WorksheetsWhy Financial Markets are Important?
Total questions: 29
Worksheet time: 15mins
Every financial market performs the following function:
It determines the level of interest rates.
It allows ordinary shares 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.
both B and C of the above.
Which of the following can be described as involving direct finance?
A corporation's shares are traded in an over-the-counter market.
A corporation buys commercial paper issued by another corporation.
A pension fund manager buys commercial paper from the issuing corporation.
A pension fund manager buys commercial paper in the secondary market.
Which of the following can be described as involving indirect finance?
A bank buys a UK Treasury bill from one of its depositors.
A corporation buys commercial paper issued by another corporation.
A pension fund manager buys commercial paper in the primary market.
Both A and C of the above.
Financial markets improve economic welfare because.
they allow funds to move from those without productive investment opportunities to those who have such opportunities.
they allow consumers to time their purchases better.
they weed out inefficient firms.
they do all of the above.
they do A and B of the above.
A country whose financial markets function poorly is likely to
efficiently allocate its capital resources.
enjoy high productivity.
experience economic hardship and financial crises.
increase its standard of living.
Which of the following are considered securities?
A certificate of deposit
A share of British Petroleum ordinary shares
A Treasury bill
All of the above
Only A and B of the above
9. Long-term debt and equity instruments are traded in the ________ market.
capital
money
commodity
derivatives
Which of the following are secondary markets?
The London Stock Exchange
The UK government bond market
The over-the-counter stock markets
The options market
All of the above
A corporation acquires new funds only when its securities are sold in the
secondary market by an investment bank.
primary market by an investment bank.
secondary market by a stock exchange broker.
secondary market by a commercial bank.
Intermediaries who are agents of investors and match buyers with sellers of securities are called.
investment bankers.
traders.
brokers.
dealers.
none of the above.
Intermediaries who link buyers and sellers by buying and selling securities at stated prices are called.
investment bankers.
traders.
brokers.
dealers.
none of the above.
An important financial institution that assists in the initial sale of securities in the primary market is the
investment bank.
commercial bank.
stock exchange.
brokerage house.
Which of the following statements about financial markets and securities are true?
A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants.
A debt instrument is intermediate term if its maturity is less than one year.
A debt instrument is long term if its maturity is ten years or longer.
The maturity of a debt instrument is the time (term) that has elapsed since it was issued.
Which of the following markets is sometimes organised as an over-the-counter market?
The stock markets
The bond markets
The foreign exchange markets
The federal funds market
all of the above
Bonds that are sold in a foreign country and are denominated in that country's currency are known as
Foreign bonds
Eurobonds
Samurai bonds
Yankee bonds
Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as
foreign bonds.
Eurobonds.
Eurocurrencies.
Eurodollars.
Financial intermediaries can substantially reduce transaction costs per pound of transactions because their large size allows them to take advantage of
poorly informed consumers.
standardisation.
economies of scale.
their market power.
Which of the following is a contractual savings institution?
A life insurance company
A credit union
A building society
A mutual fund
Which of the following are investment intermediaries?
Finance companies
Mutual funds
Pension funds
All of the above
Only A and B of the above
The government regulates financial markets for two main reasons:
to ensure soundness of the financial system and to increase the information available to investors.
to improve control of monetary policy and to increase the information available to investors.
to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy.
to ensure soundness of financial intermediaries and to prevent financial intermediaries from earning less than the normal rate of return.
Foreign currencies that are deposited in banks outside the home country are known as
foreign bonds.
Eurobond.
Eurocurrencies.
Eurodollars.
US dollars deposited in foreign banks outside the United States or in foreign branches of US banks are referred to as
foreign bonds.
Eurobond.
Eurocurrencies.
Eurodollars.
The DAX (Germany) and the FTSE 100 (London) are examples of _______.
foreign stock exchanges
foreign currencies
foreign stock price indices
foreign mutual funds
Money markets and capital markets are distinguished by which of the following characteristics?
Money markets deal with short-term funds, whilst capital markets deal with long-term funds.
Money markets deal with long-term funds, whilst capital markets deal with short-term funds.
Both markets deal only with government securities.
Capital markets are only for individual investors.
It is important for an economy to have fully developed financial markets because:
they facilitate efficient allocation of resources and support economic growth.
they eliminate all risks in the economy.
they guarantee profits for all investors.
they prevent inflation completely.
Financial intermediaries are important to an economy because they:
facilitate the flow of funds between savers and borrowers
directly produce goods and services
eliminate the need for financial markets
increase government spending
How do over-the-counter markets operate?
They allow securities to be traded directly between parties without a centralised exchange.
They require all trades to go through a central stock exchange.
They only deal with government bonds and not other securities.
They are regulated by a single global authority.
A financial intermediary's risk-sharing activities can be described as asset transformation because:
they transform risky assets into safer assets for investors.
they eliminate all risks from financial markets.
they only deal with government securities.
they increase the risk for all parties involved.
