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Exercises (Part 1 &2 ) 1．The principal lender-savers are

A) governments B) businesses C) households D) foreigners. 2. Which of the following can be described as direct finance? A) A corporation issues new shares of stock. B) People buy shares in a mutual fund.

C) A pension fund manager buys a short-term corporate security in the secondary market.

D) An insurance company buys shares of common stock in the over-the-counter markets.

3. Which of the following can be described as indirect finance? A) You make a loan to your neighbor.

B) A corporation buys a share of common stock issued by another corporation in the primary market.

C) You buy a U.S. Treasury bill from the U.S. Treasury. D) You make a deposit at a bank.

4. ________ work in the secondary markets matching buyers with sellers of securities.

A) Dealers B) Underwriters C) Brokers D) security issuers 5. The higher a security's price in the secondary market the ________ funds a firm can raise by selling securities in the ________ market. A) more; primary B) more; secondary C) less; primary D) less; secondary

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6. Of money's three functions, the one that distinguishes money from other assets is its function as a

A) store of value B) unit of account. C) standard of deferred payment. D) medium of exchange. 7. The currency component includes paper money and coins held in A) bank vaults B) ATMs C) the hands of the nonbank public D) the central bank 8. The M1 measure of money includes

A) small denomination time deposits. B) traveler's checks.

C) money market deposit accounts. D) money market mutual fund shares. 9. A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A) simple loan B) fixed-payment loan C) coupon bond D) discount bond.

10 .All of the following are examples of coupon bonds except A) Corporate bonds B) U.S. Treasury bills C) U.S. Treasury notes D) U.S. Treasury bonds

11. Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________.

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A) rises; rises B) rises; falls C) falls; rises D) falls; falls

12.When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will ________. A) demand for; rise B) demand for; fall C) supply of; fall D) supply of; rise

13. Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________.

A) rises; right B) rises; left C) falls; right D) falls; left

14.A factor that could cause the supply of bonds to shift to the right is: A) a decrease in government budget deficits. B) a decrease in expected inflation. C) a recession.

D) a business cycle expansion.

15. The Bush tax cut reduced the top income tax bracket from 39% to 35% over a ten-year period. Supply and demand analysis predicts the impact of this change was a ________ interest rate on municipal bonds and a ________ interest rate on Treasury bonds. A) higher; lower B) lower; lower C) higher; higher D) lower; higher

16. Financial markets promote greater economic efficiency by channeling funds from ________ to ________.

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