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Testbank
to accompany
Financial Markets, Institutions & Money 3 rd
edition
- / 4
Chapter 1: Overview
© John Wiley & Sons Australia, Ltd 2013 1.1
Chapter 1: Overview
True False Questions
- One role of the financial system is to transmit information between savers and
borrowers.
- True
*b. False
Correct answer: b
- A surplus spending unit is an economic unit whose income in a period exceeds
planned expenditure.
*a. True
- False
Correct answer: a
- A major role of the financial system is to channel funds from surplus spending units
to deficit spending units.
*a. True
- False
Correct answer: a
- IOUs are financial claims against someone else’s money at a future date.
*a. True
- False
Correct answer: a
- A payment system is a system that permits the settlement of commercial and financial
transactions.
*a. True
- False
Correct answer: a
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Testbank to accompany Financial Markets, Institutions and Money 3e © John Wiley & Sons Australia, Ltd 2013 1.2
- Information asymmetry means that both contracting parties have incomplete access to
some relevant information.
- True
*b. False
Correct answer: b
- Adverse selection is present in a market when the contracting parties have asymmetric
information and the less informed party bears negative consequences.
*a. True
- False
Correct answer: a
- Direct finance requires an exact match of preferences in terms of investment horizon
between surplus spending units and deficit spending units.
- True
*b. False
Correct answer: b
- Liabilities of financial intermediaries are indirect financial claims.
*a. True
- False
Correct answer: a
- Equity funds are funds supplied in the form of loans.
- True
*b. False
Correct answer: b
- In direct finance DSUs and SSUs trade with each other directly without middlemen.
- True
*b. False
Correct answer: b
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Chapter 1: Overview
© John Wiley & Sons Australia, Ltd 2013 1.3
- Commercial banks’ lending to businesses is a form of indirect finance.
*a. True
- False
Correct answer: a
- The underwriting spread is the profit that a dealer is willing to make when buying and
selling financial securities in an over-the-counter market.
- True
*b. False
Correct answer: b
- Brokers ‘make a market’ by managing an inventory of financial securities.
- True
*b. False
Correct answer: b
- Building societies and credit unions are a type a commercial banks.
- True
*b. False
Correct answer: b
- Managed funds are a type of authorised deposit-taking institutions.
- True
*b. False
Correct answer: b
- Superannuation funds are also known as credit unions.
- True
*b. False
Correct answer: b
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