Chapter 1 Why Study Financial Markets and Institutions?

Financial Markets and Institutions Tenth Edition Frederic Mishkin Stanley Eakins Test Bank For 1 / 4

Financial Markets and Institutions, 10e (Mishkin) Chapter 1 Why Study Financial Markets and Institutions?

1.1 Multiple Choice Questions 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

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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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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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