Chapter one

Question 1

What are financial markets

Answer 1

Financial markets are markets in which funds are transferred from people and firms who have an excess of available funds to people who need funds.

Question 2

What has a direct effect on the performance of the economy

Answer 2

Financial markets

Question 3

Define a security

Answer 3

Is a financial instrument that has a claim on the issuer’s future income or assets. (subject to ownership)

Question 4

Define a bond

Answer 4

A bond is a debt security that promises to make payments periodically for a specified period.

Question 5

Define interest rate

Answer 5

Interest rate is the cost of borrowing or the price paid for rental of funds

Question 6

Define common stock

Answer 6

It represents a share of ownership in a corporation

Question 7

Define a share of stock

Answer 7

It is a claim on the residual earnings and assets of the corporation

Question 8

Where are the claims on the earnings of corporations traded?

Answer 8

The stock market

Question 9

What plays an important factor in business investment and consumers consumption decisions

Answer 9

The stock market

Question 10

Define financial intermediaries

Answer 10

Institutions that borrow funds from people who have saved and in turn make loans to other people who need funds

Question 11

Examples of financial intermediaries

Answer 11

1. Banks
2. Insurance Companies
3. Finance Companies
4. Pension funds
5. Mutual funds
6. Investment Companies

Question 12

Define financial innovation

Answer 12

The development of new financial products and services

Question 13

Financial systems get more efficient thanks to ___________

Answer 13

Financial innovation

Question 14

Define e-finance

Answer 14

The ability to deliver financial services electronically

Question 15

Financial crises are major disruptions in financial markets that are characterised by _______

Answer 15

1. Sharp decline in asset prices
2. The failure of many financial and nonfinancial firms

Question 16

Financial crises have been a feature of ________ economies

Answer 16

Capitalist

Question 17

Define money

Answer 17

Is defined as anything generally accepted as payment for goods or services or in the repayment of debts.

Question 18

What plays an important role in generating business cycles?

Answer 18

Money

Question 19

According to the Monetary Theory, Changes in the money supply are related to

Answer 19

changes in Aggregate economic activity and price level

Question 20

Define inflation

Answer 20

A continual rise in the price level.

Question 21

Define the aggregate price level

Answer 21

It is the average price of goods and services in an economy.

Question 22

What is the rate of change of the price level ?

Answer 22

Inflation Rate

Question 23

In _____, The rate of money growth and interest rate on long-term Treasury bonds were closely tied.

Answer 23

1980

Question 24

Money growth is an important determinant of _______

Answer 24

Interest rates

Question 25

Interest rates are the ________

Answer 25

Prices of money

Question 26

Define monetary policy

Answer 26

It is the management of the money supply and interest rates

Question 27

fiscal policy is for

Answer 27

Dealing with government spending and taxation

Question 28

Define budget deficit

Answer 28

Is the excess of expenditures over revenues for a particular year

Question 29

Define budget surplus

Answer 29

Is the excess of revenues over expenditures for a particular year

Question 30

Any deficit must be financed by ________

Answer 30

Borrowing

Question 31

Define
foreign exchange market

Answer 31

Where funds are converted from one currency into another

Question 32

Define
foreign exchange rate

Answer 32

Is the price of one currency in terms of another currency

Question 33

What market determines the foreign exchange rate

Answer 33

Foreign exchange market