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Money, Banking, and Financial Markets Practice Test: The Basics of The Financial System
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The financial system is an economic arrangement that helps transfer funds and assets between lenders, borrowers, and investors. The goal of the financial system is to distribute economic resources efficiently to promote economic growth and generate a return on investment (ROI) for market participants.  Some basic functions of the financial system include: Pooling funds Risk function Facilitates payment Short and long-term needs Provides liquidity Better decision Capital formation Economic development Finances Government needs  The financial system has many components,... Show more
Money, Banking, and Financial Markets Practice Test: The Basics of The Financial System
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25 Questions

1. A breakdown of financial markets can result in
2. Financial markets have the basic function of
3. A goal of the Securities and Exchange Commission is to reduce problems arising from
4. A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called
5. Secondary markets make financial instruments more
6. Financial institutions that accept deposits and make loans are called ________ institutions.
7. Bonds issued by state and local governments are called ________ bonds.
8. Which of the following can be described as involving indirect finance?
9. Which of the following instruments are traded in a money market?
10. Which of the following are not contractual savings institutions?
11. Which of the following is not a goal of financial regulation?
12. Which of the following can be described as involving direct finance?
13. The primary liabilities of a commercial bank are
14. Equity holders are a corporationʹs ________. That means the corporation must pay all of its debt holders before it pays its equity holders.
15. Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely.
16. The problem created by asymmetric information before the transaction occurs is called________, while the problem created after the transaction occurs is called ________.
17. The primary assets of a pension fund are
18. Which of the following can be described as involving indirect finance?
19. ________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis.
20. An important financial institution that assists in the initial sale of securities in the primary market is the
21. Reducing risk through the purchase of assets whose returns do not always move together is
22. The time and money spent in carrying out financial transactions are called
23. Economies of scale enable financial institutions to
24. Risk sharing is profitable for financial institutions due to
25. With direct finance funds are channeled through the financial market from the ________ directly to the ________.

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