Fina 3317 Exam 2 Mock Practice

There are two statements (I) Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders, but after that of bondholders. (II) Firms issue preferred stock in far greater amounts than common stock. (I) is true, (II) false. (I) is false, (II) true. Both are true. Both are false.

(I) is true, (II) false.

Which of the following would not cause an appreciation of the foreign currency? A lower foreign interest rate A lower demand for foreign currency. A lower foreign inflation rate. A lower supply of foreign currency.

A lower demand for foreign currency.

Which of the following is not an objective of the Securities and Exchange Commission? Advise investors about which particular stocks are good buys Maintain integrity of the securities markets Regulate major participants in securities markets Require firms to provide specific information to investors

Advise investors about which particular stocks are good buys

The advantages of the establishment of the NASDAQ include which of the following? It led to the proliferation of ATMs. It helped reduce the bid-ask spread. All of the above. It ended fixed securities commissions.

All of the above.

Which of the following is a feature of index funds? They select and hold stocks to match the performance of a stock index. They do not require managers to select stocks and decide when to buy and sell. They have lower fees. All of the above.

All of the above.

________ is an insurance product that will pay more if you live longer than you expect. For an initial fixed sum or stream of payments, the insurance company agrees to pay you a fixed amount for as long as you live. Disability insurance Health insurance An annuity Term life insurance

An annuity

Which of the following is not one of the advantages that retail banks maintain over fintechs? Banks have more experienced legal teams. The cost of capital for banks is close to zero. Banks are known for having greater agility and a more innovative mindset. Banks have decades of compliance experience.

Banks are known for having greater agility and a more innovative mindset.

The Securities Acts of 1933 and 1934 established the S.E.C. to enforce which of the follow laws? A. Require firms to tell the public the truth about their businesses. B. Require brokers, dealers, and exchanges to treat investors fairly. A only Neither A nor B B only Both A and B

Both A and B

There are two statements (I) A share of common stock in a firm represents an ownership interest in that firm. (II) A share of preferred stock is as much like a bond as it is like common stock. Both are false. (I) is false, (II) true. Both are true. (I) is true, (II) false.

Both are true.

In a bull market, which option position does not make money? Buying a put Buying a call Writing a put Buying a stock

Buying a put

Of the following financial intermediaries, which holds the most liquid assets? Money market mutual funds Life insurance companies Commercial banks Property and casualty insurance companies

Commercial banks

The agency responsible for regulation of the futures exchanges and trading in financial futures is the Commodity Futures Trading Commission. Federal Trade Commission. Financial Industry Regulatory Authority Securities and Exchange Commission.

Commodity Futures Trading Commission.

Which area of FinTech is based on blockchain technology? Digital lending Digital wealth management Cryptocurrencies Digital payments

Cryptocurrencies

Which of the following pensions does not promise employees a specific retirement benefit? Defined-benefit plan Defined-contribution plan Underfunded plan Overfunded plan

Defined-contribution plan

What is the primary disadvantage of an ETF? ETFs usually have no minimum investment amount. They are listed and traded as individual stocks on a stock exchange. Investors have to pay a broker commission each time they buy or sell shares. ETFs tend to have lower management fees than index mutual funds.

Investors have to pay a broker commission each time they buy or sell shares.

Which of the following is not an advantage of a mutual fund? Cheaper transactions costs No default risk Monitoring activities at lower costs Diversification

No default risk

Pension plans are the fastest growing financial intermediary compared to commercial banks, insurance companies, or mutual funds. Which of the following has not contributed to the growth of pension plans? Urbanization Increases in life expectancy Retirement at earlier ages Privatization of social security

Privatization of social security

Which of the following is true about a Roth IRA? Qualified withdrawals after retirement are not taxed. Employers match contributions. Contributions are tax deductible. You must begin withdrawals at age 70½.

Qualified withdrawals after retirement are not taxed.

Which of the following does not help people during their retirement? Variable life insurance Universal life insurance Term life insurance Whole life insurance

Term life insurance

Which of the following is an advantage to investors of an open-end mutual fund? The investors can sell their shares in the over-the-counter market. The fund agrees to redeem shares at any time. Fund shares could be acquired at lower expenses. The market value of fund shares may be higher than the value of fund assets.

The fund agrees to redeem shares at any time.

Which of the following is not an element of the Gordon growth model of stock valuation? The required return on investments in equity The stock's expected future price The expected constant growth rate of dividends The stock's most recent dividend paid

The stock's expected future price

Which of the following statements about 401(k) plans is not true? They are defined benefits plans. They allow employee discretion in asset allocation. They allow employer and employee contributions. Earnings accrue tax-free during the employee's working years.

They are defined benefits plans.

Which of the following is true about specialists? Trades are done in an auction market format. Specialists are used by the NASDAQ system. Specialists do not help maintain continuous trading. Investment banks can be specialists.

Trades are done in an auction market format.

If a U.S. traveler needs foreign currency for a trip abroad, she would buy the currency in the retail market from a dealer such as ______ . a commercial bank a mutual fund an insurance company an investment bank

a commercial bank

The foreign exchange market is very competitive. functions no differently from a centralized market. all of the above.

all of the above.

According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected ________ of the foreign currency must be ________ percent. appreciation; 4 appreciation; 2 depreciation; 2 depreciation; 4

appreciation; 2

The elimination of riskless profit opportunities in the futures market is referred to as speculation. arbitrage. mark to market. hedging.

arbitrage.

The advantage of forward contracts over futures contracts is that forward contracts are more flexible. are more liquid. have lower default risk. are standardized.

are more flexible.

A U.S. firm has £50 million in assets in Britain that they need to repatriate in six months. They could hedge the exchange rate risk by: buying pounds spot. buying pounds forward. lending pounds. both selling pounds forward and borrowing pounds.

both selling pounds forward and borrowing pounds.

The riskiest capital market security is Treasury bonds. common stock. corporate bonds. preferred stock.

common stock.

Which is not true about IRAs? withdrawals can be started at age 59½ and must be made by 72. self-directed investment vehicles designed to provide supplemental retirement income. corporate retirement plans for self-employed individuals and small businesses. contribution is subject to an income limit and contribution is limited per year.

corporate retirement plans for self-employed individuals and small businesses.

When the exchange rate for the euro changes from $1.20 to $1.00, then, holding everything else constant, the euro has appreciated and German cars sold in the United States become less expensive. depreciated and American wheat sold in Germany becomes more expensive. depreciated and American wheat sold in Germany becomes less expensive. appreciated and German cars sold in the United States become more expensive.

depreciated and American wheat sold in Germany becomes more expensive.

When the value of the British pound changes from $1.50 to $1.25, the pound has ________ and the dollar has ________. appreciated; depreciated depreciated; depreciated depreciated; appreciated appreciated; appreciated

depreciated; appreciated

The net asset value of a mutual fund is calculated as the difference between the fund's assets and its liabilities. calculated every 15 minutes and used for transactions occurring during the next 15-minute interval. determined by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding. determined by calculating the net price of the assets owned by the fund.

determined by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding.

Mutual funds provide small investors a diversified portfolio that reduces risk. pool the resources of many small investors by selling these investors shares and using the proceeds to buy securities. do all of the above. allow small investors to obtain the benefits of lower transaction costs in purchasing securities.

do all of the above.

Securities not listed on one of the exchanges trade in the over-the-counter market. In this exchange, dealers "make a market" by selling stocks from inventory when investors want to buy. buying stocks for inventory when investors want to sell. matching sellers and buyers on the trading floor. doing both of the above.

doing both of the above.

From largest to smallest in terms of total assets, the four classes of mutual funds are bond funds, money market funds, equity funds, hybrid funds. equity funds, bond funds, money market funds, hybrid funds. equity funds, money market funds, bond funds, hybrid funds. money market funds, equity funds, hybrid funds, bond funds.

equity funds, bond funds, money market funds, hybrid funds.

Hurricane damage with _____________ in a given area is an example of a ______________ for which it is difficult to predict loss exposure. low-severity, low-frequency event high-severity, high-frequency event high-severity, low-frequency event low-severity, high-frequency event

high-severity, low-frequency event

A _________ P/E may indicate that the market is willing to pay a ________ for them. Over the long run, if the earnings do not match with market expectation, the price of the stock will ________ to match with industry average. high; premium; increase high; discount; increase low; discount; decrease high; premium; decrease

high; premium; decrease

A spot transaction in the foreign exchange market involves the exchange of bank deposits at a specified future date. exchange of exports and imports at a specified future date. immediate (within two days) exchange of exports and imports. immediate (within two days) exchange of bank deposits.

immediate (within two days) exchange of bank deposits.

The majority of mutual fund assets are now owned by institutional investors. government entities. business organizations. individual investors

individual investors

Forward exchange rates involve the exchange of bank deposits at some specified future date. involve the immediate exchange of bank deposits. involve the immediate exchange of imports and exports. none of the above.

involve the exchange of bank deposits at some specified future date.

Property and casualty insurers hold _____________ short-term assets than life insurers because property and casualty loss rates are _____________ predictable than life insurance loss rates. more; more more; less less; more less; less

more; less

The assets not held by money market mutual funds is certificates of deposit. repurchase agreements. municipal bonds Treasury bills.

municipal bonds

A call option gives the seller the ________ to ________ the underlying security. right; sell obligation; sell right; buy obligation; buy

obligation; sell

A share of common stock in a firm represents an ownership interest in that firm and allows stockholders to receive interest payments. receive dividends. vote. only A and B of the above.

only A and B of the above.

Hedging risk involves engaging in a financial transaction that offsets a long position by taking an additional ________ position, or offsets a short position by taking an additional ________ position. short; short long; long short; long long; short

short; long

The theory of purchasing power parity cannot fully explain exchange rate movements because monetary policy differs across countries. fiscal policy differs across countries. some goods are not traded between countries. all goods are identical even if produced in different countries.

some goods are not traded between countries.

Social Security is a underfunded "pay-as-you-go" system. insured private pension plan. uninsured private pension plan. fully funded public pension plan.

underfunded "pay-as-you-go" system.