1. Fintech firms avoid the two basic risks inherent in banking. What are those risks? Give an example of one of those risks. a. The two risks are mismatched maturities and leverage. An example of mismatched maturities is when banks take in long-term liabilities such as deposits and turn them into long term assets such as mortgages. b. The two risks are mismatched maturities and leverage. An example of mismatched maturities is when banks take in short-term liabilities such as deposits and turn them into long term assets such as mortgages. c. The two risks are mismatched incentives and leverage. An example of leverage is when banks only lend money they have in the vault.

2. Distinguish between money and capital markets and give an example of a traded security in each. a. Money markets facilitate the trading of short-term instruments while capital markets facilitate the trading of long-term instruments. Commercial paper is traded in capital markets and Stocks are traded in money markets. b. Money markets facilitate the trading of long-term instruments while capital markets facilitate the trading of short-term instruments. Commercial paper is traded in money markets and Stocks are traded in capital markets. c. Money markets facilitate the trading of short-term instruments while capital markets facilitate the trading of long-term instruments. Commercial paper is traded in money markets and Stocks are traded in capital markets.

3. Assume that countries A and B are of similar size, that they have similar economies, and that the government debt levels of both countries are within reasonable limits. Assume that the regulations in country A require complete disclosure of financial reporting by issuers of debt in that country, but that regulations in country B do not require much disclosure of financial reporting. Explain why the government of country A is able to issue debt at a lower cost than the government of country B. a. Investors are more willing to invest in debt securities issued by the government of country A because there is less transparent information that would suggest country A can cover its payments owed on its debt b. Investors are more willing to invest in debt securities issued by the government of country A because there is more transparent information that would suggest country A can cover its payments owed on its debt c. Investors are more willing to invest in debt securities issued by the government of country A because there is more transparent information that would suggest country B can cover its payments owed on its debt

4. If the federal government planned to expand the space program, how might this affect interest rates? a. An expanded space program might force the federal government to increase its budget deficit. Consequently, there is a greater demand for loanable funds. The likely overall impact would therefore be upward pressure on interest rates. b. An expanded space program might force the federal government to increase its budget deficit. Consequently, there is less demand for loanable funds. The likely overall impact would therefore be upward pressure on interest rates. c. An expanded space program would force the federal government to decrease its budget deficit. Consequently, there is a less demand for loanable funds. The likely overall impact would therefore be upward pressure on interest rates.

5. Explain how the expected interest rate in one year depends on your expectation of economic growth and inflation. a. The interest rate in the future should increase if economic growth and inflation are expected to decline, or decrease if economic growth and inflation are expected to rise. b. The interest rate in the future should decrease if economic growth and inflation are expected to rise, or increase if economic growth and inflation are expected to decline. c. none of the above