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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1 Every financial market has the following characteristic: 1) _______ A) It channels funds from lenders-savers to borrowers-spenders. B) It allows common stock to be traded. C) It allows loans to be made. D) It determines the level of interest rates. A

Financial markets have the basic function of

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2) _______ A) assuring that governments need never resort to printing money. B) assuring that the swings in the business cycle are less pronounced. C) getting people with funds to lend together with people who want to borrow funds. D) providing a risk-free repository of spending power. C

Financial markets improve economic welfare because 3) _______ A) eliminate the need for indirect finance. B) they weed out inefficient firms. C) they channel funds from investors to savers. D) they allow consumers to time their purchase better. D

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4) Well-functioning financial markets 4) _______ A) cause financial crises. B) cause inflation. C) produce an efficient allocation of capital. D) eliminate the need for indirect finance. C

A breakdown of financial markets can result in

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5) _______ A) rapid economic growth. B) political instability. C) financial stability. D) stable prices. B

The principal lender-savers are

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6) _______ A) governments. B)


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foreigners. C) households. D) businesses. C

Which of the following can be described as direct finance?

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7) _______ A) You take out a mortgage from your local bank. B) You buy shares in a mutual fund. C) You buy shares of common stock in the secondary market. D) You borrow $2500 from a friend. D 8 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 8) _______ A) $201. B) $199. C) $400. D) $200.


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A 9 You can borrow $5000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is 9) _______ A) 10%. B) 12.5%. C) 5%. D) 25%. C

Which of the following can be described as involving direct finance?

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10) ______ A) A pension fund manager buys a short-term corporate security in the secondary market. B) People buy shares in a mutual fund. C) A corporation issues new shares of stock. D) An insurance company buys shares of common stock in the over-the-counter markets. C

Which of the following can be described as involving direct finance? 11) ______ A) People buy shares of common stock in the primary markets. B)

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A corporation takes out loans from a bank. C) A corporation buys a short-term corporate security in a secondary market. D) People buy shares in a mutual fund. A

Which of the following can be described as involving indirect finance?

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12) ______ A) You make a loan to your neighbor. B) A corporation buys a share of common stock issued by another corporation in the primary market. C) You make a deposit at a bank. D) You buy a Canadian Treasury bill from the Bank of Canada. C 1 Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them. 13) ______ A) negotiable; nonnegotiable B) liabilities; assets C) nonnegotiable; negotiable D) assets; liabilities D 1 With ________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets. 14) ______ A)


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determined B) active C) indirect D) direct D SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 1 How do financial intermediaries play an important role in the economy? 15) _____________ Financial intermediaries play an important role in the economy because they provide liquidity services, they lower transaction costs through economies of scale, they reduce the risk exposure of investors through risk sharing, and they solve the asymmetric information problems of adverse selection and moral hazard. By doing this they allow small savers and borrowers to benefit from the existence of financial markets and its instruments. They also improve economic efficiency because they help financial markets to channel funds from lenders-savers to people with productive investment opportunities. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1 Which of the following statements about the characteristics of debt and equity is false? 16) ______ A) They can both be short-term financial instruments. B) They can both be long-term financial instruments. C) They both enable a corporation to raise funds. D) They both involve a claim on the issuer's income. A

Which of the following statements about the characteristics of debt and equities is true? 17)

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______ A) Bonds pay dividends. B) The income from bonds is typically more variable than that from equities. C) They can both be long-term financial instruments. D) Bond holders are residual claimants. C

Which of the following statements about financial markets and securities is true?

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18) ______ A) A debt instrument is intermediate term if its maturity is less than one year. B) The maturity of a debt instrument is the number of years (term) to that instrument's expiration date. C) A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants. D) A debt instrument is intermediate term if its maturity is ten years or longer. B

Which of the following is an example of an intermediate-term debt?

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19) ______ A) A thirty-year mortgage B) A six month loan from a finance company C) A sixty-month car loan D) A Treasury bond C

If the maturity of a debt instrument is less than one year, the debt is called ________. 20) ______

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A) prima-term B) intermediate-term C) short-term D) long-term C

Long-term debt has a maturity that is ________.

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21) ______ A) less than a year. B) ten years or longer. C) between five and ten years. D) between one and ten years. B 2 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. 22) ______ A) bonds B) stock C) notes


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D) bills B

Which of the following benefit directly from any increase in the corporation's profitability?

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23) ______ A) A T-bill holder B) A bond holder C) A commercial paper holder D) A shareholder D

A financial market in which previously issued securities can be resold is called a ________ market.

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24) ______ A) primary B) used securities C) secondary D) tertiary C 2 When an investment bank ________ securities, it guarantees a price for a corporation's securities and then sells them to the


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public. 25) ______ A) overwrites B) overtakes C) undertakes D) underwrites D

Which of the following is not a secondary market?

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26) ______ A) Primary market B) Foreign exchange market C) Options market D) Futures market A

________ work in the secondary markets matching buyers with sellers of securities.

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27) ______ A) Dealers B)


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Brokers C) Underwriters D) Claimants B

A corporation acquires new funds only when its securities are sold in the

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28) ______ A) primary market by a stock exchange broker. B) secondary market by a commercial bank. C) secondary market by a securities dealer. D) primary market by an investment bank. D

A corporation acquires new funds only when its securities are sold in the

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29) ______ A) secondary market by a stock exchange broker. B) secondary market by a commercial bank. C) secondary market by an investment bank. D) primary market by an investment bank. D

An important function of secondary markets is to 30) ______

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A) raise funds for corporations through the sale of securities. B) make it easier to sell financial instruments to raise funds. C) create a market for newly constructed houses. D) make it easier for governments to raise taxes. B

Secondary markets make financial instruments more

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31) ______ A) vapid. B) solid. C) liquid. D) risky. C

A liquid asset is

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32) ______ A) always sold in an over-the-counter market. B) an asset that can easily and quickly be sold to raise cash. C) difficult to resell. D) a share of an ocean resort. B 3


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The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market. 33) ______ A) less; primary B) more; secondary C) less; secondary D) more; primary D

A financial market in which only short-term debt instruments are traded is called the ________ market.

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34) ______ A) capital B) stock C) money D) bond C SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 3 Corporations receive funds when their stock is sold in the primary market. Why do corporations pay attention to what is happening to their stock in the secondary market? 35) _____________


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The existence of the secondary market makes their stock more liquid and the price in the secondary market sets the price that the corporation would receive if they choose to sell more stock in the primary market.

Describe the two methods of organizing a secondary market.

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36) _____________ A secondary market can be organized as an exchange where buyers and sellers meet in one central location to conduct trades. An example of an exchange is the New York Stock Exchange. A secondary market can also be organized as an over-the-counter market. In this type of market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. An example of an over-the-counter market is the federal funds market.

Describe the difference between the money market and the capital market.

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37) _____________ The money market in which short-term debt instruments are traded. The capital market is the market in which longerterm debt is traded. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 3 Prices of money market instruments undergo the least price fluctuations because of 38) ______ A) the price ceiling imposed by government regulators. B) the lack of competition in the market. C) the short terms to maturity for the securities. D) the heavy regulations in the industry. C 3 Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. 39) ______ A) discount


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B) default C) premium D) collateral A

Treasury bills are considered the safest of all money market instruments because there is no risk of ________.

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40) ______ A) defeat B) desertion C) default D) demarcation C 4 A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called 41) ______ A) federal funds. B) commercial paper. C) a municipal bond.


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D) a negotiable certificate of deposit. D

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

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42) ______ A) municipal bonds. B) commercial paper. C) commercial mortgages. D) corporate bonds. B

________ are short-term loans in which Treasury bills serve as collateral.

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43) ______ A) Negotiable certificates of deposit B) Government agency securities C) Overnight funds D) Repurchase agreements D

Collateral is ________ the lender receives if the borrower does not pay back the loan. 44)

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______ A) a liability B) an asset C) an offering D) a present B

Overnight funds are

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45) ______ A) loans made by the Bank of Canada to banks. B) loans made by banks to each other. C) funds raised by the federal government in the bond market. D) loans made by banks to the Bank of Canada. B

Which of the following are short-term financial instruments? 46) ______ A) A repurchase agreement B) A residential mortgage C) A Treasury note with a maturity of four years D) A share of Walt Disney Corporation stock A

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47) Which of the following instruments are traded in a money market? 47) ______ A) Provincial government bonds B) Government agency securities C) Corporate bonds D) Treasury bills D

Which of the following instruments are traded in a money market?

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48) ______ A) Provincial government bonds B) Bank commercial loans C) Commercial paper D) Residential mortgages C

Which of the following instruments is not traded in a money market?

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49) ______ A) Treasury Bills B)


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Residential mortgages C) Negotiable bank certificates of deposit D) Commercial paper B

Bonds issued by corporations are called ________ bonds.

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50) ______ A) municipal B) Treasury C) commercial D) corporate D

Equity and debt instruments with maturities greater than one year are called ________ market instruments.

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51) ______ A) federal B) money C) capital D)


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benchmark C SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 5 Explain why Government of Canada Treasury Bills are considered as a financial instrument with very low risk. 52) _____________ Government of Canada Treasury Bills are considered low risk, because they are the most actively traded money market instruments; their original maturity is no more than 12 months. Moreover, there is almost no probability of default. The federal government is always able to meet its debt obligations as it can raise taxes to service its debt. 5 Explain why only the largest and most trustworthy corporations issue the financial instruments known as commercial paper? 53) _____________ Commercial paper is an unsecured short-term debt instrument issued either in Canadian dollars or other currencies. Since it is unsecured, only the largest corporations and banks are able to issue commercial paper so that the market can trust them and invest in their issue. It is highly unlikely that an investor would trust a small unknown firm and finance it with an unsecured loan. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 5 One reason for the extraordinary growth of foreign financial markets is 54) ______ A) the recent introduction of the foreign bond. B) increases in the pool of savings in foreign countries. C) slower technological innovation in foreign markets. D) decreased trade. B 5 Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as 55)


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______ A) equity bonds. B) foreign bonds. C) Eurobonds. D) country bonds. B 5 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 56) ______ A) country bonds. B) Eurobonds. C) equity bonds. D) foreign bonds. B

If Microsoft sells a bond in London and it is denominated in dollars, the bond is a ________.

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57) ______ A) Eurobond B)


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currency bond C) British bond D) foreign bond A

U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called ________.

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58) ______ A) outside dollars B) foreign dollars C) Eurodollars D) Atlantic dollars C SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 5 Distinguish between a foreign bond and a Eurobond. 59) _____________ A foreign bond is sold in a foreign country and priced in that country's currency. A Eurobond is sold in a foreign country and priced in a currency that is not that country's currency. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 6 The process of indirect finance using financial intermediaries is called 60)


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______ A) financial liquidation. B) direct lending. C) resource allocation. D) financial intermediation. D

The time and money spent in carrying out financial transactions are called

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61) ______ A) liquidity services. B) economies of scale. C) financial intermediation. D) transaction costs. D

Economies of scale enable financial institutions to 62) ______ A) avoid adverse selection problems. B) reduce moral hazard. C) reduce transactions costs. D) avoid the asymmetric information problem. C

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An example of economies of scale in the provision of financial services is

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63) ______ A) investing in a diversified collection of assets. B) spreading the cost of borrowed funds over many customers. C) spreading the cost of writing a standardized contract over many borrowers. D) providing depositors with a variety of savings certificates. C

Financial intermediaries provide customers with liquidity services. Liquidity services

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64) ______ A) are another term for asset transformation. B) are a result of the asymmetric information problem. C) allow customers to have a cup of coffee while waiting in the lobby. D) make it easier for customers to conduct transactions. D 6 The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as 65) ______ A) risk aversion. B) risk neutrality. C) risk sharing.


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D) risk selling. C

The process of asset transformation refers to the conversion of

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66) ______ A) safer assets into safer liabilities. B) risky assets into risky liabilities. C) risky assets into safer assets. D) safer assets into risky assets. C

Reducing risk through the purchase of assets whose returns do not always move together is

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67) ______ A) intervention. B) diversification. C) discounting. D) intermediation. B

The concept of diversification is captured by the statement

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68) ______ A) don't look a gift horse in the mouth. B) make hay while the sun shines. C) it never rains, but it pours. D) don't put all your eggs in one basket. D

Risk sharing is profitable for financial institutions due to

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69) ______ A) adverse selection. B) asymmetric information. C) moral hazard. D) low transactions costs. D 7 Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called 70) ______ A) adverse hazard. B) risk sharing. C)


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moral selection. D) asymmetric information. D 7 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 71) ______ A) free-riding. B) adverse selection. C) moral hazard. D) costly state verification. B 7 The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________. 72) ______ A) adverse selection; moral hazard B) moral hazard; adverse selection C) free-riding; costly state verification D) costly state verification; free-riding A


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73) Adverse selection is a problem associated with equity and debt contracts arising from 73) ______ A) the borrower's lack of incentive to seek a loan for highly risky investments. B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. C) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. D) the borrower's lack of good options for obtaining funds. C 7 An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families. 74) ______ A) credit risk B) risk sharing C) adverse selection D) moral hazard D 7 Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called ________, and it creates the ________ problem. 75) ______ A) adverse selection; risk sharing B) moral hazard; adverse selection C) asymmetric information; adverse selection D)


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asymmetric information; risk sharing C 7 Studies of the major developed countries show that when businesses go looking for funds to finance their activities they usually obtain these funds from 76) ______ A) government agencies. B) bond markets. C) financial intermediaries. D) equities markets. C 7 The countries that have made the least use of securities markets are ________ and ________; in these two countries finance from financial intermediaries has been almost ten times greater than that from securities markets. 77) ______ A) Germany; Great Britain B) Germany; Japan C) Great Britain; Canada D) Canada; Japan B 7 Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely. 78)


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______ A) government agencies; financial intermediaries B) government agencies; securities markets C) financial intermediaries; government agencies D) financial intermediaries; securities markets D SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 7 Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems. 79) _____________ Adverse selection is the asymmetric information problem that exists before the transaction occurs. For lenders, it is the difficulty in judging a good credit risk from a bad credit risk. Moral hazard is the asymmetric information problem that exists after the transaction occurs. For lenders, it is the difficulty in making sure the borrower uses the funds appropriately. Financial intermediaries can reduce adverse selection through intensive screening and can reduce moral hazard by monitoring the borrower. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 8 Financial institutions that accept deposits and make loans are called ________ institutions. 80) ______ A) contractual savings B) investment C) underwriting D) depository D

Depository institutions include

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81) ______ A) pension funds, mutual funds, and banks. B) banks, trust and mortgage loan companies, and credit unions. C) banks, mutual funds, and insurance companies. D) finance companies, mutual funds, and money market funds. B

Which of the following is a depository institution?

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82) ______ A) A pension fund B) A credit union C) A mutual fund D) A life insurance company B

Which of the following financial intermediaries is not a depository institution?

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83) ______ A) A savings and loan association B) A finance company C) A credit union D) A commercial bank


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A B

The primary assets of credit unions are

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84) ______ A) municipal bonds. B) business loans. C) mortgages. D) consumer loans. D

The primary liabilities of a chartered bank are

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85) ______ A) commercial paper. B) bonds. C) deposits. D) mortgages. C

The primary liabilities of depository institutions are 86) ______ A)

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premiums from policies. B) shares. C) bonds. D) deposits. D 8 ________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis. 87) ______ A) Thrift B) Investment C) Contractual savings D) Depository C

Which of the following is a contractual savings institution?

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88) ______ A) A life insurance company B) A savings and loan association C) A credit union D) A mutual fund


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A A

Contractual savings institutions include

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89) ______ A) commercial banks. B) mutual savings banks. C) life insurance companies. D) money market mutual funds. C

Which of the following are not contractual savings institutions?

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90) ______ A) Government retirement funds B) Pension funds C) Life insurance companies D) Credit unions D

Which of the following is not a contractual savings institution? 91) ______ A) A pension fund

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B) A property and casualty insurance company C) A finance association D) A life insurance company C

The primary assets of a pension fund are

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92) ______ A) mortgages. B) corporate bonds and stock. C) consumer and business loans. D) money market instruments. B

Which of the following are investment intermediaries?

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93) ______ A) Government retirement funds B) Life insurance companies C) Pension funds D) Mutual funds D

An investment intermediary that lends funds to consumers is

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94) ______ A) a finance company. B) an investment bank. C) a consumer company. D) a finance fund. A

The primary assets of a finance company are

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95) ______ A) municipal bonds. B) mortgages. C) corporate stocks and bonds. D) consumer and business loans. D 9 ________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds. 96) ______ A) Credit unions B) Investment banks


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C) Finance companies D) Mutual funds D

An important feature of money market mutual fund shares is

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97) ______ A) the ability to borrow against shareholdings. B) claims on shares of corporate stock. C) deposit insurance. D) they offer deposit-type accounts. D

The primary assets of money market mutual funds are

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98) ______ A) deposits. B) money market instruments. C) bonds. D) stocks. B

The liquidity of assets in contractual savings institutions 99) ______

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A) is an undertaking. B) is not an important.consideration. C) is restricted. D) is an important. consideration. B

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

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100) _____ A) Ensuring the soundness of the financial system B) Ensuring that investors never suffer losses C) Reducing moral hazard D) Reducing adverse selection B 1 Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets. 101) _____ A) moral hazard; transactions costs B) adverse selection; economies of scale C) adverse selection; moral hazard D) adverse selection; risk sharing C


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A goal of the Ontario Securities Commission is to reduce problems arising from

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102) _____ A) banking panics. B) competition. C) asymmetric information. D) risk. C

The purpose of the disclosure requirements is to

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103) _____ A) prevent bank panics. B) increase the information available to investors. C) protect investors against financial losses. D) improve monetary control. B

Government regulations to reduce the possibility of financial panic include all of the following except

1

104) _____ A) deposit insurance. B) transactions costs. C) disclosure.


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D) restrictions on assets and activities. B

The Canada Deposit Insurance Corporation regulates

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105) _____ A) mutual funds. B) banks. C) credit unions. D) brokerage firms. B 1 In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from 106) _____ A) making personal loans. B) owning corporate bonds. C) making real estate loans. D) owning common stock. D

The primary purpose of deposit insurance is to

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107) _____ A) improve the flow of information to investors. B) protect bank employees from unemployment. C) prevent banking panics. D) protect bank shareholders against losses. C

Asymmetric information is a universal problem. This would suggest that financial regulations

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108) _____ A) differ significantly around the world. B) in industrialized nations are similar. C) in industrial countries are an unqualified failure. D) are unnecessary. B SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 1 How do regulators help to ensure the soundness of financial intermediaries? 109) ____________ Regulators restrict who can set up as a financial intermediary, conduct regular examinations, restrict assets, and provide insurance to help ensure the soundness of financial intermediaries. 1 How does regulation reduce the problems of adverse selection and moral hazard? What regulations are or have been used to protect the public from panics? 110) ____________ Regulation attempts to reduce asymmetric information and financial instability. Financial stability is promoted by regulations restricting entry, disclosure and/or examination, restrictions on assets and risk taking, deposit insurance, limits on competition, and interest rate controls.


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A 2) C 3) D 4) C 5) B 6) C 7) D 8) A 9) C 10) C 11) A 12) C 13) D 14) D 15) Financial intermediaries play an important role in the economy because they provide liquidity services, they lower transaction costs through economies of scale, they reduce the risk exposure of investors through risk sharing, and they solve the asymmetric information problems of adverse selection and moral hazard. By doing this they allow small savers and borrowers to benefit from the existence of financial markets and its instruments. They also improve economic efficiency because they help financial markets to channel funds from lenders-savers to people with productive investment opportunities. 16) A 17) C 18) B 19) C 20) C 21) B 22) B


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23) D 24) C 25) D 26) A 27) B 28) D 29) D 30) B 31) C 32) B 33) D 34) C 35) The existence of the secondary market makes their stock more liquid and the price in the secondary market sets the price that the corporation would receive if they choose to sell more stock in the primary market. 36) A secondary market can be organized as an exchange where buyers and sellers meet in one central location to conduct trades. An example of an exchange is the New York Stock Exchange. A secondary market can also be organized as an over-the-counter market. In this type of market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. An example of an over-the-counter market is the federal funds market. 37) The money market in which short-term debt instruments are traded. The capital market is the market in which longerterm debt is traded. 38) C 39) A 40) C 41) D 42) B 43) D 44) B 45) B


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46) A 47) D 48) C 49) B 50) D 51) C 52) Government of Canada Treasury Bills are considered low risk, because they are the most actively traded money market instruments; their original maturity is no more than 12 months. Moreover, there is almost no probability of default. The federal government is always able to meet its debt obligations as it can raise taxes to service its debt. 53) Commercial paper is an unsecured short-term debt instrument issued either in Canadian dollars or other currencies. Since it is unsecured, only the largest corporations and banks are able to issue commercial paper so that the market can trust them and invest in their issue. It is highly unlikely that an investor would trust a small unknown firm and finance it with an unsecured loan. 54) B 55) B 56) B 57) A 58) C 59) A foreign bond is sold in a foreign country and priced in that country's currency. A Eurobond is sold in a foreign country and priced in a currency that is not that country's currency. 60) D 61) D 62) C 63) C 64) D 65) C 66) C 67) B 68)


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D 69) D 70) D 71) B 72) A 73) C 74) D 75) C 76) C 77) B 78) D 79) Adverse selection is the asymmetric information problem that exists before the transaction occurs. For lenders, it is the difficulty in judging a good credit risk from a bad credit risk. Moral hazard is the asymmetric information problem that exists after the transaction occurs. For lenders, it is the difficulty in making sure the borrower uses the funds appropriately. Financial intermediaries can reduce adverse selection through intensive screening and can reduce moral hazard by monitoring the borrower. 80) D 81) B 82) B 83) B 84) D 85) C 86) D 87) C 88) A 89) C 90) D 91) C


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92) B 93) D 94) A 95) D 96) D 97) D 98) B 99) B 100) B 101) C 102) C 103) B 104) B 105) B 106) D 107) C 108) B 109) Regulators restrict who can set up as a financial intermediary, conduct regular examinations, restrict assets, and provide insurance to help ensure the soundness of financial intermediaries. 110) Regulation attempts to reduce asymmetric information and financial instability. Financial stability is promoted by regulations restricting entry, disclosure and/or examination, restrictions on assets and risk taking, deposit insurance, limits on competition, and interest rate controls.

Test bank the economics of money banking and financial markets fourth canadian edition 4th edition m  

test bank the economics of money banking and financial markets fourth canadian edition 4th edition mishkin. Full file at http://testban...

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