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Flashcards in Quiz chapter 1 Deck (18):
1

1. The role of the financial system is to transmit information between savers and borrowers.
a. True
b. False

F

2

2. A surplus spending unit is an economic unit whose income in a period exceeds expenditure.
a. True
b. False

T

3

3. The financial system is comprised of financial markets, insurance companies and central banks.
a. True
b. False

F

4

5. IOUs are financial claims against someone else's money at a future date.
a. True
b. False

T

5

6. Direct finance requires a more or less exact match of preferences.
a. True
b. False

T

6

7. Liabilities of financial intermediaries are indirect financial claims.
a. True
b. False

T

7

8. Equity funds are funds supplied in the form of a loan.
a. True
b. False

F

8

9. DSUs and SSUs always have some contact with each other in financial markets.
a. True
b. False

F

9

10. "Underwriting spread" is the lowest price at which the dealer is willing to sell the security.
a. True
b. False

F

10

11. Secondary markets are important because they provide funds directly to DSUs.
a. True
b. False

F

11

12. Primary markets offer liquidity and ways for investors to alter the risk of their portfolios.
a. True
b. False

F

12

13. A payment system is a system that permits the settlement of transactions within the financial system.
a. True
b. False

T

13

14. Information asymmetry means the contracting parties share information equally.
a. True
b. False

F

14

15. Building societies are also known as mortgage banks
a. True
b. False

F

15

16. The money market is a dealer market, not an exchange, and has no specific location.
a. True
b. False

T

16

17. Adverse selection is present in a market because the contracting parties have asymmetric information.
a. True
b. False

T

17

18. The money market is a market where liquidity is bought and sold.
a. True
b. False

T

18

19. Dealers bring buyer and seller together; brokers make a market.
a. True
b. False

F