier when the dollar is _______________.

B: The central bank

Which of the following is not an important financial intermediary in the​ economy?
A: Commercial banks.

B: The central bank

C. Savings and loan associations

D. Mutual funds

A saver makes a deposit in a credit​ union, and the credit union makes a loan to a member for a new car.

Which of the following is an example of financial​ intermediation?

A: A saver makes a deposit in a credit​ union, and the credit union makes a loan to a member for a new car.

B: IBM issues a bond that is sold to a retired person.

C: U.S. Treasury sells bonds to fund government spending.

D: IBM issues common stock that is sold to a college student.

finance companies

The term bank generally includes all of the following institutions

except​:

A: finance companies.

B: commercial banks.

C: credit unions.

D: savings and loan associations.

there is a strong positive association between inflation and the growth rate of money over long periods of time.

Evidence from the United States and other foreign countries indicates​ that:

A: there is little support for the assertion that​ "inflation is always and everywhere a monetary​ phenomenon."

B: money growth is clearly unrelated to inflation.

C: countries with low monetary growth rates tend to experience higher rates of​ inflation, all else being constant.

D: there is a strong positive association between inflation and the growth rate of money over long periods of time.

business cycle

The _________ the upward and downward movements of aggregate output in the economy.

more workers are unemployed.

If there is a​ recession, graduates will find it more difficult to find a job because

A: more workers are unemployed.

B: less workers are willing to hold onto their jobs.

C: of low competition in the labor market.

D: more firms are willing to hire.

money; interest rates

Monetary policy is the management of _____________ and _________.

Federal Reserve

The __________ is the central bank responsible for monetary policy in the United States.

American businesses will see an increase in demand for their goods in the United States and in foreign countries.

When there is an increase in the value of the Japanese yen all else​ equal:

A: American businesses will see a decrease in demand for their goods in the United States only.

B: American businesses will see a decrease in demand for their goods in the United States and in foreign countries.

C: American businesses will see an increase in demand for their goods in the United States and in foreign countries.

D: American businesses will see a decrease in the supply of their goods in the United States and in foreign countries.

Japanese goods will become more expensive relative to American goods.

When there is a decrease in the value of the American dollar relative to the Japanese yen, all else equal:

A: Americans will import more Japanese goods than they did before.

B: Japan will export more goods to the United States than it did before.

C: American goods will become more expensive relative to Japanese goods.

D: Japanese goods will become more expensive relative to American goods.

April 25

The table to the right lists the foreign exchange rates between U.S. dollars and British pounds​ (GBP) during April.
_______ would have been the best day to convert $250 pounds into British pounds.

April 7

The table to the right lists the foreign exchange rates between U.S. dollars and British pounds​ (GBP) during April.
_______ would have been the worst day to convert $250 pounds into British pounds.

22.62

At 1.6613 USD/GBP, $250 = £150.48

At 1.9549 USD/GBP, $250 = £127.86

£150.48−£127.86=£22.62

The difference in pounds is ______.

pound. (Enter your response rounded to two decimal​ places.)

A, B, and C

In which of the following situations do financial markets allow consumers to better time their​ purchases?

A: Paying the cost of repairing a flooded basement.

B: Paying for tuition

C: Purchasing a car or furniture.

D: Buying groceries.

Direct finance occurs when borrowers sell securities directly to lenders.

Which of the following statements regarding direct finance is

true​?

A: In the United​ States, more funds flow through the direct financial channels than through indirect financial channels.

B: Direct finance requires the use of financial intermediaries.

C: Direct finance occurs when borrowers sell securities directly to lenders.

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

$200.00

$2,000 × 10% = 200
400 - 200 = 200

Let's assume that a carpenter borrowed $2,000 to be paid off in a year to finance a machine that would make him work faster. As a​ result, he is able to take on more projects and collect

​$400 more earnings in the first​ year, after paying off the principal of

​$2,000. However, there is a 10% rental fee​ (interest) on his loan that he also has to pay off. The carpenter earned an extra _____ in the first year. ​(Round your response to the nearest​ dollar)

Primary market: 3
Capital market: 4
Money market: 1
Secondary Market: 2
Debt market: 5

Match​ (by number) each financial market with its​ description:

1: A financial market in which only​ short-term debt instruments​ (generally those with original maturity of less than one​ year) are traded

2: A financial market in which securities that have been previously issued can be resold.

3: A financial market in which new issues of a​ security, such as a bond or a​ stock, are sold to initial buyers by the corporation or government agency borrowing the funds

4: A market in which​ longer-term debt​ (generally those with original maturity of one year or​ greater) and equity instruments are traded.

5: A market where bonds or​ mortgages, which are contractual agreements by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals until a specified date when a final payment is​ made, are traded.

6: A market in which dealers at different locations who have an inventory of securities stand ready to buy and sell securities to anyone who comes to them and is willing to accept their price.

Debt market

A market where bonds or​ mortgages, which are contractual agreements by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals until a specified date when a final payment is​ made, are traded.

Secondary market

A financial market in which securities that have been previously issued can be resold.

Money Market

A financial market in which only​ short-term debt instruments​ (generally those with original maturity of less than one​ year) are traded

Capital Market

A market in which​ longer-term debt​ (generally those with original maturity of one year or​ greater) and equity instruments are traded.

Primary Market

A financial market in which new issues of a​ security, such as a bond or a​ stock, are sold to initial buyers by the corporation or government agency borrowing the funds

buy securities; make depositis

In direct finance, sellers ________ and in indirect finance sellers _________.

sell securities; take out loans

In direct finance, borrowers ________ and in indirect finance borrowers _________.

A​ 30-year corporate bond: Long ter,

A​ money-market instrument with a maturity of 6 months: Short term

A Treasury note with a maturity of 5 or 10 years: Intermediate

A treasury note with a 90 day maturity: short term

The maturity of a debt instrument is the number of years​ (term) until that​ instrument's expiration date. Identify the term to maturity of the following financial​ instruments:
A​ 30-year corporate bond
A​ money-market instrument with a maturity of 6 months
A Treasury note with a maturity of 5 or 10 years.
A treasury note with a 90 day maturity.

Primary and Secondary markets both sell assets directly from the institution that offers the bonds.

Which of the following is not true regarding primary and secondary​ markets?

A; Secondary markets sell old issues of securities.

B: Primary markets and secondary markets are different markets.

C: Primary markets sell new issues new issues of securities.

D: Primary and Secondary markets both sell assets directly from the institution that offers the bonds.

equity (or stocks)

Other things being the​ same, the financial instrument that is the most risky to own is the:

Bonds

If you suspect that an airline will go bankrupt next​ week, which would you rather​ hold, bonds issued by the​ company, or bonds issued by the​ company? You would prefer to hold:

Commercial Paper: 3
Treasury Bills: 5
Repurchase Agreements: 6
Federal Funds: 1
Banker’s Acceptances: 4

Match with the right definition:
1: These instruments are typically overnight loans between banks of their deposits at the Federal Reserve.

2: A debt instrument sold by a bank to depositors that pays annual interest of a given amount and at maturity pays back the original purchase price

3: A​ short-term debt instrument issued by large banks and​ well-known corporations.

4: These money market instruments are created in the course of carrying out international trade. This is a bank draft​ (a promise of payment similar to a​ check) issued by a​ firm, payable at some future​ date, and guaranteed for a fee by a bank.

5: These​ short-term debt instruments of the US government are issued in​ three-, six-, and​ 12-month maturities to finance the federal government.

6: These instruments are effectively​ short-term loans​ (usually with a maturity of less than two​ weeks) for which Treasury bills serve as​ collateral, which the lender receives if the borrower does not pay back the loan.

Commercial Paper
Treasury Bills
Repurchase Agreements
Federal Funds
Banker’s Acceptance

Commercial Paper

A​ short-term debt instrument issued by large banks and​ well-known corporations.

Treasury Bills

These​ short-term debt instruments of the US government are issued in​ three-, six-, and​ 12-month maturities to finance the federal government.

Repurchase Agreements

These instruments are effectively​ short-term loans​ (usually with a maturity of less than two​ weeks) for which Treasury bills serve as​ collateral, which the lender receives if the borrower does not pay back the loan.

Federal Funds

These instruments are typically overnight loans between banks of their deposits at the Federal Reserve

Banker’s Acceptance

These money market instruments are created in the course of carrying out international trade. This is a bank draft​ (a promise of payment similar to a​ check) issued by a​ firm, payable at some future​ date, and guaranteed for a fee by a bank.

Foreign Bonds

The US economy borrowed heavily from the British in the nineteenth century to build a railroad system. What was the principal debt instrument​ used?
__________ were the principal debt instrument used to finance the railroad system

economies of scope and problematic because of conflicts of interest.

The provision of several types of financial services by one firm may be beneficial because​ of: