1. Regarding banking liquidity, which of the following statement is correct?

a) A bank should strive to maintain the matching between asset liquidity and financing liquidity.

b) A bank should strive to maintain the matching between asset maturity and liability maturity.

c) Central banks may step in to provide liquidity when necessary.

d) A bank run occurs when bank assets are illiquid.

2. Moral hazard______

a) may benefit the lender at the expense of the borrower.

b) may occur in a context of full transparency.

c) does not occur in an economy with financial intermediation.

d) represents an indirect cost of direct financing.

3. In an efficient market, _________

a) resources are allocated to the part with the best information.

b) asset prices adjust instantly to historical information.

c) all the transactions are fair and transparent.

d) asset prices send accurate guidance regarding asset allocation

4. Which of the following statements about moral hazard is INCORRECT?

a) Moral hazard exist only in an imperfect financial market.

b) A direct consequence of moral hazard is the free riding problem.

c) Moral hazard can occur at the monitoring stage of a transaction.

d) Moral hazard increases the cost of capital.

5. Which of the following choices gives the correct general order of asset liquidity from high to low?

a) A treasury bill issued by the U.K government, a commercial bill issued by an FTSE 250 company, a stock issued by an FTSE 100 company, a bond issued by an FTSE 250 company, a mortgage loan lent to a household.

b) A treasury bill issued by the U.K government, a stock issued by an FTSE 100 company, a commercial bill issued by an FTSE 250 company, a bond issued by an FTSE 250 company, mortgage loan lent to a household.

c) A treasury bill issued by the U.K, government, a stock issued by an FTSE 100 company, a bond issued by an FTSE 250 company, a commercial bill issued by an FTSE 250 company, a mortgage loan lent to a household.

d) A treasury bill issued by the U.K government, a bond issued by an FTSE 250 company, a stock issued by an FTSE 100 company, a commercial bill issued by an FTSE 250 company, a mortgage loan lent to a household.

6. What is (are) the primary role(s) of the financial system?

a) Transforming low-risk claims to high-risk claims.

b) An intermediary between the surplus agents and deficit agents.

c) Transforming short-term claims to long-term claims.

d) All of the above.

7. Which of the following is NOT primarily a fee-generating business for a bank?

a) Credit card services to businesses.

b) IPO underwriting.

c) Insurance against losses due to accidents.

d) Lending to households.

8. Derivatives______

a) can be used to take advantage of arbitrage opportunities on an illiquid financial market.

b) have indefinity term to maturity.

c) are more liquid than their underlying basic securities.

d) are designed to provide higher returns as compensation for their high risk

9. Which of the following statements about venture capital (VC) funds is INCORRECT?

a) VC funds use both debt and equity financing in their investments.

b) VC funds usually invest in new, innovative and often risky companies.

c) VC investments are often of high liquidity.

d) VC funds make medium to long-term investments.

10. Which of the following statement is CORRECT?

a) There is a trend of globalization among the stock exchanges through mergers and acquisitions.

b) The transaction cost is higher under an order-driven system than under a quote-driven system.

c) As shareholders have limited liability, it is less risky to invest in shares than in debt.

d) None of the above is correct.