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1. Banks provide direct financing between borrower-spenders and lender-savers.

A. True
B. False

2. Participants in direct financing do not include

A. borrower-spenders
B. credit unions

C. lender-savers

D. private-equity firms

3. Investment banking firms do not provide

A. distribution
B. insurance

C. origination

D. underwriting

4. The first time a corporation sells its stock to the public is known as an
A. initial direct financing
B. initial private placement
C. initial public offering
D. initial underwriting

5. A company receives funds when its securities are sold by an investor in a secondary market transaction.
A. True
B. False

6. Individual investors sell securities to other investors in a

A. money market
B. primary market

C. private placement market

D. secondary market

7. Which of the following securities is sold in the money market?

A. commercial paper
B. foreign currency derivative
C. mortgage

D. U.S. Treasury bond

8. Prices of securities traded in an efficient market tend to be

A. accurate
B. high
C. low

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D. stable

9. The New York Stock Exchange is an example of an organized market that provides a physical meeting place.
A. True
B. False

10. Which of the following is not a financial institution?

A. commercial bank
B. insurance company
C. investment fund

D. organized exchange

11. The __________ measures the inflation-adjusted cost of borrowing.

A. inflation rate
B. market interest rate

C. nominal interest rate

D. real interest rate

12. According to the Fisher equation, if the real rate of interest is 2.5% and the nominal rate of interest is 5.3%, the rate of
inflation is forecast to be approximately
A. 2.8%
B. 2.7%

C. 5.3%
D. 7.8%

13. Interest rates increase when

A. the demand for money increases
B. the supply of money increases

C. the supply and demand for money are equal

D. the supply and demand for money are not equal

14. The Fisher equation forecasts the difference between the real rate of interest and the rate of inflation.
A. True
B. False

15. Nominal interest rates tend to rise and fall with changes in the rate of inflation.
A. True
B. False

16. Who is considered to be the second most powerful person in the United States, after the President?
A. The Vice-President of the USA.

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B. The Secretary of Defense.

C. The US Attorney- General

D. The Federal Reserve Board Chairman.

17. The critical role of the financial system in an economy is to

A. regulate the operations of the commercial banks.

B. gather money from savers and channel it to borrowers.

C. provide managers with incentives to increase capital spending.

D. provide the President with information regarding the debt level in the country.

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100% (17 out of 17 correct)

1. Banks provide direct financing between borrower-spenders and lender-savers.
A. True

B. False

2. Participants in direct financing do not include

A. borrower-spenders
B. credit unions

C. lender-savers

D. private-equity firms

3. Investment banking firms do not provide

A. distribution
B. insurance

C. origination

D. underwriting

4. The first time a corporation sells its stock to the public is known as an
A. initial direct financing

B. initial private placement

C. initial public offering
D. initial underwriting

5. A company receives funds when its securities are sold by an investor in a secondary market transaction.
A. True

B. False

6. Individual investors sell securities to other investors in a

A. money market

B. primary market

C. private placement market

D. secondary market

7. Which of the following securities is sold in the money market?

A. commercial paper

2 of 3

B. foreign currency derivative

C. mortgage

D. U.S. Treasury bond

8. Prices of securities traded in an efficient market tend to be

A. accurate
B. high
C. low

D. stable

9. The New York Stock Exchange is an example of an organized market that provides a physical meeting place.
A. True

B. False

10. Which of the following is not a financial institution?

A. commercial bank

B. insurance company
C. investment fund

D. organized exchange

11. The __________ measures the inflation-adjusted cost of borrowing.

A. inflation rate

B. market interest rate

C. nominal interest rate

D. real interest rate

12. According to the Fisher equation, if the real rate of interest is 2.5% and the nominal rate of interest is 5.3%, the rate of
inflation is forecast to be approximately
A. 2.8%
B. 2.7%

C. 5.3%
D. 7.8%

13. Interest rates increase when

A. the demand for money increases
B. the supply of money increases

C. the supply and demand for money are equal

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D. the supply and demand for money are not equal

14. The Fisher equation forecasts the difference between the real rate of interest and the rate of inflation.
A. True

B. False

15. Nominal interest rates tend to rise and fall with changes in the rate of inflation.
A. True

B. False

16. Who is considered to be the second most powerful person in the United States, after the President?
A. The Vice-President of the USA.
B. The Secretary of Defense.

C. The US Attorney- General

D. The Federal Reserve Board Chairman.

17. The critical role of the financial system in an economy is to

A. regulate the operations of the commercial banks.

B. gather money from savers and channel it to borrowers.

C. provide managers with incentives to increase capital spending.

D. provide the President with information regarding the debt level in the country.

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