Chapter 2 Practice Quiz

Intermediaries who are agents of investors and match buyers with sellers of securities are called: -investment bankers. -traders. -brokers. -dealers. -None of these.

brokers

Long-term debt and equity instruments are traded in the ________ market. -primary -secondary -capital -money

capital

Wealth, either financial or physical, that is employed to produce more wealth is referred to as: -assets. -the market. -capital. -funding.

capital

Security ________ link buyers and sellers by buying and selling securities at stated prices, while ________ are agents of investors who match buyers with sellers of securities. -brokers; dealers -brokers; agents -agents; dealers - dealers; brokers

dealers; brokers

An investor who puts all her funds into one asset ________ her portfolio's ________. - increases; diversification - decreases; diversification - increases; average return - decreases; average return

decreases; diversification

Equities often make periodic payments, called ________, to their holders and are considered long-term securities. -principal -interest -dividends -payouts

dividends

The presence of transaction costs in financial markets explains, in part, why: -financial intermediaries and indirect finance play such an important role in financial markets. -equity and bond financing play such an important role in financial markets. -corporations get more funds through equity financing than they get from financial intermediaries. - direct financing is more important than indirect financing as a source of funds.

financial intermediaries and indirect finance play such an important role in financial markets

The SEC restricts trading by the largest stockholders (known as ________) in corporations issuing securities. -insiders -members of the board -hedge funds -intermediaries

insiders

A mutual fund is not a depository institution. -True -False

True

An example of direct financing is if you were to lend money yo your neighbor: -True -False

True

Most people's involvement with the financial system is through financial intermediaries rather than financial markets. -True -False

True

When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, ________ is said to exist. - asymmetric information - adverse selection - moral hazard -fraud

adverse selection

Which of the following statements about financial markets and securities are true? -Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years. -A corporation acquires new funds only when its securities are sold in the primary market. -Capital market securities are usually more widely traded than longer-term securities and so tend to be more liquid. -All of these are true. -Only Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years and A corporation acquires new funds only when its securities are sold in the primary market are true.

A corporation acquires new funds only when its securities are sold in the primary market.

Which of the following statements about financial markets and securities are true? -Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years. -A corporation acquires new funds only when its securities are sold in the primary market. -Capital market securities are usually more widely traded than longer-term securities and so tend to be more liquid. -All of these are true. -Only Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years and A corporation acquires new funds only when its securities are sold in the primary marketare true. Feedback

A corporation acquires new funds only when its securities are sold in the primary market.

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as: -foreign bonds. -Eurobonds. -Eurocurrencies. -Eurodollars.

Eurobonds

American investors pay attention to only the Dow Jones Industrial Average -True -False

False

The capital market is a financial market which only short-term debt instruments (generally those with an original maturity of less than one year) are traded -True -False

False

Through economies of scale, financial intermediaries can lower the cost of information production for each service by applying one information resource to many different services. -True -False

False

Which of the following are not investment intermediaries? -life insurance company -A pension fund -A mutual fund -Only A life insurance company and A pension fund

Only a life insurance company and a pension fund

The concept of adverse selection helps to explain -which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. -why indirect finance is more important than direct finance as a source of business finance. -why direct finance is more important than indirect finance as a source of business finance. -only which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets and why indirect finance is more important than direct finance as a source of business finance. -only which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets and why direct finance is more important than indirect finance as a source of business finance. Feedback

only which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets and why indirect finance is more important than direct finance as a source of business finance

Financial markets improve economic welfare because: -they allow funds to move from those without productive investment opportunities to those who have such opportunities. -they allow consumers to time their purchases better. - they weed out inefficient firms. -they do all of these. -they do they allow funds to move from those without productive investment opportunities to those who have such opportunities and they allow consumers to time their purchases better.

they do, they allow funds to move from those without productive investment opportunities to those who have such opportunities and they allow consumers to time their purchases better.