Financial Institutions, Instruments and Markets 9th Edition by Christopher Viney Test bank

C. a liquid asset is transformed into an illiquid asset.
D. a bank takes deposits and funds new loans.
Ans: B
AACSB: Communication
Bloom's: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 1.02 Explain the functions of a modern financial system and categorise the main types of financial institutions, including depository financial institutions, investment banks, contractual savings institutions, finance companies and unit trusts.
Section: 1.02 The financial system and financial institutions
Topic: The financial system and financial institutions


 
95. Direct finance has this characteristic:
A. asset transformation
B. contractual relationship between the ultimate supplier of funds and the user of funds
C. maturity transformation
D. liquidity transformation
Ans: B
AACSB: Communication
Bloom's: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 1.04 Discuss the nature of the flow of funds between savers and borrowers, including primary markets, secondary markets, direct finance and intermediated finance.
Section: 1.04 Financial markets
Topic: Financial markets


 
96. Money market securities are _____, whilst capital market securities are _____.
A. both debt and equity; only debt
B. only debt; only equity
C. only equity; both debt and equity
D. only debt; both debt and equity
Ans: D
AACSB: Communication
Bloom's: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 1.04 Discuss the nature of the flow of funds between savers and borrowers, including primary markets, secondary markets, direct finance and intermediated finance.
Section: 1.04 Financial markets
Topic: Financial markets


 
97. In terms of asset size the three largest financial institutions in declining order are:
A. commercial banks, Reserve Bank, general insurance offices.
B. commercial banks, superannuation funds, public unit trusts.
C. Reserve Bank, commercial banks, building societies.
D. commercial banks, life insurance offices, superannuation funds.
Ans: B
AACSB: Communication
Bloom's: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 1.02 Explain the functions of a modern financial system and categorise the main types of financial institutions, including depository financial institutions, investment banks, contractual savings institutions, finance companies and unit trusts.
Section: 1.02 The financial system and financial institutions
Topic: The financial system and financial institutions


 
98. The matching principle involves funding short-term assets with long-term liabilities/owners equity and funding long-term assets with short-term liabilities.
Ans: False
Feedback: Short-term assets are funded using short-term liabilities and long-term assets are funded using long-term liabilities and owners equity.
AACSB: Communication
Bloom's: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 1.03 Define the main classes of financial instruments that are issued into the financial system, that is, equity, debt, hybrids and derivatives.
Section: 1.04 Financial markets
Topic: Financial markets


 
99. Four main attributes of an asset are return, risk, volatility and time-pattern of cash flows.
Ans: False
Feedback: The attributes are return, risk, liquidity and time-pattern.
AACSB: Communication
Bloom's: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 1.02 Explain the functions of a modern financial system and categorise the main types of financial institutions, including depository financial institutions, investment banks, contractual savings institutions, finance companies and unit trusts.
Section: 1.02 The financial system and financial institutions
Topic: The financial system and financial institutions


 
100. Deficit entities purchase financial instruments that offer the lowest interest rate.
Ans: False
Feedback: Deficit entities sell financial instruments.
AACSB: Communication
Bloom's: Comprehension
Difficulty: Easy
Est time: <1 minute
Learning Objective: 1.02 Explain the functions of a modern financial system and categorise the main types of financial institutions, including depository financial institutions, investment banks, contractual savings institutions, finance companies and unit trusts.
Section: 1.02 The financial system and financial institutions
Topic: The financial system and financial institutions


 
101. Individuals may be categorised as risk averse, risk neutral or risk takers. Risk averse individuals will accept a lower rate of return so as to reduce their risk exposure.