Assignment 1 Instructions: 1. Due date: 8:00 pm, 02/07/2020 (Friday). Late assignments will not be graded. 2. Please put all your answer in the table below and upload your file (Office Word, PDF, etc.) to Blackboard. 3. DO NOT email me your assignment. 4. There are 26 multiple choice questions. Each question has 4 points. The highest grade you can get for this assignment is 100 points. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Questions based on “02 Introduction - An Overview of the Financial System - Part 1”: 1. Financial markets have the basic function of A) getting people with funds to lend together with people who want to borrow funds. B) assuring that the swings in the business cycle are less pronounced. C) assuring that governments need never resort to printing money. D) providing a risk-free repository of spending power. 2. With ________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets. A) active B) determined C) indirect D) direct 3. Which of the following can be described as involving indirect finance? A) You make a loan to your neighbor. B) A corporation buys a share of common stock issued by another corporation in the primary market. C) You buy a U.S. Treasury bill from the U.S. Treasury at TreasuryDirect.gov. D) You make a deposit at a bank. 4. Financial markets improve economic welfare because A) they channel funds from investors to savers. B) they allow consumers to time their purchase better. C) they weed out inefficient firms. D) they eliminate the need for indirect finance. 5. If the maturity of a debt instrument is less than one year, the debt is called A) short-term. B) intermediate-term. C) long-term. D) prima-term. 6. Which of the following statements about the characteristics of debt and equity is FALSE? A) They can both be long-term financial instruments. B) They can both be short-term financial instruments. C) They both involve a claim on the issuer's income. D) They both enable a corporation to raise funds. 7. Which of the following benefits directly from any increase in the corporation's profitability? A) a bond holder B) a commercial paper holder C) a shareholder D) a T-bill holder 8. An important function of secondary markets is to A) raise funds for corporations through the sale of securities. B) create a market for people to speculate. C) make it easier for governments to raise taxes. D) make it easier to sell financial instruments to raise funds. 9. In a(n) ________ market, dealers in different locations buy and sell securities to anyone who comes to them and is willing to accept their prices. A) exchange B) over-the-counter C) common D) barter 10. A financial market in which only short-term debt instruments are traded is called the ________ market. A) bond B) money C) capital D) stock 11. Equity instruments are traded in the ________ market. A) money B) bond C) capital D) commodities 12. U.S. Treasury bills pay no interest but are sold at a ________. That is, you will pay a lower purchase price than the amount you receive at maturity. A) premium B) collateral C) default D) discount 13. ________ are short-term loans in which Treasury bills serve as collateral. A) Negotiable certificates of deposit B) Repurchase agreements C) Federal funds D) U.S. government agency securities 14. Federal funds are A) funds raised by the federal government in the bond market. B) loans made by the Federal Reserve System to banks. C) loans made by banks to each other and loans by some nonbank financial institutions to banks. D) loans made by banks to the Federal Reserve System. 15. Which of the following are short-term financial instruments? A) a repurchase agreement B) a share of Walt Disney Corporation stock C) a Treasury note with a maturity of four years D) a residential mortgage 16. Which of the following instruments is NOT traded in a money market? A) residential mortgages B) U.S. Treasury Bills C) negotiable bank certificates of deposit D) commercial paper 17. Bonds issued by state and local governments are called ________ bonds. A) corporate B) Treasury C) municipal D) commercial 18. Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as A) foreign bonds. B) Eurobonds. C) equity bonds. D) country bonds. 19. If the Argentina government sells a bond in Hong Kong and it is denominated in U.S. dollar, the bond is a A) Eurobond. B) foreign bond. C) British bond. D) currency bond. 20. If Toyota (headquarters in Japan) sells a $1,000 bond in the United States, the bond is a A) foreign bond. B) Eurobond. C) Tokyo bond. D) currency bond. 21. U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called A) Atlantic dollars. B) Eurodollars. C) foreign dollars. D) outside dollars. Questions based on “02 Introduction - An Overview of the Financial System - Part 2”: 22. Financial institutions that accept deposits and make loans are called ________ institutions. A) investment B) contractual savings C) depository D) underwriting 23. ________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds. A) Mutual funds B) Investment banks C) Finance companies D) Credit unions 24. The primary assets of money market mutual funds are A) stocks. B) bonds. C) money market instruments. D) deposits. 25. A mutual fund that is organized as a limited partnership with high minimum investments is called a A) hedge fund. B) investment bank. C) mutual savings bank. D) money market mutual fund. 26. An investment bank purchases securities from a corporation at a predetermined price and then resells them in the market. This process is called A) underwriting. B) underhanded. C) understanding. D) undertaking.
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