Chapter 8 the Money Markets
Chapter 8 The Money Markets 8.1 Multiple Choice
1) Activity in money markets increased significantly in the late 1970s and early 1980s because A) of rising short-term interest rates. B) of regulations that limited what banks could pay for deposits. C) of both (A) and (B) of the above. D) of neither (A) nor (B) of the above. Answer: C 2) Money market securities are A) short-term. B) low risk. C) very liquid. D) all of the above. E) only (A) and (B) of the above. Answer: D 3) Money market instruments A) are usually sold in large denominations. B) have low default risk. C) mature in one year or less. D) are characterized by all of the above. E) are characterized by only (A) and (B) of the above. Answer: D 4) The banking industry A) should have an efficiency advantage in gathering information that should eliminate the need for the money markets. B) exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. C) is subject to more regulations and governmental costs than are the money markets. D) all of the above are true. E) only (A) and (B) of the above are true. Answer: D
5) In situations where the asymmetric information problem is not severe, A) the money markets have a distinct cost advantage over banks in providing short-term funds. B) banks have a distinct cost advantage over the money markets in providing short-term funds. C) banks have a comparative advantage over the money markets in providing short-term funds. D) banks have an absolute advantage over the money markets in providing shortterm funds. Answer: A 6) Brokerage firms that offered money market security accounts in the 1970s had a cost advantage over banks in attracting funds because the brokerage firms A) were not subject to deposit reserve requirements. B) were not subject to the deposit interest rate ceilings. C) were not limited in how much they could borrow from depositors. D) had the advantage of all the above. E) had the advantage of only (A) and
1) Activity in money markets increased significantly in the late 1970s and early 1980s because A) of rising short-term interest rates. B) of regulations that limited what banks could pay for deposits. C) of both (A) and (B) of the above. D) of neither (A) nor (B) of the above. Answer: C 2) Money market securities are A) short-term. B) low risk. C) very liquid. D) all of the above. E) only (A) and (B) of the above. Answer: D 3) Money market instruments A) are usually sold in large denominations. B) have low default risk. C) mature in one year or less. D) are characterized by all of the above. E) are characterized by only (A) and (B) of the above. Answer: D 4) The banking industry A) should have an efficiency advantage in gathering information that should eliminate the need for the money markets. B) exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. C) is subject to more regulations and governmental costs than are the money markets. D) all of the above are true. E) only (A) and (B) of the above are true. Answer: D
5) In situations where the asymmetric information problem is not severe, A) the money markets have a distinct cost advantage over banks in providing short-term funds. B) banks have a distinct cost advantage over the money markets in providing short-term funds. C) banks have a comparative advantage over the money markets in providing short-term funds. D) banks have an absolute advantage over the money markets in providing shortterm funds. Answer: A 6) Brokerage firms that offered money market security accounts in the 1970s had a cost advantage over banks in attracting funds because the brokerage firms A) were not subject to deposit reserve requirements. B) were not subject to the deposit interest rate ceilings. C) were not limited in how much they could borrow from depositors. D) had the advantage of all the above. E) had the advantage of only (A) and