ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 02
EXERCISE 2: 6 POINTS TOTAL DUE: Tuesday, February 5, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*INSTRUCTIONS:*
(1) Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of your bubble sheet and write "353 SECTION 1-EXERCISE 2" in the top margin
of Side 1.
(2) Use a #2 pencil# to MARK YOUR ANSWERS on Side 1 of the bubble sheet to
the following six multiple choice questions.
(3) Please note that these six questions continue onto the back side of
this question sheet. Each question is worth 1 point.
Q1. Securities are ________ for the person who issues them and _________
for the individual or firm that buys them.
A. financial assets; liabilities
B. liabilities; financial assets
C. real assets; liabilities
D. liabilities; real assets
Q2. The main way(S) in which a dealer DIFFERS from a financial intermediary
is/ARE as follows:
A. The most important source of profits for dealers is buying assets at low
prices and then reselling these same assets at higher prices.
B. Dealers do not engage in asset transformation.
C. Dealers hold asset inventories for resale.
D. All of the above.
E. Only A and B above.
NOTE: CAP changes made in an emailed correction on 2/2/02
Q3. Which of the following markets is/are organized as an OVER-THE-COUNTER market:
A. The foreign exchange market.
B. The secondary market for U.S. government bonds.
C. The Nasdaq stock market.
D. All of the above.
E. Only A and B.
Q4. Which of the following can be described as PRIMARY market transactions:
A. A broker facilitates a bond sale from one household to another
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 stock on the New York Stock Exchange.
E. All of the above
Q5. Which of the following describes an instance of INDIRECT finance:
A. A corporation buys commercial paper newly issued by another corporation.
B. A pension fund manager buys stock on the Nasdaq
C. A firm obtains a loan from a commercial bank.
D. You obtain a mortgage from a Savings and Loan.
E. Both C and D.
Q6. Which of the following statements is/are TRUE?
A. A corporation acquires funds whenever its securities are sold by a broker
since the corporation receives a share of the broker's commission.
B. MANY common stocks are traded over-the-counter, although the
largest corporations have their shares traded on organized
stock exchanges such as the New York Stock Exchange
C. Capital market securities are usually more widely traded than
short-term securities and so tend to be more liquid
D. All of the above are true.
E. Only A and B are true
NOTE: Change (indicated in CAPS) in Part B of "most" to "many" made in an
emailed correction on 2/3/02.
