mutual fundsinvestment banksfinance companiescredit unions15 B u s i n e s s F i n a n c e

mutual fundsinvestment banksfinance companiescredit unions15 B u s i n e s s F i n a n c e

Chapter 2 HW

1. Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them *

assets; liabilities

liabilities; assets

negotiable; nonnegotiable

nonnegotiable; negotiable

2. ________ is the agreed upon date in which the investment ends, triggering the repayment of a loan or bond. *





3. Short-term debt has a maturity that is*

between one and ten years.

less than a year.

between five and ten years.

ten years or longer.

4. A financial market in which previously issued securities can be resold is called a ________ market*




used securities

5. A liquid asset is *

an asset that can easily and quickly be sold to raise cash.

a share of an ocean resort.

difficult to resell.

always sold in an over-the-counter market.

6. Equity instruments are traded in the ________ market.*





7. Prices of money market instruments undergo the least price fluctuations because of*

the short terms to maturity for the securities.

the heavy regulations in the industry.

the price ceiling imposed by government regulators.

the lack of competition in the market.

8. Which of the following instruments is NOT traded in a money market? *

residential mortgages

U.S. Treasury Bills

negotiable bank certificates of deposit

commercial paper

9. Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as *

foreign bonds.


equity bonds.

country bonds.

10. Economies of scale enable financial institutions to *

reduce transactions costs.

avoid the asymmetric information problem.

avoid adverse selection problems.

reduce moral hazard.

11. The process of asset transformation refers to the conversion of *

safer assets into risky assets.

safer assets into safer liabilities.

risky assets into safer assets.

risky assets into risky liabilities.

12. The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________. *

adverse selection; moral hazard

moral hazard; adverse selection

costly state verification; free-riding

free-riding; costly state verification

13. Financial institutions that accept deposits and make loans are called ________ institutions. *


contractual savings



14. ________ are financial intermediaries that acquire funds by selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds. *

Mutual funds

Investment banks

Finance companies

Credit unions

15. A mutual fund that is organized as a limited partnership with high minimum investments is called a *

hedge fund.

investment bank.

mutual savings bank.

money market mutual fund