ANSWER OUTLINE
ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 01
EXERCISE SET 2: 5 POINTS TOTAL DUE: Tuesday, Jan 30, 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 a RED bubble (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 bubble sheet to the following five multiple choice questions:
1-1. Auction markets and over-the-counter (OTC) markets are DISTINGUISHED
by the following characteristics:
A. Auction markets only handle trades in real assets whereas OTC
markets only handle trades in financial assets.
B. Trades in auction markets are conducted through a centralized facility
whereas trades in OTC markets are not.
C. Trades in auction markets are generally handled by brokers whereas
trades in OTC markets are generally handled by dealers
D. All of the above are true
E E. Only B and C are true
2-1. "Asset transformation" refers to a situation in which
A. the interest rate on a financial asset changes over time.
B B. financial intermediaries buy one type of financial asset from
borrowers and sell a different type of financial asset to savers.
C. an asset depreciates over time.
D. brokers buy one type of financial asset from borrowers and sell a
different type of financial asset to savers.
E. none of the above
3-1. Which of the following can be described as PRIMARY market transactions:
A. A broker facilitates a stock share sale from one household to another
B B. An investment banker facilitates the sale of newly issued corporate bonds
C. A dealer helps the Fed sell some of its inventory of U.S. Treasury
bonds in open market operations in order to regulate the Fed Funds rate
D. You buy shares of a money market mutual fund.
E. None of the above
4-1. Which of the following can be described as involving DIRECT finance:
A A. A corporation sells new shares of stock to another corporation.
B. A pension fund manager buys stock on the New York Stock Exchange
C. A consumer takes out a loan from a commercial bank.
D. You buy shares in a mutual fund.
E. None of the above
5-1. A key DISTINCTION between common stock shares and corporate bonds is
A. the contractually promised return on bonds varies with corporate profits
B. stock holders must be paid dividends as a percentage of profits
C C. bond holder claims are prior to stock holder claims if bankruptcy occurs
D. bond holders normally have voting rights with regard to corporate management
E. all of the above
