Chapter 2
the FED regulates public securities markets in the United States
False
In an informational efficient market, market price is it just quickly to new information as it becomes available
true
A secondary market is any market where owners of outstanding securities can sell them to other investors
True
After the Great Depression, commercial banks were prohibited from engaging in investment banking activities because it was believed that these activities encouraged them to take too many risks
True
pension funds obtain money from employee and employer contributions during the employees working years, and they provide monthly cash payment upon retirement
True
stocks that are traded in the over-the-counter market are typic those of smaller and less known firms
True
According to the weak form of the efficient market hypothesis, the market for a security is perfectly informationally efficient if the security's price always reflects all information both public and private
false
Deflation is the amount by which aggregate price levels rise over time at significant rates
false
Financial securities with maturity is less than one year generally are traded in the capital market
false
In an information efficient market, market prices adjust slowly to new or old information as it becomes available through postal mailing and the flyers in the mail
false
In the most common type of underwriting arrangement called best efforts writing, the insurance firm sells the entire security issue to the company at varying prices, and therefore the issuing company is never guaranteed a fixed price
false
In the most common type of underwriting arrangement, called best efforts underwriting the pension plans to sell the new securities to the issuing company and revise them for the investors
false
The creases in the money supply put downward pressure on long-term interest rates
false
The loans are the business finance companies are never secured by accounts receivable or inventory but rather based on trust among the companies
false
The real rate of interest is equal to: the nominal rate of interest plus the expected rate of inflation
false
capital budgeting is concerned with whether a firm has enough money to pay its bills and how it invests its spare cash to earn interest
false
in the most common type of underwriting arrangement, called best efforts underwriting, the insurance firm sells the entire security issue to the company at varying prices, and therefore the issuing company is never guaranteed a fixed price
false
liquidity is the ability to convert an asset into common stocks or preferred stocks quickly with some loss of value
false
primary markets are markets for securities that were previously issued
false
the FED manages a key component of the nation's economy by conducting fiscal policy, which affects how much of the individual and corporate taxes are collected
false
the FED obtains money from employee and employer contributions during the employee's working years, and they provide monthly cash payments upon retirement
false
the FED sell shares to investors and use the funds to purchase securities to trade and profit from security trading
false
the financial market where a new security is sold for the first time is a secondary market
false
the term money market reflects the idea that the instruments traded in the money market are not highly marketable and not easily converted into cash
false
traditional exchanges such as a New York Stock Exchange, does not provide a physical meeting place and communication facilities for members to buy and sell securities or other assets, such as commodities like oil or wheat, under a specific set of rules and regulations because it is expensive
false
In the most common type of underwriting arrangement, called firm - commitment underwriting, the investment banker buys the entire security issue from the company at a fixed price, and therefore the issuing company is guaranteed that price
true
Liquidity is the ability to convert an asset into cash quickly without loss of value
true
Money markets are global markets were short term debt instruments, which have maturities of less than one year, are traded
true
The nominal rate of interest is composed of two parts: (1) The real rate of interest and (2) The expected rate of inflation
true
according to the strong form efficiency, security prices reflect all information, whether public or private
true
according to the strong-form of the efficient market hypothesis, the market for a security is perfectly informationally efficient if the security's price always reflects all information both public and private
true
casualty insurance companies sell protection against loss of property from fire, theft, accidents, and other causes
true
compared with money market instruments, capital market instruments are less marketable, have higher default risk, and have longer maturities
true
in a weak-form efficient market, it would not be possible to earn abnormally high returns by looking for patterns in security prices
true
money market instruments are generally issued by firms of the highest credit rating
true
primary markets are markets in which new securities are sold for the first time
true
secondary markets are markets for securities that were previously issued
true
the financial market where a new security is sold for the first time is a primary market
true
the rate that we actually observe in the marketplace at a given time is unadjusted for inflation and is called the nominal rate of interest
true
underwriting is the process by which the investment banker helps the company sell its new security issue
true
