TRUEFALSE QUESTIONS - and Money, 12e Kidwell Blackwell Whidbee Sias (All

Test Bank for Financial Institutions, Markets, and Money, 12e Kidwell Blackwell Whidbee Sias (All Chapters) 1 / 4

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CHAPTER 1

TRUE/FALSE QUESTIONS

(T) 1. The purpose of the financial system is to bring savers and borrowers together.

(F) 2. Businesses are never deficit spending units (DSUs).

(T) 3. A financial claim is an “IOU” from a deficit spending unit.

(T) 4. Investment bankers help deficit spending units (DSUs) bring new primary security issues to market.

(F) 5. Deposits in a credit union by a household are an example of direct finance.

(F) 6. Most banks are considered systemically risky under the 2010 Dodd Frank bill.

(F) 7. Sales finance companies specialize in mortgage lending.

(F) 8. Finance companies take small consumer deposits and make large consumer loans.

(T) 9. Liabilities of financial intermediaries often include commercial paper.

(T) 10. Direct finance requires a more or less exact match of preferences between DSUs and SSUs

(F) 11. In the modern financial system, there must be an equal number of DSUs and surplus spending units (SSUs) in a period.

(T) 12. Every financial claim appears on two balance sheets.

(T) 13. Without a financial sector, real investment must be financed internally by the deficit spending unit.

(T) 14. Depository intermediaries issue claims that are for the most part highly liquid.

(T) 15. A household is a surplus spending units when income for the period exceeds spending.

(F) 16. A surplus spending unit (SSU) must hold a claim until its scheduled maturity.

(T) 17. Pension funds transfer spending power from the work period to the retirement period.

(T) 18. SSUs may prefer intermediated financing to direct financing if they are seeking liquidity and safety for their investments.

(T) 19. Commercial banks often lend to businesses in direct financial markets.

(F) 20. “Futures contract” and “forward contract” are identical terms.

(T) 21. Mortgages are capital market debt securities.

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2 (T) 22. Households are the major source of funds to the financial system.

(F) 23. Secondary markets are important because they provide funds directly to deficit spending units (DSUs).

(F) 24. Primary markets were created to offer liquidity and ways for investors to alter the risk of their portfolios.

(T) 25. The New York Stock Exchange is an example of an organized exchange.

(T) 26. The money market provides short-term liquidity; the capital market finances long-term corporate growth.

(T) 27. Private placements are the simplest form of direct finance.

(T) 28. Competition among financial intermediaries tends to force borrowing rates downward.

(T) 29. Money markets have a greater variety of investors than borrowers.

(F) 30. Every asset is someone else’s liability, but not every liability is someone else’s asset.

(T) 31. Money market instruments are a form of short-term debt.

(T) 33. The money market is a dealer market, not an exchange, and has no specific location.

(T) 34. Most Federal agency financial activity is designed to increase funding and reduce the cost of borrowing for certain targeted sectors of the economy.

(T) 35. The money market is a market where liquidity is bought and sold.

(T) 36. Life insurance liabilities are generally more predictable than property and casualty insurer claims.

(F) 37. Federal funds are the funds provided by the Federal Government for domestic corporations for long-term growth.

(F) 38. Dealers bring buyer and seller together; brokers make a market.

(F) 39. OTC markets are not very important any more.

(T) 40. When a stock is listed on an exchange, members may trade it on the floor of the exchange.

(T) 41. Primary markets are markets where users of funds raise cash by selling securities to funds suppliers.

(F) 42. Privately placed securities are usually sold to one or more investment bankers and then resold to the general public.

(T) 43. Financial institutions such as commercial banks typically have assets that are riskier than their liabilities.

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MULTIPLE CHOICE QUESTIONS

(b) 1. A surplus spending unit’s

• income and expenditures for the period are equal.
• income for the period exceeds expenditures.
• expenditures for the period exceed receipts.
• spending is entirely financed by credit cards

(c) 2. Which of the following is an example of indirect financing?

• a surplus spending unit (SSU) purchasing a financial claim from a deficit

spending unit (DSU)

• a surplus spending unit (SSU) purchasing a preexisting financial claim from a

dealer

• a surplus spending unit (SSU) purchasing a financial claim from a commercial

bank

• a surplus spending unit (SSU) purchasing a financial claim from an underwriter

(d) 3. Which of the following does not take deposits?

• commercial banks.
• savings and loan associations.
• credit unions.
• finance companies.

(c) 4. When the financial system has achieved a high degree of efficiency,

• Borrowers are able to finance at the highest possible cost.
• Surplus spending units are able to receive the lowest return on their savings.
• Transaction and intermediation costs are low.
• Lenders will have a limited choice of financial investments.

(c) 5. An efficient financial system

• eliminates search and transactions costs
• is one that is tightly regulated to eliminate risk
• promotes economic growth and social progress
• depends on high volumes of “direct” transactions

(a) 6. Pension funds tend to invest in

• higher-yielding long-term securities
• money market securities exclusively
• government securities exclusively
• debt securities only

(d) 7. Financial institutions facilitate the flow of investment funds

• from savers to borrowers
• from Surplus spending units (SSUs) to deficit spending units (DSUs)
• from the household sector to the business sector
• all of the above

(d) 8. Which sector has been most consistently in a surplus budget position?

• Business
• Federal Government
• Banks
• Household

(d) 9. Which of the following are “economic units”?

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