Intro-Market Review 1

True or False: maturity intermediation refers to the ability of financial institutions to connect suppliers of funds, who only want to lend out on a short-term basis, with users of funds who want long-term loans.

• True

• False

True or False: the markets in which users of funds raise cash by selling securities are called primary markets.

• True

• False

True or False: the liquidity offered on secondary markets can affect the price of a security offered in primary markets.

• True

• False

True or False: liquidity risk includes the risk that interest rates may suddenly fall.

• True

• False

True or False: real interest rates include anticipated inflation.

• True

• False

True or False: the equilibrium interest rate is where the demand and supply curves meet.

• True

• False

True or False: the government increases taxes which reduce the ability of individuals to save money. This should decrease interest rates.

• True

• False

True or False: the higher a bond’s coupon payment, the more exposed it is to interest rate risk.

• True

• False

True or False: money market instruments are generally low-risk investments, largely because their duration is higher than other debt instruments.

• True

• False

True or False: secondary markets for money market securities are typically more liquid than stocks.

• True

• False