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Indicate whether the statement is true or false.

• The credit crisis in the 2008–2009 period was caused by weak economies in Asia.
• True
• False

• Securities that are not as safe and liquid as other securities are never considered for investment by anyone.
• True
• False

• Common types of capital market securities include Treasury bills and commercial paper.
• True
• False

• Systemic risk is the risk that a large decline in one stock’s price could cause investors to sell their stock in other

companies.

• True
• False

• If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break

down securities to the precise size they desire.

• True
• False

• Commercial banks in aggregate have more assets than credit unions.
• True
• False

• By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions.
• True
• False

• Those financial markets that facilitate the flow of short-term funds (with maturities of less than one year) are known as

capital markets, while those that facilitate the flow of long-term funds are known as money markets.

• True
• False

• Capital market securities are commonly issued in order to finance the purchase of assets such as buildings, equipment,

or machinery.

• True
• False

• Securities represent a claim on the issuer.
• True
• False

(Financial Markets & Institutions, 13e Jeff Madura) (Test Bank, Answer at the end of each Chapter) 1 / 4

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• In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of scope.
• True
• False

• Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns

than speculating in the underlying asset itself.

• True
• False

• Institutional investors not only provide financial support to companies but also exercise some degree of corporate

control over them.

• True
• False

• Savings institutions are a type of nondepository institution.
• True
• False

• Common types of money market securities include negotiable certificates of deposit and Treasury bills.
• True
• False

• When security prices fully reflect all available information, the markets for these securities are said to be efficient.
• True
• False

• When a depository institution offers a loan, it is acting as a creditor.
• True
• False

• When security prices fully reflect all available information, the markets for these securities are said to be perfect.
• True
• False

• Since markets are efficient, institutional and individual investors should ignore the various investment instruments

available.

• True
• False

• A broker executes securities transactions between two parties and charges a commission for the transaction.
• True
• False

• The Sarbanes-Oxley Act requires firms to provide complete and accurate financial information and imposes penalties

on key executives of the firm if financial fraud is detected.

• True 2 / 4

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• False

• Bonds commonly have maturities of one to three years.
• True
• False

• An asymmetric information problem arises when one party to a transaction has information that is not available to the

other party, as when a corporation fails to tell investors the full extent of its losses.

• True
• False

• If financial markets are efficient, this implies that all securities should earn the same return.
• True
• False

• The total asset value of savings institutions is larger than that of commercial banks.
• True
• False

• Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.
• True
• False

• The adoption of the euro by 19 European countries has increased business between those countries and created a more

competitive environment in Europe.

• True
• False

• Debt securities include commercial paper, Treasury bonds, and corporate bonds.
• True
• False

• Debt securities represent debt (borrowed funds) incurred by the issuer.
• True
• False

• Money market securities are commonly issued to finance the purchase of assets such as buildings, equipment, or

machinery.

• True
• False

• Most of the funds that insurance companies receive from premiums are invested in short-run money market securities.
• True
• False

• Securities represent a claim on the provider of funds. 3 / 4

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• True
• False

• Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific

payments at regular intervals.

• True
• False

Indicate the answer choice that best completes the statement or answers the question.

• The Securities Act of 1933
• required complete disclosure of relevant financial information for publicly offered securities in the primary

market.

• declared trading strategies to manipulate the prices of public secondary securities illegal.
• imposed heavy penalties for insider trading.
• required complete disclosure of relevant financial information for securities traded in the secondary market.
• All of these are correct.

• When a securities firm acts as a broker, it
• guarantees the issuer a specific price for newly issued securities.
• makes a market in specific securities by adjusting its own inventory.
• executes securities transactions between two parties.
• purchases securities for its own account.

• The financial markets that facilitate the flow of short-term funds are known as
• money markets.
• capital markets.
• primary markets.
• secondary markets.

• Which of the following are NOT considered depository financial institutions?
• finance companies
• commercial banks
• savings institutions
• credit unions
• All of these are depository financial institutions.

• Which of the following is NOT a reason why depository financial institutions are popular?
• They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most

surplus units.

• They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units.
• They accept the risk on loans that they provide.
• They use their information resources to act as brokers, executing securities transactions between two parties.
• They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units.

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