Financial Markets MCQs Quiz Multiple Choice Questions & Answers

1. The act of financial intermediation consists of

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

2. The act of financial intermediation consists of

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

3. Which one is not a function of intermediation?

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

4. A portfolio is

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

5. A portfolio is

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

6. Asymmetric information means that

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

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

8. Moral hazard

1. 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.
2. is when a party to a transaction has relatively more information than another party.
3. is when the actions of a group of individuals have undesirable effects on a given individual.
4. results from the incentive for some people to engage in a transaction that is undesirable to everyone else.

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

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

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

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

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

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

12. Chartered Banks are regulated by

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

13. A primary market is one in which

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

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

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

15. Securitization means that

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

16. Currency and deposits at deposit-taking institutions and mortgages account for approximately what proportion of all financial assets?

1. 50%
2. 66%
3. 75%
4. 25%

17. Approximately, what proportion of assets of the Canadian economy are financial in nature?

1. 40%
2. 60%
3. 80%
4. 25%

18. Approximately what is the proportion of assets held by the financial sector?

1. 40%
2. 60%
3. 95%
4. 20%

19. Which category of financial institution is, relatively speaking, the most important?

1. non-deposit intermediaries.
2. insurance companies.
3. investment funds.
4. deposit-taking intermediaries.

20. Deregulation may ………………. entry into financial markets and thereby ………………….. competition.

1. stop, decrease.
2. enhance, increase.
3. enhance, decrease.
4. slow, decrease.

21. Consolidation has been shown in some markets to lead to …………………… fees and/but …………………… interest rates.

1. lower, higher.
2. higher, higher.
3. lower, lower.
4. higher, lower.