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    Chapter 2An Overview of the Financial System

    Multiple Choice)1 Every financial market has the following characteristic:

    ()a It determines the level of interest rates.

    ()b It allows common stock to be traded.

    ()c It allows loans to be made.

    ()d It channels funds from lenders-savers to borrowers-spenders.

    !uestion "tatus: #revious Edition

    )$ %inancial markets have the basic function of

    ()e getting people with funds to lend together with people who want to borrow funds.

    ()f assuring that the swings in the business cycle are less pronounced.

    ()g assuring that governments need never resort to printing money.

    ()h both (a) and (b) of the above.

    ()i both (b) and (c) of the above.

    !uestion "tatus: #revious Edition

    )& %inancial markets improve economic welfare because

    ()' they allow funds to move from those without productive investment opportunities to those whohave such opportunities.

    ()k they allow consumers to time their purchase better.

    ()l they weed out inefficient firms.

    ()m they do each of the above.

    ()n they do (a) and (b) of the above.

    !uestion "tatus: #revious Edition

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    $ %rederic ". ishkin *Economics of Money, Banking, and Financial Markets,"eventh Edition)+ ,ell-functioning financial markets

    ()o cause inflation.

    ()p eliminate the need for indirect finance.

    () cause financial crises.

    ()r produce an efficient allocation of capital.

    ()s promote political instability.

    !uestion "tatus: ew

    )/ 0 breakdown of financial markets can result in

    ()t an efficient allocation of capital.

    ()u rapid economic growth.

    ()v political instability.

    ()w stable prices.

    () financial stability.

    !uestion "tatus: ew

    )2 ,hich of the following can be described as direct finance

    ()y 3ou take out a mortgage from your local bank.

    ()4 3ou borrow 5$/66 from a friend.

    ()aa0 pension fund lends money to 7eneral otors.

    ()bb 3ou buy shares in a mutual fund.

    ()ccone of the above.

    !uestion "tatus: "tudy 7uide

    ) 0ssume that you borrow 5$666 at 168 annual interest to finance a new business pro'ect. %or this

    loan to be profitable9 the minimum amount this pro'ect must generate in annual earnings is()dd 5+66.

    ()ee5$61.

    ()ff 5$66.

    ()gg 51.

    ()hh 5161.

    !uestion "tatus: ew

    ); 3ou can borrow 5/666 to finance a new business venture.

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    =hapter $ 0n >verview of the %inancial "ystem $;) ,hich of the following can be described as involving direct finance

    ()nn 0 corporation takes out a loan from a bank.

    ()oo #eople buy shares in a mutual fund.

    ()pp 0 corporation buys a short-term security issued by another corporation.

    () 0n insurance company buys shares of common stock in the over-the-counter markets.

    ()rr one of the above.

    !uestion "tatus: #revious Edition

    )16 ,hich of the following can be described as involving direct finance

    ()ss 0 corporation issues new shares of stock.

    ()tt #eople buy shares in a mutual fund.

    ()uu 0 pension fund manager buys a short-term corporate security in the secondary market.

    ()vv 0n insurance company buys shares of common stock in the over-the-counter markets.

    !uestion "tatus: #revious Edition

    )11 ,hich of the following can be described as involving direct finance()ww 0 corporation issues new shares of stock.

    () 0 corporation buys a short-term security issued by another corporation.

    ()yy 0 pension fund manager buys commercial paper in the secondary market.

    ()44?oth (a) and (b) of the above.

    ()aaa ?oth (b) and (c) of the above.

    !uestion "tatus: #revious Edition

    )1$ ,hich of the following can be described as involving direct finance

    ()bbb 0 corporation issues new shares of stock through an investment bank.

    ()ccc 0 corporation buys a short-term security paper issued by another corporation.

    ()ddd 0 pension fund manager buys commercial paper in the primary market.

    ()eee 0ll of the above.

    ()fff ?oth (b) and (c) of the above.

    !uestion "tatus: #revious Edition

    )1& ,hich of the following can be described as involving direct finance

    ()ggg 0 corporation takes out loans from a bank.

    ()hhh #eople buy shares in a mutual fund.

    ()iii0 corporation buys a short-term corporate security in a secondary market.

    ()'''0n insurance company buys shares of common stock in the primary markets.

    !uestion "tatus: #revious Edition

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    $ %rederic ". ishkin *Economics of Money, Banking, and Financial Markets,"eventh Edition)1+ ,hich of the following can be described as involving direct finance

    ()kkk 0 corporation@s stock is traded in an over-the-counter market.

    ()lll#eople buy shares in a mutual fund.

    ()mmm 0 pension fund manager buys a short-term corporate security in the secondary market.

    ()nnn 0n insurance company buys shares of common stock in the over-the-counter markets.

    ()ooo one of the above.

    !uestion "tatus: #revious Edition

    )1/ ,hich of the following can be described as involving direct finance

    ()ppp 0 corporation@s stock is traded in an over-the-counter market.

    () 0 corporation buys a short-term security issued by another corporation.

    ()rrr 0 pension fund manager buys a short-term corporate security from the issuing corporation.

    ()sss ?oth (a) and (b) of the above.

    ()ttt?oth (b) and (c) of the above.

    !uestion "tatus: #revious Edition

    )12 ,hich of the following can be described as involving direct finance

    ()uuu 0 corporation issues new shares of stock.

    ()vvv 0 corporation buys a short-term security issued by another corporation.

    ()www 0 pension fund manager buys a short-term security from the issuing corporation.

    () 0ll of the above.

    ()yyy ?oth (b) and (c) of the above.

    !uestion "tatus: #revious Edition

    )1 ,hich of the following can be described as involving indirect finance

    ()444 3ou make a loan to your neighbor.

    ()aaaa 0 corporation buys a share of common stock issued by another corporation.

    ()bbbb 3ou buy a A.".

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    =hapter $ 0n >verview of the %inancial "ystem &6)1 ,hich of the following can be described as involving indirect finance

    ()hhhh 0 corporation issues new shares of stock.

    ()iiii #eople buy shares in a mutual fund.

    ()'''' 0 pension fund manager buys a short-term corporate security in the secondary market.

    ()kkkk ?oth (a) and (b) of the above.

    ()llll ?oth (b) and (c) of the above.

    !uestion "tatus: #revious Edition

    )$6 ,hich of the following can be described as involving indirect finance

    ()mmmm 0 corporation issues new shares of stock.

    ()nnnn 0 corporation buys a short-term security issued by another corporation.

    ()oooo 0 pension fund manager buys a short-term corporate security in the secondary market.

    ()pppp ?oth (a) and (b) of the above.

    !uestion "tatus: #revious Edition

    )$1 ,hich of the following can be described as involving indirect finance() 0 bank buys a A.". nly (a) and (b) of the above.

    !uestion "tatus: #revious Edition

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    &1 %rederic ". ishkin *Economics of Money, Banking, and Financial Markets,"eventh Edition)$+ ,hich of the following can be described as involving indirect finance

    ()eeeee 0 corporation@s stock is traded in an over-the-counter market.

    ()fffff 0 corporation buys a short-term security issued by another corporation.

    ()ggggg0 pension fund manager buys a short-term security from the issuing corporation.

    ()hhhhh?oth (a) and (b) of the above.

    !uestion "tatus: #revious Edition

    )$/ ,hich of the following can be described as involving indirect finance

    ()iiiii 0 corporation issues new shares of stock.

    ()''''' 0 corporation buys a short-term security issued by another corporation.

    ()kkkkk0 bank buys a A.".

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    =hapter $ 0n >verview of the %inancial "ystem &$)$ ,hich of the following statements about the characteristics of debt and euity are true

    ()bbbbbb

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    && %rederic ". ishkin *Economics of Money, Banking, and Financial Markets,"eventh Edition)&+ ,hich of the following statements about the characteristics of debt and euities is true

    ()444444 nly (a) and (b) of the above are true.

    ()sssssss >nly (b) and (c) of the above are true.

    !uestion "tatus: #revious Edition

    )&; "ecurities are DDDDD for the person who buys them9 but are DDDDD for the individual or firm thatissues them.

    ()ttttttt assets liabilities

    ()uuuuuuu liabilities assets

    ()vvvvvvv negotiable nonnegotiable

    ()wwwwwww nonnegotiable negotiable

    !uestion "tatus: #revious Edition

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    =hapter $ 0n >verview of the %inancial "ystem &+)& %orty or so dealers establish a FmarketG in these securities by standing ready to buy and sell them.

    () "econdary stocks

    ()yyyyyyy "urplus stocks

    ()4444444 A.". government bonds

    ()aaaaaaaa =ommon stocks

    !uestion "tatus: #revious Edition

    )+6 ,hich of the following are primary markets

    ()bbbbbbbb

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    &/ %rederic ". ishkin *Economics of Money, Banking, and Financial Markets,"eventh Edition)++

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