Chapter 2 finance practice
20) Which one of these parties cannot invest in a hedge fund? A) Univesity endowments B) Wealthy individuals C) Small retail investors D) Pension funds
) Small retail investors
13) Corporate bond are traded : A) in the over-the-counter market . B) in the money market. C) on NASDAQ. D) on the NYSE.
: A) in the over-the-counter market
9) A firm's first offering of stock to the general public is known as: A) an IPO. B) a seasoned offering. C) a general cash offer. D) first-stage financing.
A) an IPO.
24) A ________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds. A) hedge fund B) money market fund C) pension fund D) mutual fund
A) hedge fund
8) When corporations need to raise funds through equity issues, they rely on the: A) primary market. B) trading market. C) devivatives markets D) secondary market.
A) primary market.
11) Which of the following financial assets is least likely to have an active secondary market?[Hint: Which one is most difficulty to sell in the secondary market?] A) Debt issued by the U.S. Treasury B) Bank loans made to smaller firms C) Bonds of a major, multinational corporation D) Common stock of a large publicly-traded firm
B) Bank loans made to smaller firms
12) Which one of these is a money market security? A) 20-year bond recentliy issued by Apple Inc. B) Commercial paper issued by a bank C) 3-year bond peviously issued by Microsoft D) Uber's common stock
B) Commercial paper issued by a bank
10) The New York Stock Exchange mostly serves as what kind of financial market? (choose the best answer) A) Foreign Exchange market B) Secondary market C) Fixed-income market D) Over the counter market
B) Secondary market
9) Which of the following is not a function of financial markets? A) provide funds to companies that wish to expand . B) allow individuals to purchase a range of goods/prodcuts online. C) allow individuals to diversify their risk. D) provide convenient ways to make large payments.
B) allow individuals to purchase a range of goods/prodcuts online.
21) Purchases of new issues of stock take place ________. A) in the secondary market B) in the primary market C) in the money markets D) at the floor of NYSE
B) in the primary market
) You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: A) primary market. B) over-the-counter market. ) You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: A) primary market. B) over-the-counter market. C) secondary market. D) dealer market. D) dealer market.
B) over-the-counter market. `
6) Corporate financing comes ultimately from: A) cash generated from the firm's operations. B) savings by households, and domestic and foreign investors. C) the issue of shares in the firm. D) the financial markets and intermediaries.
B) savings by households, and domestic and foreign investors.
7) Financing for public corporations flows through: A) derivatives markets. B) the financial markets, financial intermediaries, or both. C) financial intermediaries only. D) the financial markets only.
B) the financial markets, financial intermediaries, or both.
17) Which type of financial institution generally does not accept deposits but does underwrite stock offerings and provide professional advice to corporations? A) Mutual fund B) Commercial bank ` C) Investment bank D) Insurance company
C) Investment bank
23) One example of a primary market transaction would be the: A) purchase by Theo of 5,000 shares of stock from his father. B) sale by Terry of 50,000 shares of stock to his brother. C) sale of 1,000 shares of newly issued stock by Alt Company to Miquel. D) sale of 5,000 shares of stock owned by a corporate CEO to his son
C) sale of 1,000 shares of newly issued stock by Alt Company to Miquel.
18) Which of the following is not typically considered a function of financial intermediaries/insitutions? A) Accumulate funds from smaller investors B) Diversify individual investor's investment risk C) Provid payment mechanism D) Investing in the real assets
D) Investing in the real assets
16) Which one of the following funds provides a tax advantage to individual investors? A) Funds that invest in foreign countries B) Balanced funds [a fund investing in both bond and stocks] C) Equity funds D) Pension funds
D) Pension funds
15) Which one of the following statements is not characteristic of mutual funds? ' A) They pool the savings of many investors. B) They raise money by selling shares to investors. C) They offer professional management and portfolio diversification. D) They are not considered to be financial institutions or financial intermediaries.
D) They are not considered to be financial institutions or financial intermediaries.
25) Mutual funds provide the following for their shareholders. A) professional management B) record keeping and administration C) diversification D) all of these options
D) all of these options
14) Foreign currencies are traded: A) on both the NYSE and NASDAQ as U.S. dollar is the mostly transacted currencies in the world B) on the Chicago Mercantile Exchange as foreign currencires are considered as fincancial derivatives. C) only by banks located in New York and London as the two cities handle more than half of the foreign exchange transactions D) over the counter.
D) over the counter.
True or false The reinvestment of cash back into the firm's operations is an example of a flow of savings to investment.
True
True or false A financial intermediary invests in financial assets rather than real assets.
True
True or false Previously issued securities are traded among investors in the secondary markets.
True
True or false Only the IPOs for large corporations are sold in primary markets.
False
True or false The derivatives market is also a source of financing for corporations.
False
