1 What are the two basic mechanisms through which funds flow through the financial system, and how do they differ?

2 You just purchased a share of IBM stock on the New York Stock Exchange. What kind of transaction was this? a. Primary market transaction. b. Secondary market transaction. c. Futures market transaction. d. Private placement.

3 How are brokers different from dealers?

4 List the three forms of the efficient market hypothesis, and describe what information is assumed to be reflected in security prices under each of these hypotheses.

5 If the nominal rate of interest is 4.25 percent and the expected rate of inflation is 1.75 percent, what is the real rate of interest?

6 What is the relation between business cycles and the general level of interest rates?