INVESTMENTS

4) _______ are financial assets. A) Bonds B) Machines C) Stocks D) Bonds and stocks E) Bonds, machines, and stocks

D

10) In 2018, ____________ was the most significant asset of U.S. households in terms of total value. A) real estate B) mutual fund shares C) debt securities D) life insurance reserves E) pension reserves

A

12) In 2018, which of the following financial assets make up the second highest proportion of the financial assets held by U.S. households? A) Corporate equity B) Life insurance reserves C) Mutual fund shares D) Debt securities E) Personal trusts

A

21) The value of a derivative security A) depends on the value of the related security. B) is unable to be calculated. C) is unrelated to the value of the related security. D) has been enhanced due to the recent misuse and negative publicity regarding these instruments. E) is worthless today.

A

24) The ____________ refers to the potential conflict between management and shareholders. A) agency problem B) diversification problem C) liquidity problem D) solvency problem E) regulatory problem

A

32) Security selection refers to A) choosing which securities to hold based on their valuation. B) investing only in "safe" securities. C) the allocation of assets into broad asset classes. D) top-down analysis.

A

34) Which of the following portfolio construction methods starts with asset allocation? A) Top-down B) Bottom-up C) Middle-out D) Buy and hold E) Asset allocation

A

39) In 2018, ____________ was(were) the most significant financial asset(s) of U.S. commercial banks in terms of total value. A) loans and leases B) cash C) real estate D) deposits E) investment securities

A

45) In 2018, ____________ was(were) the least significant financial asset(s) of U.S. nonfinancial businesses in terms of total value. A) cash and deposits B) trade credit C) trade debt D) inventory E) marketable securities

A

46) New issues of securities are sold in the ________ market(s). A) primary B) secondary C) over-the-counter D) primary and secondary

A

55) ________ are, in essence, an insurance contract against the default of one or more borrowers. A) Credit default swaps B) CMOs C) ETFs D) Collateralized debt obligations E) All of the options

A

58) Which country has banned initial coin offerings? A) China B) Germany C) Japan D) USA E) All of the options

A

1) The material wealth of a society is a function of A) all financial assets. B) all real assets. C) all financial and real assets. D) all physical assets.

B

11) In 2018, ____________ were the most significant liability of U.S. households in terms of total value. A) credit cards B) mortgages C) bank loans D) student loans E) other forms of debt

B

14) The largest component of domestic net worth in 2018 was A) nonresidential real estate. B) residential real estate. C) inventories. D) consumer durables. E) equipment and software.

B

17) A fixed-income security pays A) a fixed level of income for the life of the owner. B) a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security. C) a variable level of income for owners on a fixed income. D) a fixed or variable income stream at the option of the owner.

B

33) Which of the following portfolio construction methods starts with security analysis? A) Top-down B) Bottom-up C) Middle-out D) Buy and hold E) Asset allocation

B

37) ________ specialize in helping companies raise capital by selling securities. A) Commercial bankers B) Investment bankers C) Investment issuers D) Credit raters

B

38) Commercial banks differ from other businesses in that both their assets and their liabilities are mostly A) illiquid. B) financial. C) real. D) owned by the government. E) regulated.

B

42) In 2018, ____________ was(were) the least significant real asset(s) of U.S. nonfinancial businesses in terms of total value. A) equipment and software B) inventory C) real estate D) trade credit E) marketable securities

B

43) In 2018, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value. A) bonds and mortgages B) bank loans C) inventories D) trade debt E) marketable securities

B

49) Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities. A) Sarbanes-Oxley B) Glass-Steagall C) SEC D) Sarbanes-Oxley and SEC E) None of the options

B

52) The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of A) credit enhancement. B) credit swap. C) unbundling. D) derivatives.

B

53) Which of the following is true about mortgage-backed securities? I) They aggregate individual home mortgages into homogeneous pools.II) The purchaser receives monthly interest and principal payments received from payments made on the pool.III) The banks that originated the mortgages maintain ownership of them.IV) The banks that originated the mortgages may continue to service them. A) II, III, and IV B) I, II, and IV C) II and IV D) I, III, and IV E) I, II, III, and IV

B

56) The technology behind cryptocurrencies that is ideal for secure digital transactions is called ______________. A) bitcoin B) blockchain C) distributed ledgers D) ethereum E) All of the options

B

6) Financial assets A) directly contribute to the country's productive capacity. B) indirectly contribute to the country's productive capacity. C) contribute to the country's productive capacity, both directly and indirectly. D) do not contribute to the country's productive capacity, either directly or indirectly. E) are of no value to anyone.

B

15) The smallest component of domestic net worth in 2018 was A) nonresidential real estate. B) residential real estate. C) inventories. D) consumer durables. E) equipment and software.

C

25) A disadvantage of using stock options to compensate managers is that A) it encourages managers to undertake projects that will increase stock price. B) it encourages managers to engage in empire building. C) it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects. D) All of the above.

C

26) Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Using the firm's stock options for compensationII) Hiring bickering family members as corporate spiesIII) Boards of directors forcing out underperforming managementIV) Security analysts monitoring the firm closelyV) Takeover threats A) II and V B) I, III, and IV C) I, III, IV, and V D) III, IV, and V E) I, III, and V

C

31) Asset allocation refers to A) choosing which securities to hold based on their valuation. B) investing only in "safe" securities. C) the allocation of assets into broad asset classes. D) bottom-up analysis.

C

41) In 2018, ____________ was(were) the most significant real asset(s) of U.S. nonfinancial businesses in terms of total value. A) equipment and software B) inventory C) real estate D) trade credit E) marketable securities

C

57) A major problem experienced by cryptocurrency, which makes it problematic to store value is _____________. A) distributed ledgers B) blockchain C) price volatility D) transaction security E) All of the options

C

7) In 2018, ____________ was the most significant real asset of U.S. households in terms of total value. A) consumer durables B) automobiles C) real estate D) mutual fund shares E) bank loans

C

16) The domestic net worth of the U.S. in 2018 was A) $9.350 trillion. B) $22.642 trillion. C) $32.539 trillion. D) $72.683 trillion. E) $80.983 trillion.

D

18) A debt security pays A) a fixed level of income for the life of the owner. B) a variable level of income for owners on a fixed income. C) a fixed or variable income stream at the option of the owner. D) a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.

D

20) An example of a derivative security is A) a common share of Microsoft. B) a call option on Intel stock. C) a commodity futures contract. D) a call option on Intel stock and a commodity futures contract. E) a common share of Microsoft and a call option on Intel stock.

D

22) Although derivatives can be used as speculative instruments, businesses most often use them to A) attract customers. B) appease stockholders. C) offset debt. D) hedge risks. E) enhance their balance sheets.

D

23) Financial assets permit all of the following except A) consumption timing. B) allocation of risk. C) separation of ownership and control. D) elimination of risk.

D

27) Corporate shareholders are best protected from incompetent management decisions by A) the ability to engage in proxy fights. B) management's control of pecuniary rewards. C) the ability to call shareholder meetings. D) the threat of takeover by other firms. E) one-share/one-vote election rules.

D

28) Theoretically, takeovers should result in A) improved management. B) increased stock price. C) increased benefits to existing management of the taken-over firm. D) improved management and increased stock price. E) All of the options.

D

3) The means by which individuals hold their claims on real assets in a well-developed economy are A) investment assets. B) depository assets. C) derivative assets. D) financial assets. E) exchange-driven assets.

D

40) In 2018, ____________ was(were) the most significant liability(ies) of U.S. commercial banks in terms of total value. A) loans and leases B) cash C) real estate D) deposits E) investment securities

D

44) In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2018 was(were) A) bank loans. B) bonds and mortgages. C) trade debt. D) other. E) marketable securities.

D

48) Investment bankers perform which of the following role(s)? A) Market new stock and bond issues for firms B) Provide advice to the firms as to market conditions, price, etc. C) Design securities with desirable properties D) All of the options E) None of the options

D

50) The spread between the LIBOR and the Treasury-bill rate is called the A) term spread. B) T-bill spread. C) LIBOR spread. D) TED spread.

D

51) Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset. A) GNMA B) FNMA C) FHLMC D) FNMA and FHLMC E) GNMA and FNMA

D

54) ________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk. A) Stocks B) Bonds C) Derivatives D) Collateralized debt obligations E) All of the options

D

8) In 2018, ____________ was the least significant financial asset of U.S. households in terms of total value. A) real estate B) mutual fund shares C) debt securities D) life insurance reserves E) pension reserves

D

13) In 2018, _______ of the assets of U.S. households were financial assets as opposed to tangible assets. A) 23.5% B) 87.2% C) 28.4% D) 58.4% E) 71.6%

E

19) Money market securities A) are short term. B) are highly marketable. C) are generally very low risk. D) are highly marketable and are generally very low risk. E) All of the options.

E

2) _______ are real assets. A) Land B) Machines C) Stocks and bonds D) Knowledge E) Land, machines, and knowledge

E

29) During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to I) manipulation of financial data to misrepresent the actual condition of the firm. II) misleading and overly optimistic research reports produced by analysts. III) allocating IPOs to executives as a quid pro quo for personal favors. IV) greenmail. A) II, III, and IV B) I, II, and IV C) II and IV D) I, III, and IV E) I, II, and III

E

30) The Sarbanes-Oxley Act A) requires corporations to have more independent directors. B) requires the firm's CFO to personally vouch for the firm's accounting statements. C) prohibits auditing firms from providing other services to clients. D) requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements. E) All of the above.

E

35) _______ are examples of financial intermediaries. A) Commercial banks B) Insurance companies C) Investment companies D) Credit unions E) All of the options

E

36) Financial intermediaries exist because small investors cannot efficiently A) diversify their portfolios. B) assess credit risk of borrowers. C) advertise for needed investments. D) diversify their portfolios and assess credit risk of borrowers. E) All of the options.

E

5) _________ financial asset(s). A) Buildings are B) Land is a C) Derivatives are D) U.S. agency bonds are E) Derivatives and U.S. agency bonds are

E

9) In 2018, ____________ was the most significant financial asset of U.S. households in terms of total value. A) real estate B) mutual fund shares C) debt securities D) life insurance reserves E) pension reserves

E