FI 301 Ch.1

the securities act of 1933: a) required complete disclosure of relevant information for publicly offered securities in the primary market b) declared trading strategies to manipulate the prices of public secondary securities illegal c) declared misleading financial statements for public primary securities illegal d) required complete disclosure of relevant financial information for securities traded in the secondary market e) did all of these

a) required complete disclosure of relevant information for publicly offered securities in the primary market

Which of the following financial intermediaries commonly invests in stocks and bonds? A) pension funds B) insurance companies C) mutual funds D) all of these

all of the above

_______ is not a securities firm. A) American Express B) Merrill Lynch C) Morgan Stanley D) Goldman Sachs

american express

the typical role of securities firm in a public offering of securities is to a) purchase the entire issue for its own investment b) place the entire issue with a single large investor c) spread the issue across several investors until the entire issue is sold d) provide all large investors with loans so that they can invest in the offering

c) spread the issue across several investors until the entire issue is sold

which of the following is a capital market instrument? a)six month CD b) three month Treasury bill c) ten year bond d) agreement for a bank to loan funds directly to a company for 9 months

c) ten year bond

Currently, _______ hold the largest amount of assets of all financial institutions. A) commercial banks B) credit unions C) finance companies D) securities firms

commercial banks

Which of the following is not a major investor in stocks? A) commercial banks B) insurance companies C) mutual funds D) pension funds

commercial banks

_______ maintain a larger amount of assets than the other types of depository institutions. A) Credit unions B) Commercial banks C) Life insurance companies D) Savings institutions

commercial banks

n aggregate, _______ are the most dominant depository institution. A) commercial banks B) savings banks C) credit unions D) S&Ls

commercial banks

The finance segment known as _______ involves decisions such as how much funding to obtain, and how to invest the proceeds to expand operations. A) corporate finance B) investment management C) financial markets and institutions D) none of these

corporate finance

Which of the following distinguishes credit unions from commercial banks and savings institutions? A) Credit unions are non profit. B) Credit unions accept deposits but do not make loans. C) Credit unions make loans but do not accept deposits. D) Savings institutions restrict their business to members who share a common bond.

credit unions are non profit

which of the following is a money market security? a) treasury note b) municipal bond c)mortgage d) commercial paper

d) commercial paper

Common types of capital market securities include Treasury bills and commercial paper. A) true B) false

false

If financial markets are efficient, this implies that investors can ignore the various investment instruments available. A) true B) false

false

If markets are perfect, securities buyers and sellers do not have full access to information and cannot always break down securities to the precise size they desire. A) true B) false

false

The main source of funds for _______ is proceeds from selling securities to households and businesses, while their main use of funds is providing loans to households and businesses. A) savings institutions B) commercial banks C) mutual funds D) finance companies E) pension funds

finance companies

Which of the following statements is incorrect? A) Financial markets attract funds from investors and channel the funds to corporations. B) Money markets enable corporations to borrow funds on a short-term basis so that they can support their existing operations. C) Financial institutions serve solely as intermediaries with the financial markets and never serve as investors. D) Investors seek to invest their funds in the stock of firms that are presently undervalued and have much potential to improve.

financial institutions serve solely as intermediaries with the financial markets and never serve as investors.

Long-term debt securities tend to have a _______ expected return and _______ risk than money market securities. A) lower; lower B) lower; higher C) higher; lower D) higher; higher

higher; higher

equity securities have a _________ expected return than most long-term debt securities, and they exhibit a ________ degree of risk

higher; higher

the main provider(s) of funds to the US Treasury is (are):

households and businesses

if markets were _________, investors could use available information ignored by the market to earn abnormally high returns

inefficient

Financial markets facilitating the flow of short-term funds with maturities of less than one year are known as _______ markets. A) money B) capital C) primary D) secondary E) none of these

money

_______ securities have a maturity of one year or less; _______ securities are generally more liquid. A) Money market; capital market B) Money market; money market C) Capital market; money market D) Capital market; capital market

money market; money market

those financial markets that facilitate the flow of short-term funds are known as:

money markets

money market securities generally have __________ liquidity. Capital market securities are typically expected to have a _______ annualized return.

more; higher

Which of the following is a nondepository financial insti¬tu¬tion? A) savings banks B) commercial banks C) savings and loan associations D) mutual funds

mutual funds

_______ obtain funds by issuing securities, then lend the funds to individuals and small businesses. A) Finance companies B) Securities firms C) Mutual funds D) Insurance companies

mutual funds

Which of the following is most likely to be described as a depository institution? A) finance companies B) securities firms C) credit unions D) pension funds E) insurance companies

pension funds

if financial markets were ________ all information about any securities for sale in primary and secondary markets would be continuously and freely available to investors a) perfect b) inefficient c) perfect d) imperfect

perfect

There is a _______ relationship between the risk of a security and the expected return from investing in the security. A) positive B) negative C) indeterminable D) none of these

positive

funds are provided to the initial issuer of securities in the:

primary market

Equity securities: A) have a maturity. B) pay interest on a periodic basis. C) represent ownership in the issuer. D) repay the principal amount at maturity.

repay the principal amount at maturity

If a security is undervalued, some investors would capitalize from this by purchasing that security. As a result, the security's price will _______, resulting in a _______ return for those investors. A) rise; lower B) fall; higher C) fall; lower D) rise; higher

rise; higher

_______ concentrate on mortgage loans. A) Finance companies B) Commercial banks C) Savings institutions D) Credit unions

savings institutions

A five-year security was purchased two years ago by an investor who plans to resell it. The security will be sold by the investor in the so-called _______ market. A) secondary B) primary C) deficit D) surplus

secondary

Those participants who receive more money than they spend are referred to as _______ units. A) deficit B) surplus C) borrowing D) government

surplus

financial market participants who provide funds are called

surplus units

the largest deficit unit is (are):

the US treasury

Which of the following statements is incorrect? A) It is probably safe to say that various forms of unethical behavior will continue in the future. B) New financial scandals will likely result in new regulations. C) New regulations will likely be followed by new types of scandals that circumvent the latest regulations. D) The most naïve investors are often the ones that benefit the most from financial scandals.

the most naive investors are often the ones that benefit the most from financial scandals.

Which of the following is not a reason why depository financial institutions are popular? A) They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units. B) They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units. C) They accept the risk on loans provided. D) They use their information resources to act as a broker, executing securities transactions between two parties. E) They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units.

they use their information resources to act as a broker, executing securities transactions between two parties

Which of the following is not a typical money market security? A) Treasury bills B) Treasury bonds C) commercial paper D) negotiable certificates of deposit

treasury bond

A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread. A) true B) false

true

Capital market securities are commonly issued in order to finance the purchase of assets such as buildings, equipment, or machinery. A) true B) false

true

Commercial banks in aggregate have more assets than of savings institutions. A) true B) false

true

In recent years, financial institutions have consolidated to capitalize on economies of scale and on economies of scope. A) true B) false

true

the securities exchange commission (SEC) was established by the:

Security Exchange Act of 1934

Common types of money market securities include negotiable certificates of deposit and Treasury bills. A) true B) false

true

Debt securities are certificates that represent debt (borrowed funds) by the issuer. A) true B) false

true

Securities are certificates that represent a claim on the provider of funds. A) true B) false

true

The euro increased business between European countries and created a more competitive environment in Europe. A) true B) false

true

When security prices fully reflect all available information, the markets for these securities are said to be efficient. A) true B) false

true

Without the participation of financial intermediaries in financial market transactions,: A) information and transaction costs would be lower. B) transaction costs would be higher but information costs would be unchanged. C) information costs would be higher but transaction costs would be unchanged. D) information and transaction costs would be higher.

D) information and transaction costs would be higher.

When a securities firm acts as a(n) _______, it maintains a position in securities. A) adviser B) dealer C) broker D) none of these

dealer

Households with _______ are served by _______. A) deficient funds; depository institutions and finance companies B) deficient funds; finance companies only C) savings; finance companies only D) savings; pension funds and finance companies

deficient funds; depository institutions and finance companies

the most common investors in federal funds are:

depository institutions

if security prices fully reflected all available information, the markets for these securities are:

efficient

common stock is an example of a(n)

equity security

When a securities firm acts as a broker, it: A) guarantees the issuer a specific price for newly issued securities. B) makes a market in specific securities by adjusting its own inventory. C) executes transactions between two parties. D) purchases securities for its own account.

executes transactions between two parties

If investors speculate in the underlying asset rather than derivative contracts on the underlying asset, they will probably achieve _______ returns, and they are exposed to relatively _______ risk. A) lower; lower B) lower; higher C) higher; lower D) higher; higher

lower; lower

Which of the following transactions would not be considered a secondary market transaction? A) an individual investor purchases some existing shares of stock in IBM through his broker B) an institutional investor sells some Disney stock through its broker C) Microsoft issues new shares of common stock using its investment bank D) All of these would occur on the New York Stock Exchange.

microsoft issues new shares of common stock using its investment bank