Quiz Questions

Financial markets have the basic function of

getting people with funds to lend together with people who want to borrow funds.

Which of the following can be described as direct finance?

A) You buy shares of common stock in the secondary market.

B) You borrow $2,500 from a friend.

C) You take out a mortgage from your local bank.

 D) You buy shares in a mutual fund.

B) You borrow $2,500 from a friend.

Which of the following statements about the characteristics of debt and equities is TRUE?

They can both be long-term financial instruments.

When I purchase ________, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

stock

A short-term debt instrument issued by well-known corporations is called

commercial paper

Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as

foreign bonds

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as

Eurobonds

The process of indirect finance using financial intermediaries is called

financial intermediation

Which of the following is a depository institution?

A) a credit union

B) a mutual fund

C) a pension fund

 D)/ a life insurance company

A) a credit union

Which of the following is NOT a goal of financial regulation?

A) ensuring the soundness of the financial system

B) ensuring that investors never suffer losses

 C) reducing adverse selection

 D) reducing moral hazard

B) ensuring that investors never suffer losses

To an economist, ________ is anything that is generally accepted in payment for goods or services or in the repayment of debt.

money

The total collection of pieces of property that serve to store value is a person's

wealth

An individual's annual salary is her

income

All of the following are necessary criteria for a commodity to function as money EXCEPT

A) it must be widely accepted.

B) it must deteriorate quickly.

C) it must be divisible.

D) it must be easy to carry.

B) it must deteriorate quickly.

If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are

money

The conversion of a barter economy to one that uses money

increases efficiency by reducing transactions costs

The payments system is

the method of conducting transactions in the economy

________ money could be used for some other purpose other than as a medium of exchange, for example, gold coins could be melted down and turned into gold jewelry.

Commodity

Monetary aggregates are

measures of the money supply reported by the Federal Reserve.

The currency component includes paper money and coins held in

the hands of the nonbank public

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

present value

What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

$453.51

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

discounting future cash flows.

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

fixed-payment loan

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price.

rate of return

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

25 percent

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding?

a bond with one year to maturity

The ________ interest rate is adjusted for expected changes in the price level.

ex ante real

The ________ interest rate more accurately reflects the true cost of borrowing

real

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Fisher equation