Financial Institution

Section (4)
Chapter (2), An Overview of the Financial System, Con
True or False:
1) An Investment bank is a type of financial institution that accepts
deposits, offers checking account services, makes business, personal,
and mortgage loans. ( )
2) Investment banks specialize in providing services designed to
facilitate business operations. ( )
3) Financial Services is the area of finance concerned with the design
and delivery of advice and financial products to individuals, businesses,
and governments. ( )
4) A commercial bank is where most people do their banking, as
opposed to an investment bank. ( )
5) Banks can't act as payment agents. ( )
6) Protection of assets and protection against financial risk, secured
through insurance products, is an essential service that facilitates
individual and corporate investments that fuel economic growth.
( )

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MCQ:
1) Which of the following are securities?
A. A corporate bond
B. A share of Texaco common stock
C. A Treasury bill
D. Each of the above
E. Only (a) and (b) of the above
2) Which of the following statements about the characteristics of debt
and equity is untrue?
A. They can both be long-term financial instruments.
B. They can both be short-term financial instruments.
C. They both involve a claim on the issuer’s income.
D. They both enable a corporation to raise funds.
E. None of the above.
3) Which of the following statements about the characteristics of debt
and equity are true?
A. They can both be long-term financial instruments.
B. They can both be short-term financial instruments.
C. They both involve a claim on the issuer’s income.
D. Both (a) and (b) of the above.
E. Both (a) and (c) of the above.
4) Securities are _____ for the person who buys them, but are _____
for the individual or firm that issues them.
A. assets; liabilities
B. liabilities; assets
C. negotiable; nonnegotiable
D. nonnegotiable; negotiable financial stability.

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5) Forty or so dealers establish a “market” in these securities by
standing ready to buy and sell them.
A. Secondary stocks
B. Surplus stocks
C. U.S. government bonds
D. Common stocks
6) Which of the following are secondary markets?
A. The New York Stock Exchange
B. The U.S. government bond market
C. The over-the-counter stock market
D. All of the above
7) Secondary markets make financial instruments more
A. solid.
B. fluid.
C. liquid.
D. risky.
E. vapid.
8) An important function of secondary markets is to
A. make it easier to sell financial instruments to raise cash.
B. raise funds for corporations through the sale of securities.
C. create a market for bank demand deposits.
D. create a market for newly constructed houses.
E. make it easier for governments to raise taxes.
9) The higher a security’s price in the secondary market
A. the more funds a firm can raise by selling securities in the primary
market.

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 B. the more funds a firm can raise by selling securities in the
secondary market.
C. the less funds a firm can raise by selling securities in the primary
market.
D. the less funds a firm can raise by selling securities in the
secondary market.
E. secondary market prices have no effect on the funds a firm can
raise.
10) An important financial institution that assists in the initial sale of
securities in the primary market is the
A. investment bank.
B. commercial bank.
C. stock exchange.
D. brokerage house.
11) A corporation acquires new funds only when its securities are sold
A. in the secondary market by an investment bank.
B. in the primary market by an investment bank.
C. in the secondary market by a stock exchange broker.
D. in the secondary market by a commercial bank.
12) Which of the following assets is traded only in an over-the-counter
market?
A. treasury bonds
B. stocks
C. commodities
D. all of the above
E. none of the above
13) Which of the following markets is sometimes organized as an over-
the-counter market?
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 A. The stock market
B. The bond market
C. The foreign exchange market
D. The federal funds market
E. Each of the above
14) Bonds that are sold in a foreign country and are denominated in the
country’s currency in which they are sold are known as
A. foreign bonds.
B. Eurobonds.
C. equity bonds.
D. country bonds.
15) Bonds that are sold in a foreign country and are denominated in a
currency other than that of the country in which it is sold are known as
A. foreign bonds.
B. Eurobonds.
C. equity bonds.
D. country bonds.
16) The process of indirect finance using financial intermediaries is
called
A. direct lending.
B. financial intermediation.
C. disintermediation.
D. financial liquidation.
E. resource allocation.
17) The concept of diversification is captured by the statement
A. don’t look a gift horse in the mouth.
B. don’t put all your eggs in one basket.

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 C. it never rains, but it pours.
D. the only thing we have to fear is fear itself.
E. make hay while the sun shines.
18) Studies of the major developed countries show that when
businesses go looking for funds to finance their activities they usually
obtain these funds from
A. government agencies.
B. equities markets.
C. financial intermediaries.
D. bond markets.
19) The primary assets of commercial banks include
A. mortgages.
B. consumer and business loans.
C. U.S. government securities.
D. all of the above.
E. only (a) and (b) of the above.
20) U.S. Treasury bills
A. are the safest of all money market instruments.
B. sell at a discount because they have no interest payments.
C. are the most liquid of the money market securities.
D. are all of the above.
E. are only (b) and (c) of the above.
21) U.S. Treasury bills are issued in
A. three-, six-, nine-, and twelve-month maturities.
B. three-, nine-, and twelve-month maturities.
C. three-, six-, and twelve-month maturities.
D. three-, and six-month maturities.