Financial Markets and Institutions Involve the movement of huge quantities of money, affect the profits of businesses, and affect the types of goods and services produced in an economy.
The price of one country’s currency in terms of another’s is called The foreign exchange rate
Compared to interest rates in long-term U.S govt bonds, interest rates on three-month t bills fluctuate …. and are …. on average. more; lower
From 1980 to early 1985 the dollar … in value, thereby benefiting American …. appreciated, consumers
A Bond a debt security that promises to make payments periodically for a specified period of time
A stock is a security that is a claim on the earnings and assets of a corporation.
A weaker dollar benefits… and hurts… American Businesses; American Consumers
Banks, savings and loan associations, mutual savings banks, and credit unions have been adept at innovating in response to changes in the regulatory environment.
The bond markets are important because they are the markets where interest rates are determined
The price paid for the rental of borrowed funds (usually expresses as a percentage of the rental of $100 per year) is commonly referred to as the interest rate
A security is a claim on the issuer’s future income.
Interest rates are important to financial institutions since an interest rate increase …. the cost of acquiring fund and …. the income from assets. increases; increases;
Financial market activities affect – personal wealth.- spending decisions by individuals and business firms.- the economy’s location in the business cycle.
Monetary policy affects interest rates, inflation, and business cycles
A rising stock market index due to higher share prices Both increases people’s wealth and as a result may increase their willingness to spend and increases the amount of funds that business firms can raise by selling newly issued stock of these.
Banks, Insurance Companies, and Finance Companies are all examples of financial insts.
The largest financial intermediaries are Banks
Typically, increasing interest rates discourages corporate investments.
Monetary policy is chiefly concerned with the level of interest rates and the nation’s money supply
Economists group commercial​ banks, savings and loan​ associations, credit​ unions, mutual​ funds, mutual savings​ banks, insurance​ companies, pension​ funds, and finance companies together under the heading financial intermediaries. What function do financial intermediaries​ perform? do only act as middlemen, borrowing fund from those who have saved and lending these funds to others and help promote a more efficient and dynamic economy of these.
In recent years stock markets have crashed.
Money is defined as anything that is generally accepted in payment for goods and services or in the repayment of debt
Banks are important to the study of money and the economy because they do only provide a channel for linking this who want to save with those who want to invest and have been a source of financial innovation that is expanding the alternatives available to this donating to invest their money of these.
From the peak of the high-tech bubble in 2000, the stock market ________ by over ________ by late 2002. collapsed; 30%
A stronger dollar benefits ______ and hurts ______ American consumers; American businesses
The organization responsible for the conduct of monetary policy in the US is the Federal Reserve System
Black Monday was the stock market’s worst one-day drop
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called Financial Markets
A declining stock market index due to lower share prices Both reduces people’s wealth and as a result may reduce their willingness to spend and decrease the amount of funds that business firms can raise by selling newly issued stock of these.
Banks are financial intermediaries that accept deposits and make loans
The largest one-day drop in the history of the American stock markets occurred inA) 1929.B) 1987.C) 2000.D) 2001. 1987
Stock prices since the 1980s have been extremely volatile
The central bank of the US is The FED
The stock market is important because it is the most widely followed financial market in the United States.
Changes in stock prices -Affect people’s wealth and their willingness to spend-Affect firms’ decisions to sell stock to finance investment spending -Are characterized by considerable fluctuations
Bonds that are sold in a foreign country and are denominated in that country’s currency are known as Foreign bonds
Adverse selection is a problem associated with equity and debt contracts arising from The lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities.
Which of the following can be described as involving direct finance? A pension fund manager buys commercial paper in the secondary market.
The country whose banks are the most restricted in the range of assets they may hold is A) Japan. B) Canada.C) Germany.D) the United States. The US
An investor who puts all her funds into one asset… her portfolio’s … decreases; diversificiation
A corporation acquires new funds only when its securities are sold in the primary market by an investment banks.
Financial Intermediaries exist because there are substantial information and transaction costs in the economy, improve the lot of the small saver, are involved in the process of indirect finance.
Intermediaries who link buyers and sellers by buying and selling securities at states prices are called dealers
Which of the following can be described as involving indirect finance? Only a corporation takes out loans from a bank and people who buy shares in a mutual fund of these.
Which of the following are not investment intermediaries? life insurance company, and a pension fund.
Which of following are securities. certificate of deposit, share of texaco common stock.
Which of the following statements about the characteristics of debt and equity are true. they both can be long-term financial instruments, they both involve a claim on the issuer’s income, they both enable a corp. to raise funds.
The purpose of diversification reduce the volatility of a portfolio’s return.
Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of economies of scale.
Which of the following are investment intermediaries? Finance companies, and mutual funds.
Long-term debt and equity instruments are traded in the capital market
When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the adverse selection problem
Are important financial institution that assists in the initial sale of securities in the primary market is the investment bank
Which of the following is a contractual savings institution? A life insurance company
The main sources of financing for businesses, in order of importance, are financial intermediaries, issuing bonds, issuing stocks.
Financial markets improve economic welfare because they do they allow funds to move from those without productive investment opportunities to those who have such opportunities and they allow consumers to time their purchases better of these.
The money markets is the market in which … are traded short-term debt instruments
Which of the following statements about financial markets and securities are true? Most common stocks are traded over-the-counter, although the largest corporations have their shares traded at organized stock exchanges such as the New York Stock Exchange.A corporation acquires new funds only when its securities are sold in the primary market.Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid.
A … is when one party in a financial contract has incentives to act in its own interest rather than in the interests of the other party. Conflict of interest.
The government regulates financial markets for two main reasons. to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy
When the potential borrowers who are the most likely to default are the ones most actively seeking a loan… is said to exist. adverse selection
A country whose financial markets function poorly is likely to experience economic hardship and financial crisis.
In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called asymmetric information
The largest depository institution (value of assets) at the end of 2009 was commercial banks.
When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist. moral hazard
Foreign currencies that are deposited in banks outside the home country are known as eurocurrencies
The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. asymmetric information
Which of the following are secondary markets. The New York stock exchangethe us govt bond marketthe over the counter stock market
which of the following statements about financial markets and securities are true. The maturity of a debt instrument is the time (term) that has elapsed since it was issued.
Which of the following markets is sometimes organized as an over-the-counter market? The stock marketThe bond marketThe forex marketthe federal funds market
The riskiness of an asset’s return that results from interest rate changes is called interest-rate risk
Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? 15 percent
The YTM of a one-year, simple loan of $400 that requires an interest payment of $50 is 12.5 percent
With an interest rate of 10 percent, the present value of a security that pays $1100 next year and 1460 four year from now is approximately 2000
The fisher equation states both the nominal interest rate equals the real interest rate plus the expected rate of inflation and the real interest rate equals the nominal interest rate less the expected rate of inflation of these are true.
Which of the following are true for a coupon bond? When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
A bond’s future payments are called its cash flows
A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of 8 percent
The nominal interest rate minus the expected rate of inflation defines the real interest rate.is a better measure of the incentives to borrow and lend than the nominal interest rate.is a more accurate indicator of the tightness of credit market conditions than the nominal interest rate.
(I) Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for short-term bonds. (I) is true, (II) false. Answer
A discount bond is also called a zero-coupon bond
If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately 11 percent
A coupon bond pays the owner of the bond a fixed interest payment every period, plus the face value of the bond at the maturity date.
If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is 100 percent
If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is -8 percent
With an interest rate of 5 percent, the present value of $100 received one year from now is approximately $95
I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds. Both are false
Which of the following $1,000 face value securities has the highest yield to maturity?A 5 percent coupon bond selling for $1,000A 10 percent coupon bond selling for $1,000A 15 percent coupon bond selling for $1,000 A 15 percent coupon bond selling for $900 15 900
The interest rate that is adjusted for actual changes in the price level is called the

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