5. Markets for newly issued financial instruments with maturities shorter than one year are I. money markets II. capital markets III. primary markets IV. secondary markets A) Both I and III. B) Both I and IV. C) Both II and III. D) Both II and IV.

6. Which of the following is a money market instrument? A) A Treasury note. B) A federal funds loan. C) A corporate bond. 3 D) A mortgage loan.

7. Which of the following is a capital market instrument? A) A certificate of deposit. B) A federal funds loan. C) Commercial paper. D) A Treasury bond.

8. Which of the following is the most popular money market instrument by value of holdings in Ghana? A) Treasury bill. B) Eurobond. C) Federal fund. D) Bankers acceptance.

9. An example of asymmetric information in financial markets is that A) the borrower knows more than the lender. B) the lender knows more than the borrower. C) the borrower has a long-term goal while the lender has a short-term goal. D) the borrower and lender have different expectations about financial markets.

10. The problem associated with asymmetric information before the financial transaction occurs is known as A) moral hazard. B) adverse selection. C) free-riding. D) inside trading. 11. As a result of the adverse selection problem, A) lenders will tend to finance only low-risk projects. B) lenders will become reluctant to finance otherwise low-risk projects. C) only borrowers with good credit history are likely to seek loans. D) only borrowers with high net worth are likely to seek loans. 4 12. Moral hazard is a problem that arises A) only in primary markets. B) only in secondary markets. C) before a financial transaction is made. D) after a financial transaction is made. 13. Which of the following is a major reason for the existence of financial intermediaries? A) The existence of long-term financial instruments. B) Problems related to asymmetric information. C) The ability to borrow funds directly from savers. D) To avoid government regulation in other financial markets. 14. Which of the following requires financial intermediaries? A) Direct finance. B) Indirect finance. C) Direct purchase of retail goods. D) None of the above. 15. Mutual funds permit those who desire to save to pool their funds together for the purpose of purchasing financial instruments with large denominations. As a result, the average fund management costs are lower than they would be if individual savers tried to manage their funds individually. This is an example of A) moral hazard. B) adverse selection. C) asymmetric information. D) economies of scale. 16. Which of the following is a depository financial institution? A) A savings bank. B) An investment bank. C) A finance company. D) A pension fund. 5 17. Which of the following is not a depository financial institution? A) A savings and loan association. B) A credit union. C) A mutual fund company. D) A commercial bank. 18. Which of the following is an example of financial intermediation? A) An Internet company issues stock by selling shares directly to buyers. B) A woman opening a new business borrows funds from her uncle. C) A professor purchases shares of stock directly from a corporation. D) A bank extends a mortgage loan to a household. 19. Which of the following financial intermediaries specialize in extending credit to small, higher-risk businesses? A) Commercial banks. B) Savings and loan associations. C) Finance companies. D) Insurance companies. 20. Which of the following financial intermediaries specialize in making mortgage loans? A) Pension funds. B) Savings and loan associations. C) Finance companies. D) Insurance companies