Infonet College

Department of Accounting and Finance

Financial Institutions and Market
Chapter 1 and 2 Individual Assignment

Name_____________________________ ID NO____
Instructions to the Candidates
 Individual Assignment
 All the questions are compulsory and MUST be answered.
 You can refer your handouts and different supporting resources.
 This assignment is to be completed and submitted to the office on time up on the schedule by
hard copy.
 Use only PEN for writing answers.
 Observe correct spelling.
 Explain your idea briefly and clearly, neatness is expected.
 Double answers will not carry any marks.
 Copying by any means will be strictly awarded Zero.
 Date of submission at the mid exam date (19/08/2016 E.C)

N:B: There will be a penalty for the late submission of report. Any late
submissions will incur a deduction of 5% of the available points for each day
overdue.
Part I: True /False, write True for correct statement or False for incorrect one.

1. A financial market is a market in which financial assets can be purchased or sold.

2. Those financial markets that facilitate the flow of short term funds (with maturities of less
than one year) are known as capital markets, while those that facilitate the flow of long term
funds are known as money markets.
3. Primary markets facilitate the trading of existing securities.
4. Bonds are long term debt obligations issued by corporations and government agencies to
support their operations.
5. Long term debt securities tend to have lower risk but a higher return than money market
securities.
6. The financial system plays the key role in the economic growth of country.

Part II. Multiple Choice Questions: Chooses the correct letter of your choice.

1. ____is provide opportunities to buy and sell financial securities

A. General Markets B. Financial markets C. Specific market D. None
2. One is not match with others.
A. Bond B. Treasury bills C. Stocks D. Mortgage

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3. ____ is where funds are converted from one currency into another
A. Money Market C. Capital Market
B. Foreign Exchange Market D. Derivatives Markets
4. Which of the following are NOT main participants in financial market transactions?
A. Households D. Financial institutions
B. Governments E. All of the above are main participants
C. Businesses and Firms
5. Securities issued by the government, promising a payment in a year or less, are traded_____
A. Money Market B. Equity Market C. Treasury Bills D. Commercial Bills
6. Budget deficit is ----------
A. Excess of revenues over expenditures C. Expenditures Equally revenues
B. Excess of expenditures over revenues D. None of the above
7. Who have the right to purchase of financial asset in the financial market?
A. Bank B. Investors C. Governments D. Individuals E .All
8. Financial markets that facilitating the trading of existing or previously issued securities are
known as.............
A. Money Markets B. Capital Markets C. Primary Markets D. Secondary Markets
9. According to your text, which of the following is NOT considered a money market security?
A. Treasury bills D. Treasury notes
B. Certificate of deposit E. Commercial paper
C. Bankers acceptance
10. _______ Obtains funds through sale of shares and invests monies in bonds and stocks.
A. Mutual fund B. pension funds C. finance company D. A&B are answer
11. ___________ are NOT considered capital market securities.
A. Repurchase agreements D. Municipal bonds
B. Corporate bonds E. Mortgages
C. Stocks
12. Securities firms
A. They act as a broker. C. Provide investment banking services.
B. Often act as a dealer. D. All of the above
13. Capital market securities tend to have an expected______ return and _______ risk than
money market securities.
A. Lower; Lower B. Lower; Higher C. Higher; Lower D. Higher; Higher
14. Which of the following are NOT considered depository financial institutions?
A. Finance companies D. saving’s institutions
B. Commercial banks E. All of the above are depository financial institutions.
C. Credit unions
15. One of the following is not role of depository institution
A. They accept the risk of loans C. They customize loans
B. They have not expertise in evaluating creditworthiness D. None
16. A credit unions institution is differ from other depository institution such like commercial
banks and savings institutions because.
A. They are profit oriented.
B. They are not accepting deposit.
C. They restrict their business to credit union members.
D. They are larger than commercial banks and savings institutions.
17. Maintain a larger amount of assets than the other types of depository institutions.
A. Finance company’s D. Savings institutions

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 B. Commercial banks E. Life insurance companies
C. Credit union’s
18. Financial institution can be defined as
A. Facilitating asset transformation C. Acting as an agent to bring buyers and sellers.
B. Brokerage. D. All of the above
19. Which of following is incorrect about the financial system?
A. Financial institutions and financial markets are part of the financial system.
B. Savers and borrowers are part of the financial system.
C. Both domestic and foreign borrowers are part of the financial system.
D. None
20. Which of the following financial intermediaries specialize in making mortgage loans?
A. Pension Funds C. Savings and Loan Associations.
B. Finance Companies. D. Insurance Companies.
21. Which of the following financial intermediaries specialize in Policy premiums?
A. Insurance Companies. C. Savings and Loan Associations.
B. Finance Companies. D. Pension Funds.
22. __________ Authorized dealers basically look after the demand-supply operations in
financial market.
A. Government B. Corporation C. Commercial bank D. All
23. Which one of the following is not the function of financial institution?
A. They engage in indirect financing C. They act as financial intermediaries
B. They reduce risk D. None
24. Which one is true about insurance company?
A. They accept deposit from customer. C. fund is obtained from receiving policy premium.
B. Source of fund by issuing securities. D. All are correct
Part 1. Short Answer Questions:
1. List down the three major components of financial system?
2. Write the difference between physical asset and financial asset?
3. Discuss the purpose of financial markets?
4. List down instruments of financial market?
5. Write at list five financial institutions used as financial intermediaries?
6. Who purchase bond in the Ethiopian financial market?
7. Discuss the instruments of short term or money market instrument?
8. Explain the difference between direct and indirect finance?
9. Explain the difference between primary and secondary market?
10. Discuses the difference between market with financial market
11. Define the following terms
A. Monetary policy F. Fiscal policy
B. Bond market G. stock market
C. Derivatives markets H. Foreign exchange market
D. Budget deficit I. Budget surplus
E. Promissory notes J. Commercial Paper

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