Question

1) ____________ are examples of financial intermediaries.

Select one:

a. Commercial banks
b. Insurance companies
c. Investment companies
d. All of the above

2) True or False? In an efficient market, information is free.

Select one:
True
False

3) If interest rates increase 3 percent and the average duration of a bank’s $100 million of assets is 4 years, the value of those assets will fall:

Select one:
a. $3.000.000
b. $4.000.000
c. $1.000.000
d. $12.000.000

4) True or False? Yield to Maturity is always positive.

Select one:
True
False

5) The purpose of financial markets is to:

Select one:
a. increase the price of common stocks.
b. lower the yield on bonds.
c. allocate savings efficiently.
d. control inflation.

Answer 1

1) d.

Commercial banks, insurance companies and Investment companies all are examples of financial intermediaries as they all operate to assist investors, clients in the money market , howsoever.

2) True.

Because efficient markets mean that their is transperancy in availablity of information and where there are rational investors are actively engaged in market owing to the efficient markets.

3) d.

If int. Rate increases to 3% and average duration of bank's 100mil assets is 4 years then the value of those assets will fall approx. -3*4 = 12% or 12 mil.

This is due to the phenomenon interest rate risk.

4) False.

Yeild to maturity can be positive as well as give a negative return ,i.e loss on security.

5) c.

Allocate savings effciently so that it can be put to more productive use.