Chapter 1
Role of Financial Markets and Institutions
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1. Financial markets that facilitate the flow of long-term funds with maturities of more than one year are known as ____________.
a. money markets
b. capital markets
c. primary markets
d. secondary markets

2. Financial markets facilitating the issuance of new securities are known as ____________.
a. money markets
b. capital markets
c. primary markets
d. secondary markets

3. ____________ are not considered capital market securities.
a. bonds
b. mortgages
c. retail CDs
d. stocks

4. _________ are financial contracts whose values are obtained from the values of underlying assets.
a. Bonds
b. Mortgages
c. Stocks
d. Derivatives

5. A bank's ______ quote is slightly higher than its _______ quote.
a. ask; bid
b. bid; ask
c. ask; transaction
d. transaction; bid

6. In a(n) _________ market, all information about any securities for sale is continuously and freely available to investors.
a. inefficient
b. efficient
c. perfect
d. imperfect

7. _________ are depository financial institutions.
a. Savings banks
b. Finance companies
c. Mutual funds
d. Securities firms

8. In aggregate, ____________ are the most dominant depository institution.
a. credit unions
b. savings banks
c. savings and loan associations
d. commercial banks

9. ________ sell shares to surplus units and use the funds received to purchase a portfolio of securities. They are the dominant nondepository financial institution when measured in total assets.
a. Securities firms
b. Mutual funds
c. Finance companies
d. Pension funds

10. The main source of funds for ________________ is deposits from households, businesses, and government agencies, while their main use of funds is the purchase of government and corporate securities and mortgages and other loans to households.
a. savings institutions
b. commercial banks
c. mutual funds
d. finance companies

11. The federal government commonly acts as a surplus unit.
a. True
b. False

12. An investor who holds bonds has partial ownership in a corporation.
a. True
b. False

13. When security prices fully reflect all available information, the markets for these securities are said to be efficient.
a. True
b. False

14. To prevent overreactions to rumors, so-called circuit breakers are now used to permanently halt the trading of some securities or contracts.
a. True
b. False

15. Securities firms can act both as brokers and as dealers.
a. True
b. False



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