Chapter 02 Financial Markets and Institutions


41. Which of the following financial intermediaries has shown a preference for investing in long-term financial assets?
A. Commercial banks
B. Insurance companies
C. Finance companies
D. Savings banks

42. Which of the following financial intermediaries can loan money directly to businesses?
A. Mutual funds
B. Pension funds
C. Insurance companies
D. All of these

43. Insurance companies can usually cover the claims of policyholders because:
A. the incidence of claims normally averages out.
B. they issue thousands of insurance policies.
C. the cost of paying for claims has already been factored into the price of the policies.
D. all of these.

44. Which of the following is not typically considered a function of financial intermediaries?
A. Providing a payment mechanism
B. Investing in real assets
C. Accumulating funds from smaller investors
D. Spreading, or pooling risk among individuals

45. U.S. bonds and other debt securities are mostly held by:
A. institutional investors.
B. households.
C. foreign investors.
D. state and local governments.

46. Liquidity is important to a mutual fund because:
A. a fund that is less liquid will attract more investors.
B. the fund's shareholders may want to redeem their shares at any time.
C. the fund's managers need liquidity to trade actively.
D. the fund needs to distribute payouts to its shareholders and managers periodically.

47. Property insurance companies protect themselves against the extensive damage caused by hurricanes and earthquakes by:
A. selling thousands of policies to different homeowners.
B. factoring the cost into the price of the policies.
C. buying reinsurance against such catastrophes.
D. declaring bankruptcy when the need arises.

48. Financing for public corporations flows through:
A. the financial markets only.
B. financial intermediaries only.
C. derivatives markets.
D. the financial markets, financial intermediaries, or both.

49. When corporations need to raise funds through stock issues, they rely on the:
A. primary market.
B. secondary market.
C. tertiary market.
D. centralized NASDAQ exchange.

50. A primary market would be utilized when:
A. investors buy or sell existing securities.
B. shares of common stock are exchanged.
C. securities are initially issued.
D. a commission must be paid on the transaction.

51. The primary distinction between securities sold in the primary and secondary markets is the:
A. riskiness of the securities.
B. price of the securities.
C. previous issuance of the securities.
D. profitability of the issuing corporation.

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