Chapter 14 Discussion Questions 14-1 In addition to U.S. corporations, what government groups compete for funds in the U.S. capital markets? The federal government, government agencies, and state and local governments 14-2. Are federally sponsored cred it agency issues directly backed by the U.s Federally sponsored credit agency issues are not directly backed by the U.s 14-3 What is a key tax characteristic associated with state and local(municipal) They are tax exempt, meaning the interest on them is normally exempt from federal income taxes and from state income taxes in the state of issue 14-4 What are three forms of corporate securities discussed in the chapter? Corporate bonds, preferred stock, and common stock are the three forms of corporate securities discussed in the chapter 14-5 Do corporations rely more on external or internal funds as sources of financing? Corporations rely more heavily on external funds as sources of financing. Sixty percent of corporate funds came from external sources during the time period nder study 14-6 Explain the role of financial intermediaries in the flow of funds through the three-sector economy In a three-sector economy consisting of business, households, and government financial intermed iaries such as commercial banks mutual saving banks insurance companies, mutual funds, pension funds, and credit unions provide the mechanism for reallocating funds from one surplus sector to a deficit sector These institutions ind irectly invest excess funds in areas of the economy where S-521 Copyright C2005 by The McGraw-Hill Companies, IncCopyright © 2005 by The McGraw-Hill Companies, Inc. S-521 Chapter 14 Discussion Questions 14-1. In addition to U.S. corporations, what government groups compete for funds in the U.S. capital markets? The federal government, government agencies, and state and local governments all compete for funds. 14-2. Are federally sponsored credit agency issues directly backed by the U.S. Treasury? Federally sponsored credit agency issues are not directly backed by the U.S. Treasury. 14-3. What is a key tax characteristic associated with state and local (municipal) securities? They are tax exempt, meaning the interest on them is normally exempt from federal income taxes and from state income taxes in the state of issue. 14-4. What are three forms of corporate securities discussed in the chapter? Corporate bonds, preferred stock, and common stock are the three forms of corporate securities discussed in the chapter. 14-5. Do corporations rely more on external or internal funds as sources of financing? Corporations rely more heavily on external funds as sources of financing. Sixty percent of corporate funds came from external sources during the time period under study. 14-6. Explain the role of financial intermediaries in the flow of funds through the three-sector economy. In a three-sector economy consisting of business, households, and government, financial intermediaries such as commercial banks, mutual saving banks, insurance companies, mutual funds, pension funds, and credit unions provide the mechanism for reallocating funds from one surplus sector to a deficit sector. These institutions indirectly invest excess funds in areas of the economy where funds are needed