Finance Chapter 14

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

Computerized handling of transactions is necessary.

All of these are recognized as important influences in the development of the banking crisis of 2008 and the resulting credit crisis

Consumers, especially homeowners, took on too much debt. Too many subprime loans were repackaged and sold as securities. Real estate prices collapsed.

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

False

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

False

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

False

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

False

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

False

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

False

Which of the following is a criterion for an efficient market?

Prices adjust rapidly to new information. Large dollar amounts of securities can be absorbed without price destabilization. Each successive trade is made at a price close to the previous trade.

All of these are recognized as important influences in the development of the banking crisis of 2008 and the resulting credit crisis EXCEPT

The U.S. government promised to buy unlimited amounts of debt from FHLB.

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

True

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

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

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

False

The Sarbanes-Oxley Act of 2002 holds the CEO and CFO legally accountable for the accuracy of their firm's financial statements.

True

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

True

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

eliminate foreign currency risk between its member countries. create stock and bond prices denominated in euros. have stock and bond indexes tracking a combined group of common stocks and bonds from the member countries.

Companies list their stock around the globe to

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

The purpose of secondary trading is to

provide liquidity and competition between investments.

The Securities Act of 1933 did not

set guidelines for insiders who trade in the securities of their own firm.

The efficient market hypothesis deals primarily with

the degree to which prices adjust to new information.