Ch. 1 FI 412

Which of the below statements is TRUE? A) Because of differences in culture and history, different countries regulate financial markets and financial institutions in varying ways, emphasizing some forms of regulation more than others. B) The standard explanation or justification for governmental regulation of a market is that the market, left to itself, will produce its particular goods or services in an efficient manner and at the lowest possible cost. C) Governments in most developed economies have created elaborate systems of regulation for financial markets, in part because the markets themselves are simple and in part because financial markets are unimportant to the general economies in which they operate. D) Financial activity regulation are free of rules about traders of securities and trading on financial markets.

A) Because of differences in culture and history, different countries regulate financial markets and financial institutions in varying ways, emphasizing some forms of regulation more than others.

A reason for a corporation using ________ is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors. A) Euromarkets B) domestic equity markets C) domestic government markets D) None of these

A) Euromarkets

________ increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers. A) Market-broadening instruments B) Market-management instruments C) Risk-management instruments D) Arbitraging-broadening instruments

A) Market-broadening instruments

Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset. Which of the below is ONE of these advantages? A) Transactions typically can be accomplished faster in the derivatives market. B) It will always cost more to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor's portfolio to new economic information than it would cost to make that adjustment in the cash market. C) All derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market. D) Some derivative markets can absorb a greater dollar transaction but with an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.

A) Transactions typically can be accomplished faster in the derivatives market.

The financial asset is referred to as a ________ if the claim is a fixed dollar. A) debt instrument. B) common equity instrument. C) derivative instrument. D) preferred equity instrument.

A) debt instrument

A(n) ________ such as plant or equipment purchased by a business entity shares at least one characteristic with a financial asset: Both are expected to generate future cash flow for their owner. A) tangible asset B) intangible asset C) balance sheet asset D) cash asset

A) tangible asset

Which of the following statements is FALSE? A) Because of the prominent role played by financial markets in economies, governments have long deemed it necessary to regulate certain aspects of these markets. B) In their regulatory capacities, governments have had little influence on the development and evolution of financial markets and institutions. C) It is important to realize that governments, markets, and institutions tend to behave interactively and to affect one another's actions in certain ways. D) A sense of how the government can affect a market and its participants is important to an understanding of the numerous markets and securities.

B) In their regulatory capacities, governments have had little influence on the development and evolution of financial markets and institutions.

Business entities include nonfinancial and financial enterprises. ________ manufacture products such as cars and computers and/or provide nonfinancial services such as transportation and utilities. A) Financial enterprises B) Nonfinancial enterprises C) Both financial and nonfinancial enterprises D) None of these

B) Nonfinancial enterprises

The shifting of the financial markets from dominance by retail investors to institutional investors is referred to as the ________ of financial markets. A) globalization B) institutionalization C) securitization D) diversification

B) institutionalization

A basic economic principle is that the price of any financial asset ________ the present value of its expected cash flow, even if the cash flow is not known with certainty. A) is greater than B) is equal to C) is less than D) is equal to or greater than

B) is equal to

Derivative contracts provide ________. A) issuers and investors an expensive but efficient way of controlling some major risks. B) issuers and investors an inexpensive way of controlling some major risks. C) issuers and investors an inexpensive but inefficient way of controlling all major risks. D) issuers and investors an expensive way of controlling some minor risks.

B) issuers and investors an inexpensive way of controlling some major risks.

From the perspective of a given country, financial markets can be classified as either internal or external. The internal market is composed of two parts: the domestic market and the foreign market. The domestic market is ________. A) where the securities of issuers not domiciled in the country are sold and traded. B) where issuers domiciled in a country issue securities and where those securities are subsequently traded. C) where securities are offered simultaneously to investors in a number of countries. D) where issuers domiciled in a country issue securities and where those securities are NOT subsequently traded.

B) where issuers domiciled in a country issue securities and where those securities are subsequently traded.

Financial assets have two principal economic functions. Which of the below is ONE of these? A) A principal economic function is to transfer funds from those who have surplus funds to borrow to those who need funds to invest in intangible assets. B) A principal economic function is to transfer funds in such a way as to redistribute the avoidable risk associated with the cash flow generated by intangible assets among those seeking and those providing the funds. C) A principal economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds. D) A principal economic function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in intangible assets.

C) A principal economic function is to transfer funds in such a way as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and those providing the funds.

Financial markets provide three economic functions. Which of the below is NOT one of these? A) The interactions of buyers and sellers in a financial market determine the price of the traded asset. B) Financial markets provide a mechanism for an investor to sell a financial asset. C) Financial markets increases the cost of transacting. D) The interactions of buyers and sellers in a financial market determine the required return on a financial asset.

C) Financial markets increases the cost of transacting.

1) An asset is a possession that has value in an exchange and can be classified as ________. A) financial or intangible. B) financial or variable. C) tangible or intangible. D) fixed or variable.

C) tangible or intangible.

Derivative instruments derive their value from ________. A) market conditions at time of delivery. B) market conditions at time of issue. C) the underlying instruments to which they relate. D) variations in the future claims conveyed from spot markets.

C) the underlying instruments to which they relate.

The proposal by the U.S. Department of the Treasury, popularly referred to as the "Blueprint for Regulatory Reform" or simply Blueprint, would replace the prevailing complex array of regulators with a regulatory system based on functions. More specifically, there would be three regulators. Which of the below is NOT one of these? A) market stability regulator B) prudential regulator C) uninhibited regulator D) business conduct regulator

C) uninhibited regulator

Which of the below is NOT a factor that has led to the integration of financial markets? A) A factor is liberalization of markets and the activities of market participants in key financial centers of the world. B) A factor is deregulation of markets and the activities of market participants in key financial centers of the world. C) A factor is technological advances for monitoring world markets, executing orders, and analyzing financial opportunities. D) A factor is decreased institutionalization of financial markets.

D) A factor is decreased institutionalization of financial markets.

The regulatory structure in the United States is largely the result of ________. A) the first IPO bubble in the 20th century. B) the boom in the stock market experienced in the 1990s. C) bull markets that have occurred at various times. D) financial crises that have occurred at various times.

D) financial crises that have occurred at various times.

The two basic types of derivative instruments are ________ and ________. A) insurance contracts; options contracts B) futures/forward contracts; indentures C) futures/forward contracts; legal contracts D) futures/forward contracts; options contracts

D) futures/forward contracts; options contracts

Financial markets can be categorized as those dealing with newly issued financial claims that are called the ________, and those for exchanging financial claims previously issued that are called the ________. A) secondary market; primary market. B) financial market; secondary market. C) OTC market; NYSE/AMEX market. D) primary market; secondary market.

D) primary market; secondary market.

A principal economic function to transfer funds from those who have ________ to invest to those who need funds to invest in ________. A) deficit funds; tangible assets. B) surplus funds; intangible assets. C) deficit funds; intangible assets. D) surplus funds; tangible assets.

D) surplus funds; tangible assets.

A factor leading to the integration of financial markets is ________. A) decreased institutionalization of financial markets. B) increased monitoring of markets. C) technological advances for monitoring domestic markets, executing orders, and analyzing financial opportunities. D) technological advances for monitoring world markets, executing orders, and disregarding financial opportunities.

D) technological advances for monitoring world markets, executing orders, and disregarding financial opportunities.