ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 99
EXERCISE SET 2: 5 POINTS TOTAL DUE: Tuesday, February 2, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
Please FILL IN YOUR NAME on Side 1 of the accompanying General Purpose
NCS Answer Sheet and use a #2 pencil to MARK YOUR ANSWERS on Side 1 of this
Answer Sheet to the following five multiple choice questions. [Answer sheets
can be obtained from Sue Streeter in Heady 382 if you missed the class
handout].
1. Which of the following are long-term financial instruments?
A. A 3-month negotiable certificate of deposit
B. A banker's acceptance
C. A six-month loan
D. A U.S. Treasury bill
E E. None of the above
2. Which of the following statements about the characteristics of debt
and equity is NOT true?
A. They can both be long-term financial instruments
B B. They can both be short-term financial instruments
C. They both involve a claim on the issuer's income
D. They both enable a corporation to raise funds
E. None of the above
3. Securities are ________ for the person who buys them and _________
for the individual or firm that issues them.
A A. assets; liabilities
B. liabilities; assets
C. negotiable; nonnegotiable
D. nonnegotiable; negotiable
4. Which of the following statements is true?
A. A bond is a debt security that promises to make payments for
a specified period of time
B. The maturity of a debt instrument is the time (term) to that
instrument's expiration date
C. A debt instrument is short term if its maturity is less than one year
D D. All of the above are true
5. If bad credit risks are the ones who most actively seek out and
(therefore) receive loans from financial intermediaries, then the
financial intermediaries face the problem of
A. moral hazard
B B. adverse selection
C. free-riding
D. costly state verification
