Question 1

With direct finance,funds are channeled through the financial market from the ________ directly to the ________.

Accepted Answer

In direct finance, funds move directly from savers, who have excess funds, to spenders or borrowers who need those funds, typically through financial markets without the intermediation of financial institutions.

Question 2

Which of the following can be described as involving indirect finance?

Accepted Answer

Indirect finance involves a financial intermediary between the saver and the borrower. When you make a deposit at a bank, the bank can use those funds to make loans to others, which is an example of indirect finance. Choices A, B, and C involve direct finance, where borrowers and savers interact directly without an intermediary.

Question 3

Every financial market has the following characteristic.

Accepted Answer

The characteristic of financial market that channels funds from lenders-savers to borrowers-spenders is the most fundamental and distinctive feature of financial markets. It is the mechanism by which savers can invest their funds and earn a return, while borrowers can obtain capital to finance their projects or businesses. This function is fulfilled by a variety of financial instruments, including bonds, stocks, and loans. The other choices are not applicable to all financial markets, as not all markets determine interest rates or allow the trading of common stocks. Loans can be considered as part of the channeling function.

Question 4

With ________ finance,borrowers obtain funds from lenders by selling them securities in the financial markets.

Accepted Answer

With direct finance, borrowers obtain funds directly from lenders by selling them securities in the financial markets. This is in contrast to indirect finance, where financial intermediaries such as banks are involved in the process of borrowing and lending. Therefore, the best choice is D.

Question 5

The principal lender-savers are

Accepted Answer

Household savings are the primary source of funds for savings and investment. While governments and businesses can also save, households are the largest savers and lenders in the economy. Foreigners can also lend and invest in a country, but they are not typically considered as primary lenders-savers. Therefore, option C is the best choice.

Question 6

Which of the following can be described as involving indirect finance?

Accepted Answer

Indirect finance involves the use of a financial intermediary to channel funds from savers to borrowers. Buying shares in a mutual fund involves indirect finance as the fund pools money from many investors and then invests that money in a variety of assets.

Option A involves direct finance as the borrower and lender are directly involved. Option C involves purchasing a security issued by the government rather than through an intermediary. Option D involves taking part in the primary market by purchasing shares directly from the issuing corporation rather than through an intermediary.

Question 7

Distinguish between direct finance and indirect finance. Which of these is the most important source of funds for corporations in the United States?

Accepted Answer

The answer of Distinguish between direct finance and indirect finance....

Question 8

Financial markets improve economic welfare because

Accepted Answer

Financial markets improve economic welfare by allowing consumers to time their purchases better, as they provide mechanisms for borrowing and lending, enabling consumers to smooth consumption over time.

Question 9

Which of the following can be described as involving direct finance?

Accepted Answer

Direct finance involves the issuance of financial securities by a borrowing firm directly to investors. Option A involves a corporation issuing new shares of stock, which is an example of direct finance as the corporation is getting funds directly from the investors who purchase the shares.

Option B involves indirect finance as people are buying shares in a mutual fund, which then invests in different assets.

Option C also involves indirect finance as the pension fund manager is buying a security in the secondary market, which means the issuing corporation had already obtained funds through direct finance when the security was first issued.

Option D also involves indirect finance as the insurance company is buying shares in the secondary market, which means the funds are not going directly to the issuing corporation.

Question 10

Well functioning financial markets benefit ________ by allowing them to time their purchases more efficiently.

Accepted Answer

Financial markets allow consumers to access credit and adjust their spending according to their income and current economic conditions. Access to financial markets can also help consumers make informed decisions regarding investments and retirement planning.

Answer: B)lenders 
 Financial markets provide lenders with an efficient way to distribute funds and manage the risk of default. Financial markets also allow lenders to earn returns on their investments and diversify their portfolio.

Answer: C)creditors 
 Creditors benefit from well-functioning financial markets by being able to access reliable credit information and efficiently manage their credit risk. This allows creditors to make better decisions regarding lending practices and investing in debt securities.

Answer: D)cashiers 
 Cashiers are not directly affected by financial markets in their daily work as they are primarily responsible for handling cash transactions. However, they may indirectly benefit if a well-functioning financial system leads to a stable economy and job security.

Question 11

Assume that you borrow $2,000 at 10% annual interest to finance a new business project. For this loan to be profitable,the minimum amount this project must generate in annual earnings is

Accepted Answer

The answer of Assume that you borrow $2,000 at 10%...

Question 12

Which of the following statements about the characteristics of debt and equities is TRUE?

Accepted Answer

Debt and equities can both be long-term financial instruments, meaning they can have a maturity of several years or more. Option B is incorrect because bondholders are not residual claimants - they have priority over equity holders in terms of receiving payment. Option C is incorrect because the income from equities is typically more variable than that from bonds. Option D is incorrect because bonds do not pay dividends - they pay interest.

Question 13

You can borrow $5,000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is

Accepted Answer

The answer of You can borrow $5,000 to finance a...

Question 14

Which of the following can be described as involving direct finance?

Accepted Answer

Direct finance involves the transfer of funds directly from savers to borrowers. When people buy shares of common stock in the primary markets, they are providing funds directly to the corporation, which can then use those funds for investment or other purposes. Options A, B, and C involve indirect finance, where funds are channeled through financial intermediaries such as banks or mutual funds.

Question 15

Which of the following can be described as direct finance?

Accepted Answer

Direct finance occurs when borrowers directly borrow funds from financial markets or individuals without using a financial intermediary like a bank, mutual fund, or other institution. Borrowing $2,500 from a friend is an example of direct finance because it involves a direct financial transaction between two individuals without an intermediary.

Question 16

Which of the following statements about the characteristics of debt and equity is FALSE?

Accepted Answer

This statement is not true as equity is typically a long-term financial instrument while debt can be either short-term or long-term.

Question 17

A breakdown of financial markets can result in

Accepted Answer

A breakdown of financial markets can result in political instability as it can lead to a loss of confidence in the economy and the government's ability to manage it. This can cause unrest and protests, potentially leading to political instability. Financial stability, rapid economic growth, and stable prices are unlikely outcomes of a breakdown in financial markets.

Question 18

Financial markets have the basic function of

Accepted Answer

Financial markets facilitate the transfer of funds from those who have excess funds (savers) to those who need funds (borrowers), thereby fulfilling their basic function of connecting lenders and borrowers. This helps to allocate resources efficiently and can also reduce the overall cost of borrowing.

Question 19

Securities are ________ for the person who buys them,but are ________ for the individual or firm that issues them.

Accepted Answer

Securities represent an ownership interest, equity, or debt in a company or organization. Therefore, they are assets for the person who buys them because they represent something of value that can generate income or appreciate in value. However, securities are liabilities for the individual or firm that issues them because they represent a claim on the assets or earnings of the issuer, and they must be repaid or serviced according to the terms of the security.

Question 20

Well-functioning financial markets

Accepted Answer

Well-functioning financial markets allow for the efficient allocation of capital, which can lead to increased economic activity and growth. This can ultimately improve overall economic efficiency. A, B, and C are incorrect as financial markets do not directly cause inflation, do not eliminate the need for indirect finance, and may be a contributing factor to financial crises if they are not functioning properly.

Quiz 2: An Overview of the Financial System

With direct finance,funds are channeled through the financial market from the directly to the .

Which of the following can be described as involving indirect finance?

Every financial market has the following characteristic.

With ________ finance,borrowers obtain funds from lenders by selling them securities in the financial markets.

The principal lender-savers are

Which of the following can be described as involving indirect finance?

Distinguish between direct finance and indirect finance. Which of these is the most important source of funds for corporations in the United States?

Financial markets improve economic welfare because

Which of the following can be described as involving direct finance?

Well functioning financial markets benefit ________ by allowing them to time their purchases more efficiently.

Assume that you borrow $2,000 at 10% annual interest to finance a new business project. For this loan to be profitable,the minimum amount this project must generate in annual earnings is

Which of the following statements about the characteristics of debt and equities is TRUE?

You can borrow $5,000 to finance a new business venture. This new venture will generate annual earnings of $251. The maximum interest rate that you would pay on the borrowed funds and still increase your income is

Which of the following can be described as involving direct finance?

Which of the following can be described as direct finance?

Which of the following statements about the characteristics of debt and equity is FALSE?

A breakdown of financial markets can result in

Financial markets have the basic function of

Securities are for the person who buys them,but are for the individual or firm that issues them.

Well-functioning financial markets