FIN 3003 Exam 1

________________ order to buy or sell at a specific price that is canceled at the end of the day

Day

Name the 3 areas of finance: ________________________________ ________________________________ ________________________________

1. Financial markets 2. Investments 3. Financial Management

If you earned a return of 12% on Netflix stock, the cost of raising funds for Netflix is ________________

12%

Money is anything ________________________________ for payment of ________________________________

accepted; goods and services

Finance relies on ________________ and ________________

accounting; econonics

The __________ price is always greater than the __________ price.

ask; bid

The dealer (bank) will sell at the __________ and buy at the __________.

ask; bid

You can buy at the __________ price and can sell at the __________.

ask; bid

If an investment bank issues securities using __________, the investment bank does not guarantee a price and the risk falls upon __________.

best efforts; firm

Individuals ________________ (buy/sell) stock and receive the benefit of ______________________________ from the stock market.

buy; liquidity

Bank assets include ________________________________ while bank liabilities include ________________________________.

cash, securities, loans; various deposits, borrowing, equity

Bank reserves are ________________ which a bank must hold based on the amount of ________________ it holds.

cash; deposits

The term structure of interest rates is a ________________ that shows different rates while holding ________________ constant and changing the ________________.

chart; risk; maturity

The money supply is all money in ________________, is controlled by ________________, and can be measured using ________________

circulation; the fed; M1 and M2

If markets are efficient, prices are __________ and as a result, investors __________ beat the market.

correct; can't

An interest rate is best described as ________________________________

cost of money or price paid for using someone else's money

An investor's two sources of return are ________________ and ________________

current income; capital gains

A __________ also serves as a __________ by standing ready to buy and sell stock.

dealer; market maker

A firm's 2 sources of capital include ________________ and ________________

debt; equity

Leverage is caused by using ________________ and has the advantage of ________________ returns and leads to ________________ risk

debt; magnifying; higher

If economic units decide to spend less, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________

demand; decrease; decrease; borrowers

If economic units decide to spend more, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________

demand; increase; increase; saving

In the __________ market, transactions occur between investors and do not involve __________.

direct; third party

In order to reduce or manage risk, an investor should ________________________________

diversify their portfolio

Margin is an investor's __________ position.

equity

Transactions in the primary market occur between __________ and __________ while transactions in the secondary market occur between __________ and __________.

firm; investor; investor; investor

An IPO is a __________ sale of stock and occurs in the __________ market while a SEO is a __________ sale of stock and occurs in the __________ market.

first; primary; subsequent; primary

The two main types of regulations for issuing and trading securities include ________________________________ and ________________________________

full disclosure laws; insider trading laws

The yield curve is a ________________ that shows different rates while holding ________________ constant and changing the ________________.

graph; risk; maturity

Long-term debt has a maturity of ________________ and is traded in ________________ markets

greater than a year; capital

If an asset has higher risk, an investor should demand ________________________________

higher returns

In order for an economic unit to have savings, ________________ has to be greater than ________________. The reward for savings is ________________.

income; spending; interest

Buying and selling on the margin __________ an investor's return.

increases

In the __________ market, a firm typically uses a __________ to help them raise funds.

indirect; third party

Equity has a maturity of ________________ and is traded in ________________ markets

infinity; capital

The FDIC provides banks with ________________ and provides a guarantee of up to ________________ (#) of ________________. The insurance fund is paid for by ________________.

insurance; 250k; deposits; banks

A broker trades for __________ while a dealer trades for __________.

investors; itself

The primary function of investment banks is to ____________________. This happens in the __________ (primary/secondary) __________ (direct/indirect) market.

issue new securities; primary; indirect

Short-term debt has a maturity of ________________ and is traded in ________________ markets

less than a year; money

The balance sheet equation is ________________ and shows what an economic unit ________________, ________________, and ________________

liabilities + equity = assets; owns; owes; net worth

The value of an asset is NOT its ________________. The value of an asset is found by finding the ________________________________

market price; present value of the future cash flows

The goal of the firm is to ________________________________

maximize shareholders wealth

3 features of money: ________________________________ ________________________________ ________________________________

medium of exchange; store of value; liquidity

A margin requirement is a __________ % of the total price that must be provided by the investor.

minimum

Compared to other financial intuitions (insurance companies, pension plans, mutual funds), banks hold assets that are ________________ liquid.

more

A fractional reserve system results in ________________ money being created in the economy and is possible since banks typically only have to hold ________________ of any ________________ and should want to ________________ the remaining funds.

more; 10%; deposits; lend

A round lot is defined as __________ while an odd lot is defined as __________. It is cheaper to trade in __________ lots.

normal; not normal; round

Both ________________ and ________________ can cause problems in the fractional reserve system.

people; banks

________________ order to buy or sell at a specific price until executed or canceled by the customer

Good til canceled

________________ order which is executed at the best current price

Market

Finance is concerned with managing ________________ in a world of ________________

Money; uncertainty

The two major stock exchanges in the US are the __________ and __________. The only difference between them is ______________________________.

NYSE; NASDAQ; NYSE has a physical location(organized market)

Our measure of the stock market is __________. Measuring the market is useful in judging the performance of the __________.

S&P 500; health of the economy

Issuing public stock requires registration with __________ and is often ____________________.

SEC; slow and costly

The primary market is important since it allows firms to ____________________ while the secondary market is important since it provides investors with ________________.

raise funds; liquidity

High interest rates are good for ________________ while low interest rates are good for ________________

saving; borrowing

The stock market is a __________ market meaning that trades happen between __________ and __________.

secondary; investor; investor

If you take a long position in a stock, you plan to __________ the stock in anticipation of the stock price __________.

sell; increases

Firms __________ (buy/sell) stock in order to ______________________________.

sell; raise funds

To aid in this process, a firm may instead choose to use a ____________________ or ____________________

shelf registration; private placement

If you take a __________ position in a stock, you plan on __________ it now and then __________ once the stock price has __________.

short; sell; repurchase; decreased

The difference between the bid and ask is called the __________.

spread

If economic units decide to save less, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________

supply; decrease; increase; saving

If economic units decide to save more, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________

supply; increase; decrease; borrowers

There are 3 ways to transfer funds from ________________ units to ________________ units: ________________________________ ________________________________ ________________________________

surplus; deficits; 1. direct investment(transfer) 2. Indirect Investment (transfer) 2A (pass through) 3. Indirect investment (transfer) 2B (transformation)

Markets are needed to transfer funds from __________ units (typically __________) to __________ units (typically __________).

surplus; individuals; deficit; firms

If an investment bank underprices, __________ is likely to take a loss while if an investment bank overprices, __________ is likely to take a loss.

the firm; the investment bank

Risk is the presence of ________________________________

uncertainty

__________ is more common which results in IPOs typically having a __________ first day return.

underpricing; high

If an investment bank issues securities using __________, the investment bank guarantees a price and the risk falls upon __________.

underwriting; investment banks