ANSWER OUTLINE
ECONOMICS 353 (SECTION 2) L. Tesfatsion/Spring 00
EXERCISE SET 2: 5 POINTS TOTAL DUE: Tuesday, February 1, 2:10 P.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 2-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:
1-2. Key distinctions between a dealer and a financial intermediary (FI) are:
A. The dealer keeps an investment portfolio of the assets he or she trades in.
B. The FI buys low and sells high whereas the dealer is paid by commission
C C. The assets sold by an FI to buyers (lenders) differ from the assets
bought by the FI from sellers (borrowers).
D. Dealers are key players in auction markets.
E. FIs are key players in over-the-counter markets.
2-2. Which of the following are secondary 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. U.S. Treasury bill auctions conducted by the Treasury.
E E. All except D.
3-2. Which of the following can be described as direct finance:
A A. A corporation issues new shares of stock.
B. People buy shares in a mutual fund.
C. A pension fund manager buys commercial paper in the secondary market.
D. A household takes out a loan from a bank.
E. None of the above.
4-2. Which of the following can be described as indirect finance.
A. A corporation issues new shares of stock.
B B. A bank makes a loan to a corporation.
C. A household buys stock shares on the New York Stock Exchange.
D. The U.S. government buys commercial paper issued by a corporation.
E. None of the above.
5-2. Which of the following statements about debt and equity are true.
A. Debt and equity claims have equal priority in case of insolvency.
B. Debt and equity claims are both based on profit performance.
C. Corporations are legally obligated to pay dividends to equity holders.
D D. None of the above.
E. Only A and B of the above.
