Money Banking and Financial Markets 5th Edition By Stephen Cecchetti – Test Bank

Multiple-Choice Questions

1. Financial intermediation is:
a. far less important than direct finance through stock and bond markets.
b. only a little more important than direct finance in the United States.
c. much more important than direct finance through stock and bond markets.
d. the same thing as finance through stock and bond markets.
Ans: C
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

2. Financial intermediation exists, in part, because:
a. financial markets work so well.
b. direct finance through stocks and bonds is the dominant form of financing.
c. transaction costs of financial intermediation is always higher than direct finance.
d. the transaction costs associated with direct finance can at times be prohibitive.
Ans: D
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

3. When the amount of direct and indirect financing are summed, the result is usually:
a. greater than 100% of GDP.
b. equal to GDP.
c. less than GDP.
d. approximately 50% of GDP.
Ans: A
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

4. Emerging market economies, compared to industrialized economies, have financial markets that:
a. differ in composition and size.
b. differ in composition but not in size.
c. are the same in composition but differ in size.
d. are similar in composition and size.
Ans: A
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

5. The reason financial intermediaries play such an important role in economies has to do with all of the following except:
a. information costs.
b. transaction costs.
c. complexity of a lot of financial transactions.
d. the composition of GDP.
Ans: D
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

6. Which of the following is not a role of a financial institution acting as a financial intermediary?
a. Pooling the resources of small savers
b. Formulating oversight regulations
c. Providing ways to diversify risk
d. Supplying liquidity
Ans: B
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

7. Financial institutions, acting as financial intermediaries, perform all of the following, except:
a. provide ways to diversify risk.
b. pooling resources of small savers.
c. increase transactions costs.
d. provide safekeeping and accounting services.
Ans: C
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

8. Financial intermediaries pool the resources of many small savers so that they can:
a. charge fees to these small savers and earn substantial income.
b. obtain the funds necessary to make loans to borrowers seeking large amounts.
c. lower their transaction costs of obtaining funds.
d. avoid paying any interest to obtain funds to lend.
Ans: B
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries

9. If financial intermediaries did not have the ability to pool the resources of small savers:
a. borrowers needing large amounts of money would find it more costly to obtain the funds.
b. the economy would grow faster.
c. people would likely save more.
d. the risk associated with lending would decrease.
Ans: A
Difficulty: 02 Medium
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Understand
Topic: The Role of Financial Intermediaries

10. Financial intermediaries:
a. increase the cost of financial transactions but offset these higher costs by providing safekeeping of customer funds.
b. provide handling of payments but usually less efficiently than other firms.
c. reduce the cost of financial transactions.
d. provide safety of resources, but only for the large borrowing customers who can afford it.
Ans: C
Difficulty: 01 Easy
Learning Objective: 11-01
AACSB: Reflective Thinking
Blooms: Remember
Topic: The Role of Financial Intermediaries