Which of the following financial intermediaries are

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45) Which of the following financial intermediaries are depository institutions? A) A savings and loan association B) A commercial bank C) A credit union D) All of the above E) Only (A) and (C) of the above Answer: D 46) Which of the following is a contractual savings institution? 47) Which of the following are not investment intermediaries? 48) Which of the following are investment intermediaries? 17 49) The government regulates financial markets for three main reasons: A) to ensure soundness of the financial system, to improve control of monetary policy, and to increase the information available to investors. B) to improve control of monetary policy, to ensure that financial intermediaries earn a normal rate of return, and to increase the information available to investors. C) to ensure that financial intermediaries do not earn more than the normal rate of return, to ensure soundness of the financial system, and to improve control of monetary policy. D) to ensure soundness of financial intermediaries, to increase the information available to investors, and to prevent financial intermediaries from earning less than the normal rate of return. Answer: A 50) Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a 2.2 True/False 1) Every financial market allows loans to be made. Answer: FALSE 2) An example of direct financing is if you were to lend money to your neighbor. Answer: TRUE 3) The New York Stock Exchange is an example of a primary market. Answer: FALSE 4) Commercial paper is not traded in the capital market. Answer: TRUE 5) Eurodollars are traded in the money market. Answer: TRUE 6) The process of financial intermediation is also known as direct finance. Answer: FALSE 7) A mutual fund is not a depository institution. Answer: TRUE 8) A pension fund is not a contractual savings institution. Answer: FALSE 18
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9) Equity represents an ownership interest in a firm and entitles the holder to the residual cash flows. Answer: TRUE 10) Adverse selection refers to those most at risk being most aggressive in their search for funds. Answer: FALSE 2.3 Essay 1) Distinguish between direct financing and indirect financing. 2) Distinguish between primary markets and secondary markets. 3) Why is it so important for an economy to have fully developed financial markets? 4) Why are financial intermediaries so important to an economy? 5) Describe how over-the-counter markets work. 6) What are adverse selection and moral hazard? 19 20
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