Chapter 1 Exercises Questions 1,2,3 1. The U.S. financial system is composed of (1) policy makers, (2) a monetary system, (3) financial institutions, and (4) financial markets. Indicate which of these components is associated with each of the following roles: a. Accumulate and lend/ invest savings – financial institutions b. Create and transfer money – monetary system c. Pass laws and set fiscal and monetary policies – policy makers d. Market and facilitate transfer of financial assets – financial markets 2. Financial markets may be categorized as (1) debt securities markets, (2) equity securities markets, (3) derivative securities markets, and (4) foreign exchange markets. Indicate in which of these markets the following securities trade: a. Residential mortgages – debt securities markets b. Corporate bonds – derivative securities markets c. Corporate stocks – equity securities markets d. Currencies – foreign exchange 3. In business, ethical dilemmas or situations occur frequently. Laws and regulations exist to define what unethical behavior is. However, the practicing of high-quality ethical behavior often goes beyond just meeting laws and regulations. Indicate how you would respond to the following situations: a. Your boss had just told you that tomorrow the Federal Drug Administration will announce its approval of your firm’s marketing of a new breakthrough drug. As a result of this information, you are considering purchasing shares of stock in your firm this afternoon. What would you do? I would not purchase shares of stock because it would be unethical and illegal. This is sort of an insider trading thing. If I was to get caught I would go to jail for that. b. In the past, your firm has been in compliance with regulatory standards relating to product safety. However, you have heard through the