Test Bank Ch 1

3744 words 15 pages
Chapter 1: Introduction


1. Primary markets are markets where users of funds raise cash by selling securities to funds suppliers.

Answer: True
Level: Easy

2. Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period.

Answer: False
Level: Easy

3. In a private placement the issuer typically sells the entire issue to one or only a few institutional buyers.

Answer: True
Level: Easy

4. The NYSE is an example of a secondary market.

Answer: True
Level: Easy

5. Privately placed securities are usually sold to one or more investment bankers and then resold to the general public.

Answer: False
Level: Easy

6. Money markets are the
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update the price or value of the primary market claims
III. reduce the cost of trading the primary market claims
A) I only
B) II only
C) I and II only
D) II and III only
E) I, II and III

Answer: E
Level: Medium

24. Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because:
A) FIs can diversify away some of their risk
B) FIs closely monitor the riskiness of their assets
C) The federal government requires them to do so
D) Both a) and b)
E) Both a) and c)

Answer: D
Level: Easy

25. Households are increasingly likely to both directly purchase securities (perhaps via a broker) and also place some money with a bank or thrift to meet different needs. Match up the given investor’s desire with the appropriate intermediary or direct security.
I. Money likely to be needed within 6 months
II. Money to be set aside for college in 10 years
III. Money to provide supplemental retirement income
IV. Money to be used to provide for children in the event of death
1. Depository institutions
2. Insurer
3. Pension fund
4. Stocks or bonds
A) 2, 3, 4, 1
B) 1, 4, 2, 3
C) 3, 2, 1, 4
D) 1, 4, 3, 2
E) 4, 2, 1, 3

Answer: D
Level: Medium

26. As of 2007, which one of the following derivatives instruments had the greatest amount of notional principle outstanding?
A) Futures
B) Swaps


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