Question 1: If financial markets were ____, all information about any securities for sale in primary and secondary markets would be continuously and freely available to investors.

• imperfect
• efficient
• perfect
• inefficient

Question 2: Without the participation of financial intermediaries in financial market transactions,

• transaction costs would be higher but information costs would be unchanged.
• information and transaction costs would be higher.
• information and transaction costs would be lower.
• information costs would be higher but transaction costs would be unchanged.

Question 3: When a securities firm acts as a broker, it

• purchases securities for its own account.
• makes a market in specific securities by adjusting its own inventory.
• guarantees the issuer a specific price for newly issued securities.
• executes transactions between two parties.

Question 4: ____ securities have a maturity of one year or less; ____ securities are generally more liquid.

• Money market; capital market
• Capital market; capital market
• Money market; money market
• Capital market; money market

Question 5: Which of the following transactions would not be considered a secondary market transaction?

• An institutional investor sells some Disney stock through its broker.
• A firm that was privately held engages in an offering of stock to the public.
• All of the above are secondary market transactions.
• An individual investor purchases some existing shares of stock in IBM through his broker.

Question 6: The equilibrium interest rate should

• fall when the aggregate supply funds exceeds aggregate demand for funds.
• B and C
• fall when the aggregate demand for funds exceeds aggregate supply of funds.
• rise when the aggregate supply of funds exceeds aggregate demand for funds.
• rise when aggregate demand for funds equals aggregate supply of funds.

Question 7: Which of the following is likely to cause a decrease in the equilibrium U.S. interest rate, other things being equal?

• pessimistic economic projections that cause businesses to reduce expansion plans
• a decrease in savings by U.S. households
• an increase in inflation
• a decrease in savings by foreign savers

Question 8: The level of installment debt as a percentage of disposable income is generally ____ during recessionary periods.

• higher
• lower
• negative
• zero

Question 9: Due to expectations of lower inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

• increase; decrease
• decrease; decrease
• increase; increase
• decrease; increase

Question 10: Which of the following is least likely to affect household demand for loanable funds?

• an increase in interest rates
• a decrease in tax rates
• a reduction in positive net present value (NPV) projects available
• All of the above are equally likely to affect household demand for loanable funds.