Financial Markets MCQ Questions and Answers for Practice

1. The act of financial intermediation consists of

1. transforming equity shares into debt instruments such as bonds.
2. converting gold into paper currency.
3. transforming liabilities into assets.

2. The act of financial intermediation consists of

1. transforming equity shares into debt instruments such as bonds.
2. converting gold into paper currency.
3. transforming liabilities into assets.
4. safekeeping other peoples funds.

3. Which one is not a function of intermediation?

1. It facilitates the acquisition of payment for goods and services.
2. It facilitates the creation of a portfolio.
3. It eases the liquidity constraints of households and firms.
4. It provides a safekeeping service for those with excess funds.

4. A portfolio is

1. a collection of personal liabilities
2. a collection of assets.
3. a collection of various debt instruments.

5. A portfolio is

1. a collection of personal liabilities
2. a collection of assets.
3. a collection of various debt instruments.
4. the information collected by banks to evaluate a customers borrowing capacity.

6. Asymmetric information means that

1. all parties to a transaction have the same amount of information on the other party.
2. information is expensive to obtain.
3. one party to a transaction has relatively more information than another party.
4. information is readily available for most parties concerned in a transaction.

7. The competition bureau stated that it would be concerned that a merger would restrict competition if the post-merger share of the merged entity exceeded .............. of the market, or if the post-merger share of the four largest firms in the market exceeded ....................

1. 35% and 65%.
2. 65% and 35%.
3. 25% and 75%
4. 50% and 50%.

8. Moral hazard

1. results from the incentive for some people to engage in a transaction that is undesirable to everyone else.
2. results from the chance that an individual may have an incentive to act in such a way as to put that individual at a greater risk.
3. is when a party to a transaction has relatively more information than another party.
4. is when the actions of a group of individuals have undesirable effects on a given individual.

9. ……………… institutions are ……………. likely to fail, reducing the impact of a financial crisis.

1. Larger, less
2. Smaller, less
3. Larger, more
4. Larger, equally

10. Consolidation in the banking sector ……………….. lead to ………………… pricing.

1. does, monopoly.
2. does, competitive.
3. does not, monopoly.
4. does, uniform

11. The reason why the financial system entails some externalities is because

1. the incentives of the managers of financial institutions are, at times, in line with those of its shareholders, depositors, and society in general.
2. they usually make very large profits.
3. the incentives of the managers of financial institutions, at times, conflict with those of its shareholders, depositors, and society in general.
4. if managed correctly, financial institutions will never be the source of externalities.

12. Chartered Banks are regulated by

1. the Federal government
2. at the provincial level.
3. are self-regulating.
4. a combination of various levels of government including the municipal level in some cases.

13. A primary market is one in which

1. newly printed money is transferred to the banks.
2. money market dealers make their most important trades.
3. the Bank of Canada conducts its monetary policy.
4. financial assets are traded for the first time.

14. The money market is for the trading of ………………….. instruments while the capital market is where ………………….. instruments are traded.

1. bonds, Treasury-bills.
2. long-term, short-term
3. cash, tangible
4. short-term, long-term

15. Securitization means that

1. assets that are normally not liquid are made liquid by pooling them and re-selling them as short-term assets.
2. short-term liquid assets are pooled and then converted to long-term high yielding assets.
3. the purchase of newly issued securities by Investment dealers.
4. describes a situation where securities are sold to the highest bidders.