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

A. A company issue of shares to raise funds for an investment project
B. A government issue of bonds
C. A mortgage bond
D. A mortgage loan to buy a house
 
37. A ‘primary market' is a market:
A. only for equity issues by major or ‘primary' companies.
B. where borrowers sell new financial instruments to buyers.
C. where savers sell new financial claims to borrowers.
D. where government securities are bought and sold.
 
38. Buying bonds in the capital markets is an example of:
A. a secondary market transaction.
B. a primary market transaction.
C. companies raising new funds.
D. companies raising funds from a secondary source.
 
39. The market where existing securities are sold is the:
A. economic market.
B. primary market.
C. secondary market.
D. financial market.
 
40. When a large company issues a financial instrument into the financial markets:
A. funds flow indirectly from saver to borrower.
B. the cost of funds is generally higher owing to the risk involved.
C. it buys a financial claim.
D. it sells a financial claim.
 
41. Secondary markets:
A. allow borrowers to raise long-term funds.
B. facilitate capital-raising in the primary market.
C. do not raise new funds but offer liquidity.
D. all of the given answers.
 
42. The flow of funds through financial markets increases the volume of savings and investment by:
A. maintaining low interest rates.
B. storing large quantities of cash.
C. providing savers with a variety of ways to lend to borrowers.
D. offering lower interest rates than could be obtained directly from borrowers.
 
43. Which of the following statements is NOT a feature of financial markets?
A. Financial markets generally provide borrowers with lower cost funds than through a financial intermediary.
B. Funds are channelled directly from savers to borrowers.
C. Contractual agreements are issued between savers and borrowers.
D. Financial markets generally deal only with the purchase and sale of government securities.
 
44. Which of the following is NOT true? A well-functioning financial market:
A. has a steadily increasing liquidity for most assets.
B. offers increased ease of restructuring portfolios of assets.
C. has a quick assimilation of information into asset prices.
D. has a selection of financial assets with similar timings of cash flow.
 
45. Financial markets:
A. act as intermediaries between borrowers and savers.
B. directly issue claims on savers to borrowers.
C. involve the buying and selling of existing financial securities only.
D. involve both primary and secondary transactions.
 
46. Direct financing allows a borrower to:
A. easily assess a lender's level of default risk.
B. match amounts and maturity of investments with borrowers.
C. lower search and transaction costs.
D. diversify their funding sources.
 
47. Which of the following is NOT a possible disadvantage of direct financing?
A. Matching amounts of funds to be borrowed with those to be lent
B. Assessment of the risk of the borrower
C. Cost of preparing legal contracts, taxation and accounting advice
D. Cost of the financial intermediary involved
 
48. An issue of debentures is an example of:
A. a secondary market transaction.
B. fundraising through financial intermediaries.
C. a direct form of funding.
D. an indirect form of funding.
 
49. An example of an indirect form of funding is a/an:
A. issue of debentures.
B. issue of unsecured notes.
C. term loan.
D. issue of shares.
 
50. Which of the following is NOT a major advantage of direct finance?
A. Direct finance reduces financial institution' fees.
B. Direct finance allows borrowers to diversify sources of funds.
C. Direct finance allows greater flexibility in funding types.
D. Direct finance reduces search and transactions costs.
 
51. Financial intermediaries:
A. act as a third party by holding a portfolio of assets and issuing claims based on them to savers.
B. issue claims on future cash flows of individual borrowers directly to lenders.
C. transmit funds directly between lenders and borrowers.
D. usually provide lenders with lower returns than other financial institutions.
 
52. The flow of funds between lenders and borrowers is channelled:
A. indirectly through financial markets.
B. directly through financial intermediaries.
C. indirectly through financial intermediaries.
D. mainly through government agencies.
 
53. ‘Intermediaries, by managing the deposits they receive, are able to make long-term loans while satisfying savers' preferences for liquid claims.' This statement is referring to which important attribute of financial intermediation?