m2010mCengagemLearning.mAllmRightsmReserved.mThismeditionmismintendedmformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd

©m2010mCengagemLearning.mAllmRightsmReserved.mThismeditionmismintendedmformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd ifferentmfrommthemU.S.mEdition.mMaymnotmbemscanned,mcopied,mduplicated,mormpostedmtomampubliclymaccessiblemwebsite,minmwho lemorminmpart.

Chapterm1

RolemofmFinancialmMarketsmandmInstitutions

• Financialmmarketmparticipantsmwhomprovidemfundsmaremcalled
• deficitmunits.
• surplusmunits.
• primarymunits.
• secondarymunits.

• Themmainmprovider(s)mofmfundsmtomthemU.S.mTreasurymism(are)
• householdsmandmbusinesses.
• foreignmfinancialminstitutions.
• themFederalmReservemSystem.
• foreignmnonfinancialmsectors.

• Themlargestmdeficitmunitmism(are)
• householdsmandmbusinesses.
• foreignmfinancialminstitutions.
• themU.S.mTreasury.
• foreignmnonfinancialmsectors.

• Thosemfinancialmmarketsmthatmfacilitatemthemflowmofmshort-termmfundsmaremknownmas
• moneymmarkets.
• capitalmmarkets.
• primarymmarkets.
• secondarymmarkets.

• Fundsmaremprovidedmtomtheminitialmissuermofmsecuritiesminmthe
• secondarymmarket.
• primarymmarket.
• deficitmmarket.
• surplusmmarket.

• Whichmofmthemfollowingmismamcapitalmmarketminstrument?
• amsix-monthmCD
• amthree-monthmTreasurymbill
• amten-yearmbond
• anmagreementmformambankmtomloanmfundsmdirectlymtomamcompanymformninemmonths.

• Whichmofmthemfollowingmismammoneymmarketmsecurity?
• Treasurymnote
• municipalmbond
• mortgage
• commercialmpaper
• ThemmostmcommonminvestorsminmFederalmfundsmare 1 / 4

RolemofmFinancialmMarketsmandmInstitutionsm❖m2 ©m2010mCengagemLearning.mAllmRightsmReserved.mThismeditionmismintendedmformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd ifferentmfrommthemU.S.mEdition.mMaymnotmbemscanned,mcopied,mduplicated,mormpostedmtomampubliclymaccessiblemwebsite,minmwho lemorminmpart.

• households.
• depositoryminstitutions.
• firms.
• governmentmagencies.

• Equitymsecuritiesmhavemam mexpectedmreturnmthanmmostmlong-

termmdebtmsecurities,mandmtheymexhibitmammdegreemofmrisk.

• higher;mhigher
• lower;mlower
• lower;mhigher
• higher;mlower

• Moneymmarketmsecuritiesmgenerallymhavem

.mCapitalmmarketmsecuritiesmaremtypicallymexpectedmtomhavema .

• lessmliquidity;mhighermannualizedmreturn
• moremliquidity;mlowermannualizedmreturn
• lessmliquidity;mlowermannualizedmreturn
• moremliquidity;mhighermannualizedmreturn
• Ifmsecuritympricesmfullymreflectmallmavailableminformation,mthemmarketsmformthesemsecuritiesmare
• efficient.
• primary.
• overvalued.
• undervalued.

• Ifmmarketsmare

,minvestorsmcouldmusemavailableminformationmignoredmbymthemmarketmtome arnmabnormallymhighmreturns.

• perfect
• active
• inefficient
• inmequilibrium

• Ifmfinancialmmarketsmaremefficient,mthismimpliesmthatminvestorsmcanmignoremthemvariousminvestm

entminstrumentsmavailable.➔mFalse

• ThemSecuritiesmActmofm1933
• requiredmcompletemdisclosuremofmrelevantmfinancialminformationmformpubliclymofferedmsecurit

iesminmthemprimarymmarket.

• declaredmtradingmstrategiesmtommanipulatemthempricesmofmpublicmsecondarymsecuritiesmillegal.
• declaredmmisleadingmfinancialmstatementsmformpublicmprimarymsecuritiesmillegal.
• requiredmcompletemdisclosuremofmrelevantmfinancialminformationmformsecuritiesmtradedminm

themsecondarymmarket.

• allmofmthemabove

• ThemSecuritiesmExchangemCommissionm(SEC)mwasmestablishedmbymthe
• FederalmReservemAct.
• McFaddenmAct.
• SecuritiesmExchangemActmofm1934. 2 / 4

RolemofmFinancialmMarketsmandmInstitutionsm❖m3 ©m2010mCengagemLearning.mAllmRightsmReserved.mThismeditionmismintendedmformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd ifferentmfrommthemU.S.mEdition.mMaymnotmbemscanned,mcopied,mduplicated,mormpostedmtomampubliclymaccessiblemwebsite,minmwho lemorminmpart.

• Glass-SteagallmAct.
• nonemofmthemabove

• Commonmstockmismanmexamplemofma(n)
• debtmsecurity.
• moneymmarketmsecurity.
• equitymsecurity.
• AmandmB
• Ifmfinancialmmarketsmwerem

,mallminformationmaboutmanymsecuritiesmformsaleminmprimarymandmsecondarymmarketsmwouldmbem continuouslymandmfreelymavailablemtominvestors.

• efficient
• inefficient
• perfect
• imperfect
• Themtypicalmrolemofmamsecuritiesmfirmminmampublicmofferingmofmsecuritiesmismto
• purchasemthementiremissuemformitsmownminvestment.
• placemthementiremissuemwithmamsinglemlargeminvestor.
• spreadmthemissuemacrossmseveralminvestorsmuntilmthementiremissuemismsold.
• providemallmlargeminvestorsmwithmloansmsomthatmtheymcanminvestminmthemoffering.

• Withoutmthemparticipationmofmfinancialmintermediariesminmfinancialmmarketmtransactions,
• informationmandmtransactionmcostsmwouldmbemlower.
• transactionmcostsmwouldmbemhighermbutminformationmcostsmwouldmbemunchanged.
• informationmcostsmwouldmbemhighermbutmtransactionmcostsmwouldmbemunchanged.
• informationmandmtransactionmcostsmwouldmbemhigher.
• Whichmofmthemfollowingmismmostmlikelymtombemdescribedmasmamdepositoryminstitution?
• financemcompanies
• securitiesmfirms
• creditmunions
• pensionmfunds
• insurancemcompanies

• Inmaggregate,m maremthemmostmdominantmdepositoryminstitution.
• commercialmbanks
• savingsmbanks
• creditmunions
• S&Ls

• Whichmofmthemfollowingmismamnondepositorymfinancialminstitution?
• savingsmbanks
• commercialmbanks
• savingsmandmloanmassociations
• mutualmfunds
• Whichmofmthemfollowingmdistinguishesmcreditmunionsmfrommcommercialmbanksmandmsavingsminstitutions?
• Creditmunionsmaremnon-profit 3 / 4

RolemofmFinancialmMarketsmandmInstitutionsm❖m4 ©m2010mCengagemLearning.mAllmRightsmReserved.mThismeditionmismintendedmformusemoutsidemofmthemU.S.monly,mwithmcontentmthatmmaymbemd ifferentmfrommthemU.S.mEdition.mMaymnotmbemscanned,mcopied,mduplicated,mormpostedmtomampubliclymaccessiblemwebsite,minmwho lemorminmpart.

• Creditmunionsmacceptmdepositsmbutmdomnotmmakemloans
• Creditmunionsmmakemloansmbutmdomnotmacceptmdeposits
• Savingsminstitutionsmrestrictmtheirmbusinessmtommembersmwhomsharemamcommonmbond
• Whenmamsecuritiesmfirmmactsmasmambroker,mit
• guaranteesmthemissuermamspecificmpricemformnewlymissuedmsecurities.
• makesmammarketminmspecificmsecuritiesmbymadjustingmitsmownminventory.
• executesmtransactionsmbetweenmtwomparties.
• purchasesmsecuritiesmformitsmownmaccount.

• Whenmamsecuritiesmfirmmactsmasma(n)m ,mitmmaintainsmampositionminmsecurities.
• adviser
• dealer
• broker
• nonemofmthemabove
• mobtainmfundsmbymissuingmsecurities,mthenmlendmthemfundsmtomindividualsmandmsmallmbusinesses.
• Financemcompanies
• Securitiesmfirms
• Mutualmfunds
• Insurancemcompanies

• Householdsmwithm maremservedmbym .
• deficientmfunds;mdepositoryminstitutionsmandmfinancemcompanies
• deficientmfunds;mfinancemcompaniesmonly
• savings;mfinancemcompaniesmonly
• savings;mpensionmfundsmandmfinancemcompanies

• mconcentratemonmmortgagemloans.
• Financemcompanies
• Commercialmbanks
• Savingsminstitutions
• Creditmunions

• msecuritiesmhavemammaturitymofmonemyearmormless;m msecuritiesmaremgenerallymmoremliquid.
• Moneymmarket;mcapitalmmarket
• Moneymmarket;mmoneymmarket
• Capitalmmarket;mmoneymmarket
• Capitalmmarket;mcapitalmmarket

• Whichmofmthemfollowingmismnotmammajorminvestorminmstocks?
• commercialmbanks
• insurancemcompanies
• mutualmfunds
• pensionmfunds

• Whichmofmthemfollowingmfinancialmintermediariesmcommonlyminvestsminmstocksmandmbonds?
• pensionmfunds
• insurancemcompanies
• / 4