Select the letter that best represents your choice.

1. Currency includes a) Paper money and coins. b) Paper money, coins, and checks. c) Paper money and checks. d) Paper money, coins, checks, and savings deposits.

2. Poorly performing financial markets can be the cause of a) Wealth. b) Poverty. c) Financial stability. d) Financial expansion.

3. High interest rates might ________ purchasing a house or car but at the same time high interest

rates might ________ saving. a) Discourage; encourage b) Discourage; discourage c) Encourage; encourage d) Encourage; discourage

4. Stock prices are a) Relatively stable trending upward at a steady pace. b) Relatively stable trending downward at a moderate rate. c) Extremely volatile. d) Unstable trending downward at a moderate rate.

5. Financial institutions search for ________ has resulted in many financial innovations. a) Higher profits b) Regulations c) Respect d) Higher risk

6. Which of the following is NOT a financial institution? a) A life insurance company b) A pension fund c) A credit union d) A business college

7. The delivery of financial services electronically is called a) E-business. b) E-commerce. c) E-finance. d) E-possible

8. Money is defined as a) Bills of exchange. b) Anything that is generally accepted in payment for goods or services or in the repayment of debt. c) A risk-free repository of spending power. d) The unrecognized liability of governments.

9. Which of the following statements about the characteristics of debt and equities is TRUE? a) They can both be long-term financial instruments. b) Bond holders are residual claimants. c) The income from bonds is typically more variable than that from equities. d) Bonds pay dividends

10. Long-term debt has a maturity that is a) Between one and ten years. b) Less than a year. c) Between five and ten years. d) Ten years or longer.

11. When I purchase ________, I own a portion of a firm and have the right to vote on issues important

to the firm and to elect its directors. a) Bonds b) Bills c) Notes d) Stock

12. ________ work in the secondary markets matching buyers with sellers of securities. a) Dealers b) Underwriters c) Brokers d) Claimants

13. An important function of secondary markets is to a) Make it easier to sell financial instruments to raise funds. b) Raise funds for corporations through the sale of securities. c) Make it easier for governments to raise taxes. d) create a market for newly constructed houses.

14. Secondary markets make financial instruments more a) Solid. b) Vapid. c) Liquid. d) Risky.

15. A financial market in which only short-term debt instruments are traded is called the ________

market. a) Bond b) Money c) Capital d) Stock

16. Equity and debt instruments with maturities greater than one year are called ________ market

instruments. a) Capital b) Money c) Federal

17. If bad credit risks are the ones who most actively seek loans and, therefore, receive them from

financial intermediaries, then financial intermediaries face the problem of a) Moral hazard. b) Adverse selection. c) Free-riding. d) Costly state verification

18. An example of the problem of ________ is when a corporation uses the funds raised from selling

bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their

families. a) Adverse selection b) Moral hazard c) Risk sharing d) Credit risk

19. Financial intermediaries have developed expertise in monitoring the parties they lend to, thus

reducing losses due toa) Moral hazard. b) Adverse selection. c) Free-riding. d) Economies of scope.

20. What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent? a) $453.51 b) $500.00 c) $476.25 d) $550.00

21. To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20

million ignores the process of a) Face value. b) Par value. c) Deflation. d) Discounting the future.

22. If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is a) $650. b) $1,300. c) $130. d) $13.

23. A $1,000 face value coupon bond with a $60 coupon payment every year has a coupon rate ofa) 0.6 percent. b) 5 percent. c) 6 percent. d) 10 percent.

24. If the amount payable in two years is $2,420 for a simple loan at 10 percent interest, the loan

amount is a) $1,000. b) $1,210. c) $2,000. d) $2,200.

25. The present value of a fixed-payment loan is calculated as the ________ of the present value of all

cash flow payments. a) Sum b) Difference c) Multiple d) Log