state and local governments

financial markets impact businesses
November 7, 2019
long-term debt and equity financing
November 7, 2019

state and local governments

Q1: Capital formation refers to the:
U.S. governments
state and local governments
households
corporations
Q2: Which of the following borrowing sectors is the most important on an annual basis for
raising funds in the credit markets?
financial investment
real investment
contractual investment
voluntary investment
Q3: What type of investment occurs when claims to wealth in the form of financial assets are
purchased or when debt obligations are repaid?
individuals
business firms
financial intermediaries
governments
Q4: Which one the following four basic economic units consistently represents a savings surplus
unit?
Q5: The short-term accumulation of financial assets on the part of business corporations:
are held in short-term, safe, and liquid debt obligations
add to the level of long-term savings of the economy as a whole
do not enter the monetary stream to fund consumers, government, or other businesses
are held in the form of long-term obligations of the federal government
Q6: Private financial intermediation generally represents an important annual source of funds
supplied to credit markets. Which of the following intermediaries has failed to supply funds
during one or more recent years?
commercial banks

thrift institutions
insurance and pension funds
other financial intermediariesent years?
Q7: Government-held reserves which are invested primarily in the in the obligations of federal,
local, and state governments include:
life insurance
pension funds
retirement funds
money market funds
Q8: What type of investment occurs when claims to wealth in the form of real assets are
created or acquired?
financial investment
real investment
contractual investment
voluntary investment
Q9: Which of the following is the most liquid form of savings?
cash balances
time deposits
insurance reserves
securities
Q10: Which of the following represent the most important instrument used to raise funds in the
credit markets?
corporate bonds
tax-exempt obligations
consumer debt
mortgages

Q11: If interest rates increase because of a previously unanticipated inflation rate risk:

long-lived debt instruments will decline more than short-lived debt instruments
long-lived debt instruments will decline less than short-lived debt instruments
neither set of debt instruments will decline
all other things being equal, both should decline equally
Q12: Which of the following is not considered to be a basic theory used to explain the term

structure of interest rates?
expectations theory
loanable funds theory
liquidity premium theory
market segmentation theory
Q13: The relationship between interest rates or yields and the time to maturity for debt
instruments of comparable quality is called
the yield to maturity
the term structure of interest rates
the maturity risk premium
the expectations hypothesis
Q14: Which of the following interest rates are not determined in the money market?
U.S. Treasury bill rate
prime rate
commercial paper rate
federal funds rate
Q15: Which of the following costs serves to compensate the lender for loss of liquidity?
administrative costs of making the loan
cost of paying for the risk involved
cost to offset the likelihood of inflation
cost for use of money during the period of the loan

Q16: ______________ occurs during economic expansions when demand for goods and services

is greater than supply.
Administrative inflation
Speculative inflation
Cost-push inflation
Demand-pull inflation
Q17: When referring to a “downward sloping” yield curve:
as maturities shorten, interest rates decline
as maturities shorten, interest rates rise
as maturities lengthen, interest rates remain the same
as maturities lengthen, interest rates rise
Q18: The basic sources of loanable funds are:
short-term funds and currency
current savings and the creation of new funds through the expansion of credit by depository
institutions
contractual savings and commercial bank credit
bank loans and the creation of new funds through the contraction of credit by depository
institutions
Q19: Inflation caused by an increase in the money supply is called:
demand-pull inflation
cost-push inflation
administrative inflation
a combination of administrative and speculative inflation
Q20: Which of the following characteristics of most debt instruments do not cause bond prices to vary inversely with changes in financial market interest rates?
coupon rates
maturity dates

par redemption values
bond rating

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