CH 14: Captial Markets

The formation of the European Monetary Union and its single currency Euro is expected to

All of the options

U.S. government agency securities are directly guaranteed by the full faith and credit of the U.S. Treasury.

False

Which of the following is NOT a criterion for an efficient market?

Computerized handling of transactions is necessary

In the new issues market for corporate capital, common stocks account for the largest percentage of new funds raised.

False

A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities.

False -- A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities.

Securities issued by states and municipalities are referred to as statutory bonds and municipal bonds, respectively.

False -- Both are referred to collectively as "municipal securities" in general, or in this case, "municipal bonds."

The Sarbanes-Oxley Act of 2002 holds a firm s internal auditors legally accountable for the accuracy of their firm s financial statements.

False -- Internal auditors have no such accountability (although, of course, they are held to professional standards of conduct). Within the firm, SOX legal accountability applies to the CEO and CFO.

When an investor buys stock in the stock market, he is purchasing shares from a company.

False -- Investors purchase shares from the company only in the initial offering.

The weak form of the efficient market hypothesis states that an investor can profit by using past price data.

False -- The weak form indicates that past pricing is unrelated to future pricing, and therefore has no predictive value.

Brokers actually own the securities they buy and sell on the floor of the exchange.

False -- While "brokers" in general act as agents for buyers and sellers, those who actually take title to and maintain inventories of shares are referred to as "specialists," "dealers," or more recently, "designated market-makers."

All of the following are recognized as important influences in the development of the banking crisis of 2008 and the resulting credit crisis EXCEPT for which one?

The IMF bailed out Freddie Mac and Fannie Mae

Capital markets consist of securities having maturities greater than one year.

True

The capital markets serve as a way of allocating available capital to the most efficient user.

True

The "strong" form of the efficient market hypothesis states that

all of the information both public and private is immediately reflected in stock prices

Companies list their stock around the globe to

increase the liquidity for their stockholders and provide opportunities for sale of new stock in foreign countries

The purpose of secondary trading is to

provide liquidity and competition between investments

The Securities Exchange Act of 1934 is primarily concerned with

regulation of organized exchanges

The efficient market hypothesis deals primarily with

the degree to which prices adjust to new information