b. overvalued
c. fairly priced
d. efficient
e. None of these are correct.
ANSWER: b
82. Which of the following are NOT considered depository financial institutions?
a. finance companies
b. commercial banks
c. savings institutions
d. credit unions
e. All of these are depository financial institutions.
ANSWER: a
83. The main source of funds for ____ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses.
a. savings institutions
b. commercial banks
c. mutual funds
d. finance companies
e. pension funds
ANSWER: d
84. Which of the following statements is incorrect?
a. Financial markets attract funds from investors and channel the funds to corporations.
b. Money markets enable corporations to borrow funds on a short-term basis so that they can support their existing operations.
c. Financial institutions serve solely as intermediaries with the financial markets and never serve as investors.
d. Investors seek to invest their funds in the stock of firms that are presently undervalued and have much potential to improve.
ANSWER: c
85. Which of the following facilitates the exchange of currencies?
a. money market
b. foreign exchange market
c. New York Stock Exchange
d. federal funds market
ANSWER: b
86. Debt securities issued by a small firm may be ________, meaning that _______ investors want to invest in those securities.
a. liquid; many
b. liquid; not many
c. illiquid; not many
d. illiquid; many
ANSWER: c
87. Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific payments at regular intervals.
a. True
b. False
ANSWER: False
88. ____________ applies psychology to financial decisions and offers an explanation for why markets are not always efficient.
a. Psychological marketing
b. Behavioral finance
c. Inefficient markets theory
d. Financial psychology
ANSWER: b
89. International integration of securities markets allows
a. governments and corporations to have easier access to funding from creditors and investors in other countries.
b. investors and creditors to benefit from investment opportunities in other countries.
c. one country’s financial problems to adversely affect other countries.
d. All of these are correct.
ANSWER: d
90. The foreign exchange market facilitates the exchange of
a. information between investors in different countries.
b. debt securities.
c. equity securities.
d. currencies.
ANSWER: d
91. If a depository institution is experiencing more deposits than it needs to make loans or invest in securities, it can lend its excess funds to another depository institution through the
a. Federal Reserve’s trading desk.
b. options market.
c. federal funds market.
d. federal exchange market.
ANSWER: c
92. Most of the funds that insurance companies receive from premiums are invested in short-run money market securities.
a. True
b. False
ANSWER: False
93. The risk that financial problems could spread among financial institutions and across financial markets, causing a collapse of the financial system, is known as
a. systemic risk.
b. leverage risk.
c. financial meltdown risk.
d. credit risk.
ANSWER: a
94. Systemic risk exists because
a. there is no government regulation of financial markets.
b. financial institutions invest in similar securities and therefore are similarly exposed to large declines in prices of those securities.