Page 542 - Introduction to Business

516 PART 5 Finance

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this sample test to gauge your comprehension of chapter material. You can check your answers at the back of
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True/False Questions 2. The initial sale of a security in the financial
Please indicate if the following statements are true or marketplace takes place in the
false: a. direct market.
1. Money market instruments are short-term b. indirect market.
securities with maturities less than five c. primary market.
years. d. secondary market.
e. open market.
2. An over-the-counter exchange does not
have a physical location. 3. By ensuring that all information is reflected
in prices, _____ is improved.
3. Credit risk deals with the change in value of
long-term securities as interest rates a. allocational efficiency
change in the financial marketplace. b. operational efficiency
c. market efficiency
4. Japan and Germany have bank-centered
d. regulatory efficiency
financial systems, as opposed to market-
e. financial efficiency
oriented systems.
4. In the United States, each deposit account
5. The Financial Services Modernization Act
at a commercial bank is insured by the
of 1999 deregulated the financial services
Federal Deposit Insurance Corporation
powers of banking institutions to include
up to
securities and insurance activities.
a. $10,000.
6. A total of 20 countries in the European
b. $20,000.
Monetary Union have adopted the euro as
c. $50,000.
their currency.
d. $100,000.
7. Open market operations by the Federal
e. $500,000.
Reserve involve the purchase and sale of
5. Money is all of the following except
government securities.
a. a unit of account.
8. Fiscal policies involve government
b. a store of value.
spending and taxation.
c. a standard of deferred payment.
9. Term insurance provides a lump sum
d. a fixed asset.
benefit to policyholders and is quite
e. a medium of exchange.
inexpensive to obtain.
6. If the Federal Reserve increases the money
10. Portfolio diversification is beneficial in that
supply, assuming all else remains the same,
it tends to increase returns to investors.
we would expect
Multiple-Choice Questions a. interest rates to increase.
b. interest rates to decrease.
Choose the best answer.
c. interest rates to stay the same.
1. Which of the following is not a component
d. higher unemployment.
of the financial system?
e. lower unemployment.
a. Financial instruments including money
7. The equation of exchange can be written as
market instruments
a. m v p q.
b. Financial instruments including capital
b. m p v q.
market instruments
c. m p.
c. Financial markets
d. v q.
d. Financial mathematics
e. v p.
e. Financial institutions
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