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finance chapt 1 t/f

chapter 1

QuestionAnswer
1.The term "financial system" refers to the collection of markets, individuals and institutions, laws, regulations and techniques through which securities are traded and interest rates determined. true
2.When credit becomes more costly and less available, total spending for goods and services generally falls. true
3. The primary task of a financial system is to move scarce funds from those who save to those who borrow to buy goods and services and to make investments equipment and facilities so that the global economy can grow and increas the stand. living of citiz true
The money market is designed for the making of short-term loans. It is the institution through which individuals and institutions with temporary surpluses of funds meet the needs of borrowers 4.who have temporary funds shortages (deficits). true
5.Business investment consists of purchases of plant and equipment and purchases of inventory. true
6.The purchase of a new home is a form of business investment.v false
7. One of the most important contributions of the financial markets is to make possible the exchange of current income for future income. true
8. Credit represents a loan of funds in return for a promise of future payment. true
9. The financial markets offer businesses, consumers and governments protection against health, property and income risk. true
10. The term "liquidity" refers to the ability of a financial asset to be converted quickly into cash with little risk of loss. true
11. Money is the only perfectly liquid asset in the financial system. true
12. A security evidencing a loan which matures within one year is a money market instrument. true
13. One of the most important functions of the capital market is to finance the working-capital needs of corporations and to provide government with short-term funds in lieu of tax collections. false
14. Speculative purchases of securities and commodities are generally financed by loans from the money market. true
15. The construction of office buildings, highways, schools and homes normally is financed by loans from the capital market. true
16. Financial instruments traded in the capital market have original maturities of greater than one year. true
17. The most important institution lending funds in the money market is the commercial bank. false
18. The largest borrower in the U.S. money market is Citibank, the nation's largest commercial bank. false
19. Most loans to families and individuals would be classified as money market instruments. false
20. The largest market for a single security in the world is the Treasury bill market. true
21. The financial system determines the cost of credit and how much credit is available. true
22. The circular flow occurs between governments and households. false
23. Business determines what and how many goods and services will be produced. false
24. Forward markets and futures markets serve the same purpose in principle. true
25. The liquidity function of the financial system is designed to protect businesses, consumers and governments against risks to people, property and income. false
Created by: 1194490667