Quiz 1: A Modern Financial System: An Overview
Business
Q 1Q 1
The exchange of goods and services is made more efficient by:
A) barters.
B) money.
C) governments.
D) some combination of government transfer and barter.
Free
Multiple Choice
B
Q 2Q 2
Short selling is:
A) the sale of a financial product at a discount to its current market value.
B) the sale of a financial product in small quantities.
C) the sale of a financial product that the seller does not own.
D) the sale of a financial product where the seller agrees to buy it back at a predetermined price.
Free
Multiple Choice
C
Q 3Q 3
The term 'medium of exchange' for money refers to its use as:
A) coinage.
B) currency.
C) something that is widely accepted as payment for goods and services.
D) any standard of value that prices can be expressed in.
Free
Multiple Choice
C
Q 4Q 4
The role of money as a store of value refers to:
A) the value of money falling only when the money supply falls.
B) the value of money falling only when the money supply increases.
C) the fact that money allows worth to be stored readily.
D) the fact that money never loses its value compared with other assets.
Free
Multiple Choice
Q 5Q 5
Money increases economic growth by assisting transfers from:
A) consumers to investors.
B) savers to borrowers.
C) businesses to consumers.
D) borrowers to investors.
Free
Multiple Choice
Q 6Q 6
Financial markets have developed to facilitate the exchange of money between savers and borrowers.Which of the following is NOT a function of money?
A) A store of value
B) A medium of exchange for settling economic transactions
C) A claim to future cash flows
D) Short-term protection against inflation
Free
Multiple Choice
Q 7Q 7
Buyers of financial claims lend their excess funds because they:
A) expect to borrow extra funds in the future.
B) want surplus funds in the future.
C) want to invest in the future.
D) want to increase their costs relative to their incomes.
Free
Multiple Choice
Q 8Q 8
Sellers of financial claims promise to pay back borrowed funds:
A) by borrowing extra funds in the future.
B) based on their expectation of having surplus funds in the future.
C) by selling other assets.
D) by reducing their costs relative to their incomes.
Free
Multiple Choice
Q 9Q 9
A savings-surplus unit is an entity:
A) that needs to borrow funds from a surplus unit.
B) which has an income that exceeds its spending.
C) whose spending exceeds its income.
D) called a company.
Free
Multiple Choice
Q 10Q 10
The process of facilitating the flow of funds between borrowers and lenders performed by the financial system:
A) is hindered by the problem of 'double coincidence of wants'.
B) greatly reduces the probability of inflation.
C) increases the rate of economic growth of a country.
D) occurs only through financial intermediaries.
Free
Multiple Choice
Q 11Q 11
Both real and financial assets have four principal attributes that are significant factors in the investment decision process.These are:
I)liquidity
II)capital gain
III)risk
IV)return or yield
V)time pattern of future cash flows
VI)price and cash flow volatility
A) I, II, III, IV
B) I, III, IV, V
C) I, III, IV, VI
D) II, III, IV, V
Free
Multiple Choice
Q 12Q 12
Which of the following is NOT associated with characteristics of shares?
A) Part ownership of a company
B) Capital gains
C) A fixed interest payment
D) Dividends
Free
Multiple Choice
Q 13Q 13
A financial institution that obtains most of its funds from deposits is a/an:
A) investment bank.
B) unit trust.
C) commercial bank.
D) general insurer.
Free
Multiple Choice
Q 14Q 14
Institutions that specialise in off-balance-sheet advisory services are called:
A) depository financial institutions.
B) contractual institutions.
C) finance companies.
D) investment banks.
Free
Multiple Choice
Q 15Q 15
A financial intermediary that receives premium payments which are used to purchase assets to cover future possible payments is a:
A) building society.
B) credit union.
C) savings bank.
D) life insurance office.
Free
Multiple Choice
Q 16Q 16
Financial institutions whose liabilities specify that,in return for the payment of periodic funds to the institution,the institution will make payments in the future (if and when a specified event occurs)are:
A) money market corporations.
B) unit trusts.
C) contractual savings institutions.
D) depository financial institutions.
Free
Multiple Choice
Q 17Q 17
Financial institutions that raise the majority of their funds by selling securities in the money markets are:
A) commercial banks.
B) building societies.
C) finance companies.
D) life insurance offices.
Free
Multiple Choice
Q 18Q 18
Financial institutions that are formed under a trust deed and attract funds by inviting the public to buy units are:
A) finance companies
B) building societies.
C) unit trusts.
D) life insurance offices.
Free
Multiple Choice
Q 19Q 19
Which of the following is NOT a term associated with shares?
A) Residual
B) Ownership
C) Voting rights
D) Contractual claim
Free
Multiple Choice
Q 20Q 20
Which of the following is NOT a characteristic commonly associated with preference shares?
A) A specified, fixed return
B) No voting rights
C) Higher ranking than bond holders on claims on assets
D) No entitlement to take possession of assets if the borrower defaults on payment
Free
Multiple Choice
Q 21Q 21
Long-term debt financing instruments used by companies are called:
A) bills.
B) debentures.
C) shares.
D) equities.
Free
Multiple Choice
Q 22Q 22
When a borrower issues a debt instrument with collateral specified in its contract this debt instrument is called:
A) unsecured.
B) secured.
C) defined.
D) negotiable.
Free
Multiple Choice
Q 23Q 23
Debt instruments that can be easily sold and transferred in the financial markets are called:
A) negotiable.
B) secured.
C) unsecured.
D) discounted.
Free
Multiple Choice
Q 24Q 24
Which of the following is NOT a feature of a debt instrument?
A) A contractual claim against the borrower
B) Periodic interest payments
C) Higher claim on assets of borrower than equity holders
D) Their prices do not fluctuate as much as shares
Free
Multiple Choice
Q 25Q 25
Which of the following is NOT a feature of futures contracts?
A) Futures contracts involve an obligation to buy or sell a specified amount
B) Trading of contracts occurs on an exchange
C) The contract price is settled at the end of the contract
D) Trading an opposite contract usually closes out the contract
Free
Multiple Choice
Q 26Q 26
Which of the following is NOT a feature of forward contracts?
A) Forward contracts are not standardised
B) Forward contracts do not trade on organised exchanges
C) The contract price may be settled at the end of the contract
D) Forward contracts are closed out by trading an opposite contract
Free
Multiple Choice
Q 27Q 27
Which of the following is NOT a feature of option contracts?
A) The buyer does not have an obligation to proceed with the contract
B) The writer of the contract receives a fee
C) The price of the designated asset is determined at the beginning of the contract
D) The right to buy is called a put option
Free
Multiple Choice
Q 28Q 28
Which of the following is NOT a feature of swaps?
A) There is a contractual arrangement to exchange cash flows
B) Interest rate swaps exchange principal at the beginning and the end
C) A fixed rate obligation may be exchanged for a variable rate obligation
D) A swap can involve interest payments and currencies
Free
Multiple Choice
Q 29Q 29
The key reason for the existence of markets of financial assets is:
A) that holders of shares generally want to exchange them for bonds and other financial instruments.
B) the high expenditure for many individuals and businesses.
C) that the lack of money in an economy makes trade in financial assets necessary.
D) the refusal of most modern governments to print money on demand.
Free
Multiple Choice
Q 30Q 30
Financial markets:
A) facilitate the exchange of financial assets.
B) provide information about prices of financial assets.
C) provide a channel for funds to flow between the providers and users of funds.
D) all of the given choices.
Free
Multiple Choice
Q 31Q 31
The most important function of a financial market is to:
A) provide information about shares.
B) provide a market for shares.
C) facilitate the flow of funds between lenders and borrowers.
D) provide employment for brokers and agents.
Free
Multiple Choice
Q 32Q 32
Financial markets:
A) act as intermediaries by holding a collection of assets and issuing claims based on them to savers.
B) issue claims on future cash flows of individual borrowers directly to lenders.
C) transmit funds indirectly between lenders and borrowers.
D) usually provide lenders with lower returns than other financial intermediaries.
Free
Multiple Choice
Q 33Q 33
A primary financial market is one that:
A) offers financial assets with the highest expected return.
B) offers the greatest number of financial assets.
C) involves the sale of financial assets for the first time.
D) offers financial assets with the highest historical return.
Free
Multiple Choice
Q 34Q 34
A secondary financial market is one that:
A) offers financial assets with the highest expected return.
B) offers the greatest number of financial assets.
C) involves the sale of existing financial assets.
D) offers financial assets with the highest historical return.
Free
Multiple Choice
Q 35Q 35
Purchasing shares on the Australian Securities Exchange is an example of:
A) a primary market transaction.
B) companies raising finance from another financial intermediary.
C) companies raising new finance.
D) a secondary market transaction.
Free
Multiple Choice
Q 36Q 36
When a security is sold in the financial markets for the first time:
A) funds flow from the saver to the issuer.
B) funds flow from the borrower to the saver.
C) it represents a secondary transaction to the underwriter.
D) it is an asset for the borrower.
Free
Multiple Choice
Q 37Q 37
Which of the following is NOT an example of primary market transactions?
A) A company issue of shares to raise funds for an investment project
B) A government issue of bonds
C) A mortgage bond
D) A mortgage loan to buy a house
Free
Multiple Choice
Q 38Q 38
A 'primary market' is a market:
A) only for equity issues by major or 'primary' companies.
B) where borrowers sell new financial instruments to buyers.
C) where savers sell new financial claims to borrowers.
D) where government securities are bought and sold.
Free
Multiple Choice
Q 39Q 39
Buying bonds in the capital markets is an example of:
A) a secondary market transaction.
B) a primary market transaction.
C) companies raising new funds.
D) companies raising funds from a secondary source.
Free
Multiple Choice
Q 40Q 40
The market where existing securities are sold is the:
A) economic market.
B) primary market.
C) secondary market.
D) financial market.
Free
Multiple Choice
Q 41Q 41
When a large company issues a financial instrument into the financial markets:
A) funds flow indirectly from saver to borrower.
B) the cost of funds is generally higher owing to the risk involved.
C) it buys a financial claim.
D) it sells a financial claim.
Free
Multiple Choice
Q 42Q 42
Secondary markets:
A) allow borrowers to raise long-term funds.
B) facilitate capital-raising in the primary market.
C) do not raise new funds but offer liquidity.
D) all of the given answers.
Free
Multiple Choice
Q 43Q 43
The flow of funds through financial markets increases the volume of savings and investment by:
A) maintaining low interest rates.
B) storing large quantities of cash.
C) providing savers with a variety of ways to lend to borrowers.
D) offering lower interest rates than could be obtained directly from borrowers.
Free
Multiple Choice
Q 44Q 44
Which of the following statements is NOT a feature of financial markets?
A) Financial markets generally provide borrowers with lower cost funds than through a financial intermediary.
B) Funds are channelled directly from savers to borrowers.
C) Contractual agreements are issued between savers and borrowers.
D) Financial markets generally deal only with the purchase and sale of government securities.
Free
Multiple Choice
Q 45Q 45
Which of the following is NOT true-a well-functioning financial market:
A) has a steadily increasing liquidity for most assets.
B) offers increased ease of restructuring portfolios of assets.
C) has a quick assimilation of information into asset prices.
D) has a selection of financial assets with similar timings of cash flow.
Free
Multiple Choice
Q 46Q 46
Financial markets:
A) act as intermediaries between borrowers and savers.
B) directly issue claims on savers to borrowers.
C) involve the buying and selling of existing financial securities only.
D) involve both primary and secondary transactions.
Free
Multiple Choice
Q 47Q 47
Direct financing allows a borrower to:
A) easily assess a lender's level of default risk.
B) match amounts and maturity of investments with borrowers.
C) lower search and transaction costs.
D) diversify their funding sources.
Free
Multiple Choice
Q 48Q 48
Which of the following is NOT a possible disadvantage of direct financing?
A) Matching amounts of funds to be borrowed with those to be lent
B) Assessment of the risk of the borrower
C) Cost of preparing legal contracts, taxation and accounting advice
D) Cost of the financial intermediary involved
Free
Multiple Choice
Q 49Q 49
An issue of debentures is an example of:
A) a secondary market transaction.
B) fundraising through financial intermediaries.
C) a direct form of funding.
D) an indirect form of funding.
Free
Multiple Choice
Q 50Q 50
An example of an indirect form of funding is a/an:
A) issue of debentures.
B) issue of unsecured notes.
C) term loan.
D) issue of shares.
Free
Multiple Choice
Q 51Q 51
Which of the following is NOT a major advantage of direct finance?
A) Direct finance reduces financial institution' fees.
B) Direct finance allows borrowers to diversify sources of funds.
C) Direct finance allows greater flexibility in funding types.
D) Direct finance reduces search and transactions costs.
Free
Multiple Choice
Q 52Q 52
Financial intermediaries:
A) act as a third party by holding a portfolio of assets and issuing claims based on them to savers.
B) issue claims on future cash flows of individual borrowers directly to lenders.
C) transmit funds directly between lenders and borrowers.
D) usually provide lenders with lower returns than other financial institutions.
Free
Multiple Choice
Q 53Q 53
The flow of funds between lenders and borrowers is channelled:
A) indirectly through financial markets.
B) directly through financial intermediaries.
C) indirectly through financial intermediaries.
D) mainly through government agencies.
Free
Multiple Choice
Q 54Q 54
'Intermediaries,by managing the deposits they receive,are able to make long-term loans while satisfying savers' preferences for liquid claims.' This statement is referring to which important attribute of financial intermediation?
A) Asset transformation
B) Maturity transformation
C) Credit risk transformation
D) Denomination transformation
Free
Multiple Choice
Q 55Q 55
The main role of financial intermediaries is to:
A) borrow funds from surplus units and lend them to borrowers.
B) provide advice to consumers on their finances.
C) provide funds for the government to cover budget deficits.
D) help ensure there are enough funds in circulation in a country.
Free
Multiple Choice
Q 56Q 56
Financial intermediaries pool the funds of:
A) many small savers and make loans to a few large borrowers.
B) a few savers and make loans to many borrowers.
C) many small savers and make loans to many borrowers.
D) a few large savers and make loans to a few large borrowers.
Free
Multiple Choice
Q 57Q 57
Small savers prefer to use financial intermediaries rather than lending directly to borrowers because:
A) financial intermediaries offer the savers a wide portfolio of financial instruments.
B) financial intermediaries offer much higher interest rates than can be obtained directly from borrowers.
C) borrowers dislike dealing with savers.
D) savers have a claim with the ultimate borrower via the financial intermediary.
Free
Multiple Choice
Q 58Q 58
Financial intermediaries can engage in credit risk transformation because they:
A) obtain cost advantages owing to their size and business volumes transacted.
B) can quickly convert financial assets into cash, close to the current market price.
C) develop expertise in lending and diversifying loans.
D) can pool savers' short-term deposits and make long-term loans.
Free
Multiple Choice
Q 59Q 59
When a financial intermediary collects together deposits and lends them out as loans to companies,it is engaging in:
A) liability management.
B) liquidity management.
C) credit transformation.
D) asset transformation.
Free
Multiple Choice
Q 60Q 60
'Liquidity' in financial terms is
A) a feature of money only.
B) the ease with which an asset can be sold at the published market price.
C) the best measure of risk of a financial asset.
D) to lower the rate of return for an asset.
Free
Multiple Choice
Q 61Q 61
When an individual has immediate access to their funds from an account with a financial intermediary,the intermediary is engaging in:
A) asset transformation.
B) liability management.
C) liquidity management.
D) credit transformation.
Free
Multiple Choice
Q 62Q 62
When a financial intermediary can repeatedly use standardised documents,it is engaging in:
A) liability management.
B) liquidity management.
C) credit transformation.
D) economies of scale.
Free
Multiple Choice
Q 63Q 63
According to the textbook,all of the following are financial intermediaries except a/an:
A) bank.
B) insurance company.
C) superannuation fund.
D) share broking firm.
Free
Multiple Choice
Q 64Q 64
An example of a financial intermediary is:
A) a stockbroker.
B) the Australian Securities Exchange.
C) the Australian Securities Commission.
D) an insurance company.
Free
Multiple Choice
Q 65Q 65
The main participants in the financial system are individuals,corporations and governments.Individuals are generally ______ of funds and corporations are net ________ of funds.
A) borrowers; suppliers
B) users; providers
C) suppliers; users
D) demanders; providers
Free
Multiple Choice
Q 66Q 66
Which of the following borrowers would pay the lowest interest rate on debts of equal maturity?
A) The National Bank of Australia
B) Telstra
C) The City of Sydney
D) The Commonwealth Government
Free
Multiple Choice
Q 67Q 67
Generally,in the long term,a government:
A) is a net borrower of funds.
B) is a net supplier of funds.
C) borrows funds directly from households.
D) borrows funds directly from the financial market.
Free
Multiple Choice
Q 68Q 68
The _______ is created by a financial connection between providers and users of short-term funds.
A) share market
B) capital market
C) money market
D) financial market
Free
Multiple Choice
Q 69Q 69
Which of the following is NOT usually a short-term discount security?
A) Negotiable certificates of deposit
B) Commercial paper
C) Bank bills
D) Unsecured notes
Free
Multiple Choice
Q 70Q 70
Which of the following is NOT a feature of the money market?
A) It is a mainly wholesale market
B) It deals with short-term financial claims
C) It is important in financing the working-capital needs of businesses and governments
D) It only operates as a market in which new security issues are created and marketed
Free
Multiple Choice
Q 71Q 71
The market that involves the buying and selling of short-term securities is the:
A) securities market.
B) money market.
C) share market.
D) capital market.
Free
Multiple Choice
Q 72Q 72
A large company with a temporary surplus of funds is most likely to buy:
A) bank bills.
B) convertible notes.
C) debentures.
D) shares.
Free
Multiple Choice
Q 73Q 73
A company that issues promissory notes into the short-term debt markets is conducting a transaction in the:
A) commercial paper market.
B) inter-bank market.
C) bills market.
D) official short-term money market.
Free
Multiple Choice
Q 74Q 74
A company with a high credit rating can issue _____ directly into the money markets.
A) CDs
B) Commercial paper
C) unsecured notes
D) debentures
Free
Multiple Choice
Q 75Q 75
The market that generally involves the buying and selling of discount securities is the:
A) securities market.
B) money market.
C) share market.
D) capital market.
Free
Multiple Choice
Q 76Q 76
A source of short-term liquidity funding for banks is the issue of:
A) bank bills.
B) debentures.
C) certificates of deposit.
D) commercial paper.
Free
Multiple Choice
Q 77Q 77
The market that includes individuals,companies and governments in the buying and selling of long-term debt and equity securities is the:
A) currency market.
B) debt market.
C) capital market.
D) financial market.
Free
Multiple Choice
Q 78Q 78
When a company issues a long-term debt instrument with no security attached it is selling _____ to investors.
A) shares
B) debentures
C) unsecured notes
D) term loans
Free
Multiple Choice
Q 79Q 79
From the viewpoint of a corporation,which source of long-term funding does not have to be repaid?
A) Equity
B) Commercial paper
C) Corporate bonds
D) Bank bills
Free
Multiple Choice
Q 80Q 80
For additional funding,a company decides to issue $15 million in corporate bonds.The securities will be issued into the:
A) retail markets.
B) secondary markets.
C) money markets.
D) capital markets.
Free
Multiple Choice
Q 81Q 81
The major financial assets traded in the capital market are:
A) bank bills and commercial paper.
B) Treasury notes and certificates of deposits.
C) bonds and convertible securities.
D) shares and bonds.
Free
Multiple Choice
Q 82Q 82
Compared with Treasury bonds,Treasury notes generally:
A) have a longer maturity.
B) pay interest annually.
C) are issued in the capital markets.
D) are discount securities.
Free
Multiple Choice
Q 83Q 83
If you purchase an Australian government bond,that bond is:
A) an asset to you but a liability for the Australian government.
B) an asset to you as well as an asset for the Australian government.
C) a liability to you but an asset for the Australian government.
D) a liability to you as well as a liability for the Australian government.
Free
Multiple Choice
Q 84Q 84
When government borrowing reduces the amount of funds available for lending to businesses,this is called:
A) credit rationing.
B) crowding out.
C) capital rationing.
D) government quotas.
Free
Multiple Choice
Q 85Q 85
All of the following are key financial services provided by the financial system except:
A) liquidity.
B) risk transfer.
C) profitability.
D) information.
Free
Multiple Choice
Q 86Q 86
Which of the following would be most likely to use financial markets to borrow?
A) A household with a small amount saved
B) A small business wanting to borrow to buy some machinery
C) A government authority wanting to borrow to finance highway construction
D) A company with a poor credit rating
Free
Multiple Choice
Q 87Q 87
Generally,financial instruments are divided into three broad categories of equity,debt and derivatives.Which of the following are usually issued by a company to raise new funds?
I)Unsecured notes
Ii)Ordinary shares
Iii)Debentures
Iv)Bills of exchange
V)Futures contracts
Vi)Preference shares
A) ii, iii, iv, v
B) ii, iv, v, vi
C) i, ii, iii, iv
D) i, ii, iv, v
Free
Multiple Choice
Q 88Q 88
The movement of funds between the four sectors of a domestic economy and the rest of the world is called:
A) flow of funds.
B) sector analysis.
C) sectorial flows.
D) cross-sector flows.
Free
Multiple Choice
Q 89Q 89
As a broad generalisation,in the sectorial flow of funds households are typically:
A) a deficit sector.
B) a surplus sector.
C) fluctuates between a deficit sector and a neutral sector.
D) borrowers.
Free
Multiple Choice
Q 90Q 90
The flow of funds between the sectors of a nation-state:
A) varies from year to year.
B) depends on the business cycle.
C) depends on the levels of economic activity.
D) relates to all of the given answers.
Free
Multiple Choice
Q 91Q 91
Money allows economic and financial transactions to be carried out more efficiently than bartering.
Free
True False
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True False
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True False
Q 94Q 94
Individuals may be categorised as risk averse,risk neutral or risk takers.Risk averse individuals will accept a lower rate of return so as to reduce their risk exposure.
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True False
Q 95Q 95
A well-functioning financial system enables participants to readily change the composition of their financial assets portfolio.
Free
True False
Q 96Q 96
Monetary policy relates to actions of a central bank to control the amount of money for transactions in an economy.
L.O.1.1 Explain the functions of a modern financial system.
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True False
Q 97Q 97
The government organisation responsible for the conduct of monetary policy is the prudential supervisor of a country's banks.
Free
True False
Q 98Q 98
Investment banks are contractual organisations that make up contracts for their corporate clients and governments.
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True False
Q 99Q 99
In recent years,depository financial institutions have obtained a large proportion of their funds from the financial markets directly.
Free
True False
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True False
Q 101Q 101
Margin trading is the sale of a financial product that the seller does not own and who intends to buy back at a lower price later.
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True False
Q 102Q 102
Explain how the properties of money facilitated the evolution of a modern financial system.
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Essay
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Essay
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Essay
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Essay
Q 106Q 106
The capital markets provide the opportunity for large corporations to manage their long-term cash flows.Discuss this statement using the example of a surplus entity and a deficit entity.
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Essay