FINMAR: PRELIM SUMMARY QUIZ

Financial market participants who provide funds are called

• deficit units.

• surplus units.

• primary units.

• secondary units.

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

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

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

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

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

Typically, increasing interest rates

• discourage individuals from saving.

• discourage corporate investments.

• encourage corporate expansion.

• encourage corporate borrowing

Every financial market performs the following function:

• It determines the level of interest rates.

• It allows common stock to be traded.

• It allows loans to be made.

• It channels funds from lenders-savers to borrowers-spenders

Financial markets have the basic function of

• bringing together people with funds to lend and people who want to borrow funds.

• assuring that the swings in the business cycle are less pronounced.

• assuring that governments need never resort to printing money.

• both (a) and (b) of the above.

Which of the following can be described as involving direct finance?

• A corporation’s stock is traded in an over-the-counter market.

• People buy shares in a mutual fund.

• A pension fund manager buys commercial paper in the secondary market.

• An insurance company buys shares of common stock in the over-the-counter markets.

• None of the above.