1. A financial institution can offer liquid liabilities such as deposits that have low risk in order to fund illiquid bank assets with higher risk because of both ________ and ________.
2. A. Primary markets; foreign exchange markets
3. B. Price risk; collateral
4. C. Monitoring; diversification
5. D. Free riders; regulations
6. E. Diversification; high equity returns

2.The predominate assets on the Federal Reserve Banks balance sheet are

A. Gold and Foreign Currency held

B. Reserves of Depository Institutions

C. Currency in circulation

D. Vault Cash of Depository Institutions

E. U.S. Treasury Securities

3.For a Treasury Bill selling in the secondary market, the bid price is __________.

A. The price at which the dealer in T-bills is willing to sell the bill

B. The price at which the dealer in T-bills is willing to buy the bill

C. Greater than the ask price of the treasury bill expressed in dollar terms

D. The price at which the investor can buy the treasury bill

E. None of the above

4._______ is the process of creating publicly-traded debt securities that are backed by sold and/or packaged mortgages.

A. Securitization

B. Stock diversification

C. Collateralization

D. Market capitalization

E. Mortgage globalization

5.Which of the following are true for a coupon bond?

A. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.

B. The price of a coupon bond and the yield to maturity are negatively related.

C. The yield to maturity is greater than the coupon rate when the bond price is below the par value.

D. All three of the above are true.

E. Only (A) and (B) of the above are true.