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1 Copyright © 2018 Pearson Education, Inc.Financial Markets and Institutions, 9e (Mishkin) Chapter 1 Why Study Financial Markets and Institutions?
1.1 Multiple Choice
1) Financial markets and institutions
- involve the movement of huge quantities of money.
- affect the profits of businesses.
- affect the types of goods and services produced in an economy.
- do all of the above.
- do only A and B of the above.
Answer: D
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
2) Financial market activities affect
- personal wealth.
- spending decisions by individuals and business firms.
- the economy's location in the business cycle.
- all of the above.
Answer: D
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
3) Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called
- commodity markets.
- funds markets.
- derivative exchange markets.
- financial markets.
Answer: D
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
4) The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the
- inflation rate.
- exchange rate.
- interest rate.
- aggregate price level.
Answer: C
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
(Financial markets and institutions, 9e Frederic Mishkin, Stanley Eakins) (Test Bank all Chapters) 1 / 4
2 Copyright © 2018 Pearson Education, Inc.5) The bond markets are important because
- they are easily the most widely followed financial markets in the United States.
- they are the markets where interest rates are determined.
- they are the markets where foreign exchange rates are determined.
- all of the above.
Answer: B
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
6) Interest rates are important to financial institutions since an interest rate increase ________ the cost of acquiring funds and ________ the income from assets.
- decreases; decreases
- increases; increases
- decreases; increases
- increases; decreases
Answer: B
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
7) Typically, increasing interest rates
- discourages individuals from saving.
- discourages corporate investments.
- encourages corporate expansion.
- encourages corporate borrowing.
- none of the above.
Answer: B
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
8) Compared to interest rates on long-term U.S. government bonds, interest rates on ________ fluctuate more and are lower on average.
- medium-quality corporate bonds
- low-quality corporate bonds
- high-quality corporate bonds
- three-month Treasury bills
- none of the above
Answer: D
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
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3 Copyright © 2018 Pearson Education, Inc.9) Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.
- more; lower
- less; lower
- more; higher
- less; higher
Answer: A
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
10) The stock market is important because
- it is where interest rates are determined.
- it is the most widely followed financial market in the United States.
- it is where foreign exchange rates are determined.
- all of the above.
Answer: B
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
11) Stock prices since the 1980s have been
- relatively stable, trending upward at a steady pace.
- relatively stable, trending downward at a moderate rate.
- extremely volatile.
- unstable, trending downward at a moderate rate.
Answer: C
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
12) The largest one-day drop in the history of the American stock markets occurred in
A) 1929.
B) 1987.
C) 2000.
D) 2001.
Answer: B
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
13) A declining stock market index due to lower share prices
- reduces people's wealth and as a result may reduce their willingness to spend.
- increases people's wealth and as a result may increase their willingness to spend.
- decreases the amount of funds that business firms can raise by selling newly issued stock.
- both A and C of the above.
- both B and C of the above.
Answer: D
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
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4 Copyright © 2018 Pearson Education, Inc.14) Changes in stock prices
- affect people's wealth and their willingness to spend.
- affect firms' decisions to sell stock to finance investment spending.
- are characterized by considerable fluctuations.
- all of the above.
- only A and B of the above.
Answer: D
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
15) (I) Debt markets are often referred to generically as the bond market.(II) A bond is a security that is a claim on the earnings and assets of a corporation.
- (I) is true, (II) false.
- (I) is false, (II) true.
- Both are true.
- Both are false.
Answer: A
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
16) (I) A bond is a debt security that promises to make payments periodically for a specified period of time. (II) A stock is a security that is a claim on the earnings and assets of a corporation.
- (I) is true, (II) false.
- (I) is false, (II) true.
- Both are true.
- Both are false.
Answer: C
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
17) The price of one country's currency in terms of another's is called
- the foreign exchange rate.
- the interest rate.
- the Dow Jones industrial average.
- none of the above.
Answer: A
Topic: Chapter 1.1 Why Study Financial Markets
Question Status: Previous Edition
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