11) Direct finance involves the sale to ________ of marketable securities such as stocks and bonds.
A) households
B) insurance companies
C) pension funds
D) financial intermediaries
12) Regulation of the financial system
A) occurs only in the United States.
B) protects the jobs of employees of financial institutions.
C) protects the wealth of owners of financial institutions.
D) ensures the stability of the financial system.
13) One purpose of regulation of financial markets is to
A) limit the profits of financial institutions.
B) increase competition among financial institutions.
C) promote the provision of information to shareholders, depositors and the public.
D) guarantee that the maximum rates of interest are paid on deposits.
14) Property that is pledged to the lender in the event that a borrower cannot make his or her debt payment is called
A) collateral.
B) points.
C) interest.
D) good faith money.
15) Collateralized debt is also know as
A) unsecured debt.
B) secured debt.
C) unrestricted debt.
D) promissory debt.
16) Credit card debt is
A) secured debt.
B) unsecured debt.
C) restricted debt.
D) unrestricted debt.
17) The predominant form of household debt is
A) consumer installment debt.
B) collateralized debt.
C) unsecured debt.
D) unrestricted debt.
18) If you default on your auto loan, your car will be repossessed because it has been pledged as ________ for the loan.
A) interest
B) collateral
C) dividend
D) commodity
19) Commercial and farm mortgages, in which property is pledged as collateral, account for
A) one-quarter of borrowing by nonfinancial businesses.
B) one-half of borrowing by nonfinancial businesses.
C) one-twentieth of borrowing by nonfinancial businesses.
D) two-thirds of borrowing by nonfinancial businesses.
20) A ________ is a provision that restricts or specifies certain activities that a borrower can engage in.
A) residual claimant
B) risk hedge
C) restrictive barrier
D) restrictive covenant
21) A clause in a mortgage loan contract requiring the borrower to purchase homeowner’s insurance is an example of a
A) proscriptive covenant.
B) prescriptive covenant.
C) restrictive covenant.
D) constraint-imposed covenant.
22) Which of the following is not one of the eight basic puzzles about financial structure?
A) Stocks are the most important source of finance for American businesses.
B) Issuing marketable securities is not the primary way businesses finance their operations.
C) Indirect finance, which involves the activities of financial intermediaries, is many times more important than direct finance, in which businesses raise funds directly from lenders in financial markets.
D) Banks are the most important source of external funds to finance businesses.
23) Which of the following is not one of the eight basic puzzles about financial structure?
A) Debt contracts are typically extremely complicated legal documents that place substantial restrictions on the behavior of the borrower.
B) Indirect finance, which involves the activities of financial intermediaries, is many times more important than direct finance, in which businesses raise funds directly from lenders in financial markets.
C) Collateral is a prevalent feature of debt contracts for both households and business.
D) There is very little regulation of the financial system.
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