FIN 3003 Exam 1
________________ order to buy or sell at a specific price that is canceled at the end of the day
Day
Name the 3 areas of finance: ________________________________ ________________________________ ________________________________
1. Financial markets 2. Investments 3. Financial Management
If you earned a return of 12% on Netflix stock, the cost of raising funds for Netflix is ________________
12%
Money is anything ________________________________ for payment of ________________________________
accepted; goods and services
Finance relies on ________________ and ________________
accounting; econonics
The __________ price is always greater than the __________ price.
ask; bid
The dealer (bank) will sell at the __________ and buy at the __________.
ask; bid
You can buy at the __________ price and can sell at the __________.
ask; bid
If an investment bank issues securities using __________, the investment bank does not guarantee a price and the risk falls upon __________.
best efforts; firm
Individuals ________________ (buy/sell) stock and receive the benefit of ______________________________ from the stock market.
buy; liquidity
Bank assets include ________________________________ while bank liabilities include ________________________________.
cash, securities, loans; various deposits, borrowing, equity
Bank reserves are ________________ which a bank must hold based on the amount of ________________ it holds.
cash; deposits
The term structure of interest rates is a ________________ that shows different rates while holding ________________ constant and changing the ________________.
chart; risk; maturity
The money supply is all money in ________________, is controlled by ________________, and can be measured using ________________
circulation; the fed; M1 and M2
If markets are efficient, prices are __________ and as a result, investors __________ beat the market.
correct; can't
An interest rate is best described as ________________________________
cost of money or price paid for using someone else's money
An investor's two sources of return are ________________ and ________________
current income; capital gains
A __________ also serves as a __________ by standing ready to buy and sell stock.
dealer; market maker
A firm's 2 sources of capital include ________________ and ________________
debt; equity
Leverage is caused by using ________________ and has the advantage of ________________ returns and leads to ________________ risk
debt; magnifying; higher
If economic units decide to spend less, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________
demand; decrease; decrease; borrowers
If economic units decide to spend more, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________
demand; increase; increase; saving
In the __________ market, transactions occur between investors and do not involve __________.
direct; third party
In order to reduce or manage risk, an investor should ________________________________
diversify their portfolio
Margin is an investor's __________ position.
equity
Transactions in the primary market occur between __________ and __________ while transactions in the secondary market occur between __________ and __________.
firm; investor; investor; investor
An IPO is a __________ sale of stock and occurs in the __________ market while a SEO is a __________ sale of stock and occurs in the __________ market.
first; primary; subsequent; primary
The two main types of regulations for issuing and trading securities include ________________________________ and ________________________________
full disclosure laws; insider trading laws
The yield curve is a ________________ that shows different rates while holding ________________ constant and changing the ________________.
graph; risk; maturity
Long-term debt has a maturity of ________________ and is traded in ________________ markets
greater than a year; capital
If an asset has higher risk, an investor should demand ________________________________
higher returns
In order for an economic unit to have savings, ________________ has to be greater than ________________. The reward for savings is ________________.
income; spending; interest
Buying and selling on the margin __________ an investor's return.
increases
In the __________ market, a firm typically uses a __________ to help them raise funds.
indirect; third party
Equity has a maturity of ________________ and is traded in ________________ markets
infinity; capital
The FDIC provides banks with ________________ and provides a guarantee of up to ________________ (#) of ________________. The insurance fund is paid for by ________________.
insurance; 250k; deposits; banks
A broker trades for __________ while a dealer trades for __________.
investors; itself
The primary function of investment banks is to ____________________. This happens in the __________ (primary/secondary) __________ (direct/indirect) market.
issue new securities; primary; indirect
Short-term debt has a maturity of ________________ and is traded in ________________ markets
less than a year; money
The balance sheet equation is ________________ and shows what an economic unit ________________, ________________, and ________________
liabilities + equity = assets; owns; owes; net worth
The value of an asset is NOT its ________________. The value of an asset is found by finding the ________________________________
market price; present value of the future cash flows
The goal of the firm is to ________________________________
maximize shareholders wealth
3 features of money: ________________________________ ________________________________ ________________________________
medium of exchange; store of value; liquidity
A margin requirement is a __________ % of the total price that must be provided by the investor.
minimum
Compared to other financial intuitions (insurance companies, pension plans, mutual funds), banks hold assets that are ________________ liquid.
more
A fractional reserve system results in ________________ money being created in the economy and is possible since banks typically only have to hold ________________ of any ________________ and should want to ________________ the remaining funds.
more; 10%; deposits; lend
A round lot is defined as __________ while an odd lot is defined as __________. It is cheaper to trade in __________ lots.
normal; not normal; round
Both ________________ and ________________ can cause problems in the fractional reserve system.
people; banks
________________ order to buy or sell at a specific price until executed or canceled by the customer
Good til canceled
________________ order which is executed at the best current price
Market
Finance is concerned with managing ________________ in a world of ________________
Money; uncertainty
The two major stock exchanges in the US are the __________ and __________. The only difference between them is ______________________________.
NYSE; NASDAQ; NYSE has a physical location(organized market)
Our measure of the stock market is __________. Measuring the market is useful in judging the performance of the __________.
S&P 500; health of the economy
Issuing public stock requires registration with __________ and is often ____________________.
SEC; slow and costly
The primary market is important since it allows firms to ____________________ while the secondary market is important since it provides investors with ________________.
raise funds; liquidity
High interest rates are good for ________________ while low interest rates are good for ________________
saving; borrowing
The stock market is a __________ market meaning that trades happen between __________ and __________.
secondary; investor; investor
If you take a long position in a stock, you plan to __________ the stock in anticipation of the stock price __________.
sell; increases
Firms __________ (buy/sell) stock in order to ______________________________.
sell; raise funds
To aid in this process, a firm may instead choose to use a ____________________ or ____________________
shelf registration; private placement
If you take a __________ position in a stock, you plan on __________ it now and then __________ once the stock price has __________.
short; sell; repurchase; decreased
The difference between the bid and ask is called the __________.
spread
If economic units decide to save less, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________
supply; decrease; increase; saving
If economic units decide to save more, the ___________ of funds will ___________ and the interest rate will ___________ which is good for ___________
supply; increase; decrease; borrowers
There are 3 ways to transfer funds from ________________ units to ________________ units: ________________________________ ________________________________ ________________________________
surplus; deficits; 1. direct investment(transfer) 2. Indirect Investment (transfer) 2A (pass through) 3. Indirect investment (transfer) 2B (transformation)
Markets are needed to transfer funds from __________ units (typically __________) to __________ units (typically __________).
surplus; individuals; deficit; firms
If an investment bank underprices, __________ is likely to take a loss while if an investment bank overprices, __________ is likely to take a loss.
the firm; the investment bank
Risk is the presence of ________________________________
uncertainty
__________ is more common which results in IPOs typically having a __________ first day return.
underpricing; high
If an investment bank issues securities using __________, the investment bank guarantees a price and the risk falls upon __________.
underwriting; investment banks