Finance Chapter 2

the money market A highly liquid financial instrument with a maturity of 90 days would be traded in:the money market. the bond market. the stock market. none of these.
secondary market transaction You just purchased a share of IBM stock on the NYSE. What kind of transaction is this?Secondary market transaction. Private placement. Primary market transaction. Futures market transaction
an organized exchange The NYSE is an example of:an over-the-counter market exchange. an organized exchange. a commodities exchange. all of these.
an efficient financial system An economy with a large flow of funds requires:an efficient financial system. all of these. a lot of gold reserves. a friction-less market.
a primary market The financial market where a new security is sold for the first time is:a secondary market. an indirect financial market. none of these. a primary market.
the instruments traded in this market are close substitutes for cash The term “money market” is used because:firms that issue securities in this market are in dire need of cash. it is a market where stocks are converted into money. none of these. the instruments traded in this market are close substitutes for cash.
an investment fund A mutual fund is an example of: an endowment fund. an investment fund. a pension fund. a line of credit.
both the real rate of interest and compensation for inflation The nominal rate of interest is made up of:both the real rate of interest and compensation for inflation. a commodity cross-index return. compensation for inflation. the real rate of interest.
the business cycle The general level of interest rates tends to follow:deflation. the business cycle. the default cycle. all of these.
interest rates to increase If the supply of loan-able funds decreases relative to the demand for those funds, then we would expect: interest rates to increase. interest rates to decrease. the cost of money to remain unchanged. interest rates to remain unchanged.
lender-savers to borrower-spenders A financial system’s primary concern is funneling money from:the government to wealthy individuals. lender-savers to borrower-spenders. wealthy individuals to non-wealthy individuals. borrower-spenders to lender-savers.
over-the-counter Stocks that are traded in the _____ are typically those of smaller and lesser known firms.National Stock Exchange over-the-counter New York Stock Exchange American Stock Exchange
used-car markets Secondary financial markets are similar to: used-car markets. direct financial market. direct auction markets. new-car markets.
semistrong-form efficiency Which of the following theories states that security prices reflect all public information, but not all private information?Weak-form efficiency. Semistrong-form efficiency. Strong-form efficiency. Nominal-form efficiency.
financial intermediation The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called: none of these. financial bundling. financial intermediation. financial disintermediation
a level of inflation that is higher than that anticipated at the outset of the loan If you are a borrower, which would you prefer to occur during the life of your loan? A level of inflation that is higher than that anticipated at the outset of the loan. No inflation at all. A level of inflation that is exactly as anticipated at the outset of the loan. A level of inflation that is lower than that anticipated at the outset of the loan.
10 percent If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan? 5 percent. 10 percent. 25 percent. None of these.
interest The cost of borrowing money is called: interest. return. all of these. inflation.
underwriting services Investment banking firms provide auditing services. insurance. overdraft facility. underwriting services.

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