Chap 1 KTTTNH

Financial markets have the basic function of

• getting people with funds to lend together with 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.
• providing a risk-free repository of spending power.

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

• People buy shares in a mutual fund.
• A pension fund manager buys a short-term corporate security in the secondary market.
• A corporation issues new shares of stock.
• An insurance company buys shares of common stock in the over-the-counter markets

Equity holders are a corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders.

• debtors
• brokers
• underwriters
• residual claimants

Which of the following instruments are traded in a money market?

• state and local government bonds
• U.S. Treasury bills
• corporate bonds
• U.S. government agency securities

Economies of scale enable financial institutions to

• reduce transactions costs.
• avoid the asymmetric information problem.
• avoid adverse selection problems.
• reduce moral hazard.

Which of the following financial intermediaries is NOT a depository institution?

• a savings and loan association
• a commercial bank
• a credit union
• a finance company

Money is

• a flow of earnings per unit of time.
• anything that is generally accepted in payment for goods and services or in the repayment of debt.
• the total collection of pieces of property that are a store of value.
• always based on a precious metal like gold or silver.

If there are four goods in a barter economy, then one needs to know ________ prices in order to exchange one good for another.

• 4
• 5
• 6
• 8

________ is the narrowest monetary aggregate that the Fed reports

• M0
• M1
• M2
• M3

Kevin purchasing concert tickets with his debit card is an example of the ________ function of money.

• medium of exchange
• unit of account
• store of value
• specialization