Test Bank For Money Banking and Financial Markets 5th Edition Cecchetti

Test Bank For Money Banking and Financial Markets 5th Edition Cecchetti

Chapter 03

Financial Instruments, Financial Markets, and Financial Institutions

Multiple–Choice Questions

1.  A financial intermediary:

a. is an agency that guarantees a loan.

b. is a third-party that facilitates a transaction between a borrower and a lender.

c. would be used in direct finance. 

d. must be a depository institution.

Ans: B

Difficulty: 01 Easy 

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Remember 

Topic: Financial Instruments

2.  Most individuals borrow:

a. directly without the use of a financial intermediary.

b. using a financial intermediary because it lowers the cost of borrowing.

c. using a financial intermediary, but would save money if they financed directly. 

d. without using financial intermediaries, preferring credit cards.

Ans: B 

Difficulty: 01 Easy 

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Remember 

Topic: Financial Instruments

3.  Tom obtains a car loan from Old Town Bank.

a. The car loan is Tom‘s asset and the bank’s liability.

b. The car loan is Tom‘s asset, but the liability belongs to the bank’s depositors. 

c. The car loan is Tom‘s liability and an asset for Old Town Bank.

d. The car loan is Tom‘s liability and a liability of the bank until Tom pays it off.

Ans: C

Difficulty: 02 Medium

Learning Objective: 03-01

AACSB: Reflective Thinking Blooms: Understand

Topic: Financial Instruments

4.  The ultimate role of the financial system of a country is to:

a. provide a place for wealthy households to save. 

b. be a low-cost source of funds for government.

c. facilitate production, employment, and consumption. 

d. provide jobs in the financial sector.

Ans: C 

Difficulty: 01 Easy

Learning Objective: 03-01

AACSB: Reflective Thinking Blooms: Remember

Topic: Financial Instruments

5.  Loans made between borrowers and lenders are:

a. liabilities to the lenders and assets to the borrowers since the borrower obtains the funds. 

b. assets to the lenders and liabilities of the borrowers since the promises are made to the lenders.

c. not part of either parties’ assets or liabilities until the loans are repaid. 

d. liabilities to both the lenders and the borrowers.

Ans: B 

Difficulty: 02 Medium 

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Understand

Topic: Financial Instruments

6.  Financial instruments are used to channel funds from:

a. savers to borrowers in financial markets and via financial institutions.

b. savers to borrowers in financial markets but not through financial institutions. 

c. borrowers to savers in financial markets but not through financial institutions. 

d. borrowers to savers through financial institutions, but not in financial markets. 

Ans: A

Difficulty: 02 Medium 

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Understand

Topic: Financial Instruments

7.  Loans made between borrowers and lenders are:

a. usually not taxable at the federal level. 

b. legal only in the state of origination.

c. assets of the lenders.

d. assets of the borrowers.

Ans: C 

Difficulty: 01 Easy 

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Remember 

Topic: Financial Instruments

8.  Loans made between lenders and borrowers are:

a. assets to the borrowers.

b. liabilities of the lenders.

c. not taxable in the state of origination. 

d. liabilities of the borrowers.

Ans: D 

Difficulty: 01 Easy 

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Remember 

Topic: Financial Instruments

9.  The process of financial intermediation:

a. creates a net cost to an economy.

b. increases the economy‘s ability to produce.

c. is always used when a borrower needs to obtain funds. 

d. is used primarily in underdeveloped countries.

Ans: B

Difficulty: Medium

Learning Objective: 03-01

AACSB: Reflective Thinking

Blooms: Understand

Topic: Financial Instruments

10.  Which of the following statements is most correct?

a. Financial intermediaries are banks. 

b. A bank is a financial intermediary.

c. Financial intermediaries are insurance companies.

d. Financial intermediaries are essential to direct finance.

Ans: B

Difficulty: 02 Medium 

Learning Objective: 03-03

AACSB: Reflective Thinking

Blooms: Understand

Topic: Financial Institutions