ANSWER OUTLINE
ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 00
EXERCISE SET 2: 5 POINTS TOTAL DUE: Tuesday, February 1, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*NOTE:* Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of the accompanying answer sheet and write "353 SECTION 1-EXERCISE SET 2" in
the top margin of Side 1. Use a #2 pencil to MARK YOUR ANSWERS on Side 1
of the answer sheet to the following five multiple choice questions:
1-1. Which of the following are primary markets.
A. The New York Stock Exchange
B. The U.S. government bond market conducted through dealers
C. The over-the-counter stock market
D D. U.S. Treasury bill auctions conducted by the Treasury
E. All except D.
2-1. Key distinctions between a broker and a dealer are:
A. The broker buys low and sells high whereas the dealer sells
low and buys high.
B. The broker posts bid and asked prices.
C. The dealer keeps an inventory of the assets he or she trades in.
D. The dealer posts bid and asked prices.
E E. Both C and D
3-1. Which of the following can be described as direct finance:
A. A corporation takes out a loan from a bank.
B. People buy shares in a mutual fund.
C C. A corporation buys commercial paper newly issued by
another corporation.
D. An insurance company buys shares of common stock on the Nasdaq
E. None of the above.
NOTE: The qualifier "newly" in part C of 3-1 was added on Jan 26th for
clarification.
4-1. 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.
C. You buy a U.S. Treasury bill from the U.S. Treasury.
D D. A household takes out a loan from a bank.
E. None of the above.
5-1. Which of the following statements about debt and equity are true.
A. They can both be long-term financial instruments.
B. They both involve a claim on the issuer's income.
C. Debt claims are paid prior to equity claims in case of insolvency.
D D. All of the above.
E. Only A and B of the above.
