1. ​Financial market participants who provide funds are called
 a. ​deficit units.
 b. ​surplus units.
 c. ​primary units.
 d. ​secondary units.
 
ANSWER:  b
 
2. Which of the following is NOT an issuer of bonds?
 a. households
 b. corporations
 c. the U.S. Treasury
 d. government agencies
 
ANSWER:  a
 
3. ​Behavioral finance
 a. ​applies concepts from sociology and anthropology to the behavior of market participants.
 b. ​studies the behavior of financial markets in response to changes in Federal Reserve policy. 
 c. ​applies psychology to financial decision making.
 d. ​explains why markets are efficient.
 
ANSWER:  c
 
4. The financial markets that facilitate the flow of short-term funds are known as
 a. money markets.
 b. capital markets.
 c. primary markets.
 d. secondary markets.
 
ANSWER:  a
 
5. Funds are provided to the initial issuer of securities in the
 a. secondary market.
 b. primary market.
 c. deficit market.
 d. surplus market.
 
ANSWER:  b
 
6. ​Which of the following is a capital market instrument?
 a. ​a six-month certificate of deposit
 b. ​a three-month Treasury bill
 c. ​a ten-year bond
 d. ​an agreement for a bank to loan funds directly to a company for nine months
 
ANSWER:  c
 
7. ​Which of the following is a money market security?
 a. ​Treasury note
 b. ​municipal bond
 c. ​mortgage
 d. ​commercial paper
 
ANSWER:  d
 
8. The creditors in the federal funds market are
 a. households.
 b. depository institutions.
 c. firms.
 d. government agencies.
 
ANSWER:  b
 
9. ​Investors in equity securities may earn a return from
 a. ​coupon payments and the return of principal at the maturity date.
 b. ​coupon payments and a capital gain when they sell the securities.
 c. ​quarterly dividends (if paid) and a capital gain when they sell the securities.
 d. ​quarterly dividends (if paid) and the return of principal at the maturity date.
 
ANSWER:  c
 
10. Money market securities generally have ____.
 a. relatively low liquidity, low expected return, and a high degree of credit risk
 b. relatively high liquidity, high expected return, and a high degree of credit risk
 c. relatively low liquidity, high expected return, and a low degree of credit risk
 d. relatively high liquidity, low expected return, and a low degree of credit risk
 
ANSWER:  d
 
11. If security prices fully reflect all available information, the markets for these securities are
 a. efficient.
 b. primary.
 c. overvalued.
 d. undervalued.
 
ANSWER:  a
 
12. ​If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.
 a. ​perfect
 b. ​active
 c. ​inefficient
 d. ​in equilibrium
 
ANSWER:  c
 
13. If financial markets are efficient, this implies that all securities should earn the same return.
 a. True
 b. False
 
ANSWER:  False
 
14. The Securities Act of 1933
 a. required complete disclosure of relevant financial information for publicly offered securities in the primary market.
 b. declared trading strategies to manipulate the prices of public secondary securities illegal.
 c. imposed heavy penalties for insider trading.
 d. required complete disclosure of relevant financial information for securities traded in the secondary market.
 e. All of these are correct.
 
ANSWER:  a
 
15. The Securities and Exchange Commission (SEC) was established by the
 a. Federal Reserve Act.
 b. McFadden Act.
 c. Securities Exchange Act of 1934.