Which of the following best explains why commercial banks


1. If an investor sells short, then he or she

A. anticipates a price increase.

B. sells securities from his or her portfolio.

C. buys an odd lot of a security.

D. anticipates a price decrease.

2. Which of the following best explains a potential disadvantage of leaving securities in street name?

A. Securities held in street name can't be quickly purchased or sold.

B. Correspondence sent by securities issuers may not be forwarded to brokerage clients who own securities held in street name.

C. In the event of class action suits against securities issuers, the custodian, not the beneficial owner (customer), is the only party

that may benefit from court orders.

D. Securities held in street name become the property of the custodian and the customer is only beneficiary of the securities.

3. Entering an order to sell stock at $17 when the bid is $18 to $19 is an example of a

A. short sale.

B. margin payment.

C. limit order.

D. market order.

4. Which of the following statements about pension plans is correct?

A. A pension plan that grants mortgage loans isn't an example of a financial intermediary.

B. A pension plan that grants mortgage loans is called a savings and loan association.

C. A pension plan that grants mortgage loans can't suffer losses.

D. A pension plan that grants mortgage loans is an example of a financial intermediary.

5. The term structure of interest rates involves the relationship between

A. term and yields.

B. stock and bond yields.

C. risk and yields.

D. yields and bond ratings.

6. Money market mutual funds invest in

A. federal government treasury bills.

B. corporate stock.

C. federal government bonds.

D. corporate bonds.

7. The International Monetary Fund

A. holds a pool of currencies.

B. buys foreign securities.

C. developed to help the Federal Reserve control U.S. investments abroad.

D. can lend a country currencies to meet a surplus in its merchandise trade balance.

8. Which of the following best explains why commercial banks assume significant liabilities?

A. The loans commercial banks write can be risky.

B. All commercial bank deposits are liabilities.

C. Banks may not charge enough interest on their loans to fund operations and loan default risk.

D. Banks may pay too much interest on their deposits.

9. Foreign investments may be financed by issuing

A. London Interbank Bonds.

B. Eurobonds.

C. Euro dollars.

D. IMF reserve securities.

10. Which of the following is indicated by an upward-sloping yield curve?

A. Lower prices for short-term maturity

B. Lower interest rates for long-term maturity

C. Higher interest rates for long-term maturity

D. Higher prices for long-term maturity

11. The reserves of commercial banks must be held against

A. losses.

B. the bank as equity.

C. savings deposits.

D. commercial loans.

12. A financial intermediary transfers

A. new stock issues to buyers.

B. stocks to brokers.

C. savings to borrowers.

D. savings to household

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Finance Basics: Which of the following best explains why commercial banks
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