Chapter 1: Financial Markets & The Economy - Multiple Choice

Which of the following factors would MOST likely have a positive impact on the price of common stock? A) A quick recovery following a minor downtrend B) Widespread selling in a foreign market C) A corporate announcement of a reduced dividend D) A spike in the Consumer Price Index

A) A quick recovery following a minor downtrend

A share in a foreign corporation that underlies an ADR is known as a(n) A) ADS B) ADP C) GDR D) GDS

A) ADS

The primary risk that determines the amount of interest an investor requires for a specific issuer is referred to as A) Credit risk B) Call risk C) Inflationary risk D) Marketability risk

A) Credit risk

Which of the following markets is widely used for both speculation and hedging of risk? A) Derivatives market B) Equity Market C) Capital Market D) Money Market

A) Derivatives market

All of the following sectors are considered cyclical EXCEPT A) Healthcare B) Hotel C) Steel D) Furniture

A) Healthcare

Which TWO of the following are likely to accompany a trade deficit? I. Imports are exceeding exports II. Exports are exceeding imports III. A strong economy IV. A weak economy A) I & III B) I & IV C) II & III D) II & IV

A) I & III

Bonds issued by U.S. corporations I. usually have a par value of $1,000 II. usually have par values well in excess of $1,000 III. are typically issued in book entry form IV. are typically issued in bearer form A) I and III B) I and IV C) II and III D) III and IV

A) I and III

When comparing ESOPs and SARs which of the following statements are TRUE? I. Under an ESOP the individual that owns the right will take ownership of the stock II. Under SARs the individual that owns the right will take ownership of the stock III. ESOPs and SARs are both used as employee benefits or incentives IV. ESOPs are most often used as employee benefits; SARs are typically rights made available to investors in the corporation so that they can avoid dilution A) I and III B) I and IV C) II and III D) II and IV

A) I and III

Which of the following is LEAST likely to impact a bond's credit rating? A) The business plan of the issuer and its ability to execute B) The financial health of the issuer C) The ability of the issuer to pay debt obligations in a timely manner D) The amount of debt that an issuer carries on its balance sheet

A) The business plan of the issuer and its ability to execute

In order to trade on the NYSE an ADR must be A) sponsored B) unsponsored C) denominated in foreign currency D) issued by a domestic corporation

A) sponsored

Global Depositary Receipts differ from American Depositary Receipts in that A) they do not trade in U.S. markets B) they do not offer opportunity for foreign ownership C) they do not pay dividends D) they are debt securities

A) they do not trade in U.S. markets

Two companies both report the same amount of net income over the same period. However, Company A utilizes far more resources and capital to earn that income than Company B. Which company will have more economic profit? A) Company A B) Company B C) Economic profit is the same for both D) It depends on each company's capital structure

B) Company B

Of the interest rates listed below, which is considered the most volatile? A) Broker's Call Loan Rate B) Federal funds rate C) Prime rate D) Discount Rate

B) Federal funds rate

The stock of an issuer that reinvests most of its earnings back into the business and often has a high PE ratio is most likely classified as a(n) A) Small cap stock B) Growth stock C) Income stock D) Cyclical stock

B) Growth stock

The government raises taxes to influence economic performance. This is an example of which TWO of the following? I. Fiscal Policy II. Monetary Policy III. An expansionary policy IV. A contractionary policy A) I & III B) I & IV C) II & III D) II & IV

B) I & IV

A cyclical stock is most profitable to an investor when it is I. Purchased at a low point in the economic cycle II. Purchased at a peak in the economic cycle III. Sold at a low point in the economic cycle IV. Sold at a peak in the economic cycle A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

Which of the features below are typically associated with a growth stock? I. High PE ratio II. Low PE ratio III. High dividend payout ratio IV. Low dividend payout ratio A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

Which of the following are likely to occur if a bond's credit rating is upgraded? I. Its price will increase II. Its price will decrease III. Its yield will increase IV. Its yield will decrease A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

Which of the following statements regarding American Depositary Shares are TRUE? I. Sponsored ADRs trade on U.S. exchanges II. Unsponsored ADRs trade on U.S. exchanges III. The issuer of the shares underlying an unsponsored ADR is required to disclose financial information and meet listing requirements IV. The issuer of the shares underlying an unsponsored ADR is not required to disclose financial information or meet listing requirements A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

Which of the following statements regarding debt securities are true? I. A purchaser of a bond is a creditor of the corporation II. The corporation is a creditor of a bondholder III. Bonds are generally issued with a par value of $100 IV. Bonds are generally issued with a par value of $1,000 A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

All of the following are likely to drive economic growth EXCEPT a(n) A) Decrease in taxation B) Increase in the value of the U.S. dollar C) Increase in government spending D) FOMC purchase of U.S. Treasury Securities

B) Increase in the value of the U.S. dollar

Which of the following measures would have a contractionary impact on the economy? A) Reducing interest rates B) Increasing bank reserve requirements C) Increasing the money supply D) Increasing government spending

B) Increasing bank reserve requirements

An investor with a growth objective would most likely purchase A) Blue chip stocks B) Tech stocks C) Utility stocks D) Stocks of a discount retailer

B) Tech stocks

A strategy that may help an investor achieve a tax loss to offset other portfolio gains is A) laddering B) bond swapping C) wash sales D) bulleting

B) bond swapping

A type of analysis that utilizes either a bottom up or top down approach to forecast market performance is known as A) technical analysis B) fundamental analysis C) quantitative analysis D) investment analysis

B) fundamental analysis

Derivatives and bonds are most typically traded A) on an exchange B) over-the-counter C) on the Bulletin Board D) on OTC Pink

B) over-the-counter

If a stock has been delisted from Nasdaq, an investor can conclude that A) the issuer has filed for bankruptcy B) the company is out of compliance with Nasdaq requirements C) the company's Board of Directos has requested their stock be listed on a different exchange D) the company is not current on payment of annual listing fees

B) the company is out of compliance with Nasdaq requirements

An unlisted security is one that A) trades on a centralized exchanged B) trades in the over-the-counter market C) is available on Nasdaq D) is issued outside the U.S.

B) trades in the over-the-counter market

Which of the following indicators is considered countercyclical? A) personal income B) unemployment C) manufacturing orders D) Consumer Price Index

B) unemployment

All of the following statements regarding Stock Appreciation Rights (SARs) are true EXCEPT A) they are often used to provide bonuses to management or employees of a corporation B) when employees receive stock appreciation rights, they receive additional shares of stock C) at the time of payout under the SAR, employees receive taxable ordinary income D) at the time of payout under the SAR, the corporation receives a tax deduction

B) when employees receive stock appreciation rights, they receive additional shares of stock

Which of the following is used to measure the covariance between the rate of return on a company's stock and the overall market return? A) Market risk premium B) Risk-free rate C) Beta D) Expected return on the market

C) Beta

An investor with an income objective would most likely purchase A) Defensive stocks B) Growth stocks C) Blue chip stocks D) Tech Stocks

C) Blue chip stocks

hich of the following is MOST likely a bullish indicator? A) Firing of a corporate CEO B) Closing of store locations C) Corporate layoffs D) Corporate scandal

C) Corporate layoffs

All of the following are considered leading economic indicators EXCEPT A) Industrial production rates B) Changes in business inventory C) Corporate profits D) S&P 500

C) Corporate profits

High ticket consumer items are most often classified as A) Blue chip stocks B) Defensive stocks C) Cyclical stocks D) Income stocks

C) Cyclical stocks

When comparing cyclical and counter cyclical stocks, it is true that I. Counter cyclical stocks have a higher beta than cyclical stocks II. Counter cyclical stocks have a lower beta than cyclical stocks III. Counter cyclical stocks often increase in value in a declining economy IV. Cyclical stocks often increase in value in a declining economy A) I and III B) I and IV C) II and III D) II and IV

C) II and III

When relying on credit rating agency ratings to determine whether or not a bond should be purchased, investors should be aware that I. the SEC requires a rating for debt issues of more than $5 million II. a bond's credit rating reflects only a single point in time and is subject to change III. a deterioration in price might actually precede a ratings downgrade IV. credit ratings are not used by issuers other than corporations A) I and III B) I and IV C) II and III D) II and IV

C) II and III

Which of the following statements regarding hybrid preferred stock is correct? I. It is more stock than bond II. It is more bond than stock III. Investors may be taxed on phantom income in years that they don't receive distributions IV. Investors are only taxed on income as received just as they are taxed on common stock dividends A) I and III B) I and IV C) II and III D) II and IV

C) II and III

All of the following are credit items in the computation of the balance of trade EXCEPT A) Foreign investment in the U.S. B) Exports C) Imports D) Foreign spending in the U.S. economy

C) Imports

Of the following, the MOST significant difference between the NYSE and Nasdaq is that A) Nasdaq does not have listing requirements B) foreign securities are not traded on the NYSE C) NYSE trading may take place at a physical location; Nasdaq trading is conducted through telecommunications networks only D) the NYSE attracts more "high-tech" firms, such as those dealing with the internet or electronics

C) NYSE trading may take place at a physical location; Nasdaq trading is conducted through telecommunications networks only

Which of the following securities trades most like a straight debt security? A) Convertible bond B) Unit trust C) Preferred stock D) Common stock

C) Preferred stock

Institutional investors include all of the following EXCEPT A) pension funds B) life insurance companies C) Regulators D) hedge funds

C) Regulators

All of the following are typical characteristics of Micro-cap equity issues EXCEPT A) a low correlation with other U.S. equity securities B) little available published research C) a market capitalization in the range of $500 million to $1 billion D) negative earnings reports in the start-up phase

C) a market capitalization in the range of $500 million to $1 billion

All of the following economic trends typically have a positive impact on the value of the dollar EXCEPT A) an increase in the balance of payments B) an increase in building permits C) an increase in business inventories D) an increase in Gross Domestic Product

C) an increase in business inventories

All of the following are characteristics of a depression EXCEPT A) financial crisis B) bank failures C) high inflation D) volatile currency fluctuations

C) high inflation

When the Federal Reserve announces a decrease in interest rates A) bond prices are likely to decrease B) the economy is likely to exhibit slower growth C) investors are likely to move their funds from the bond market to the equity market D) businesses will be less likely to expand

C) investors are likely to move their funds from the bond market to the equity market

The initial offering of stocks and bonds to investors takes place in the A) auction market B) over-the-counter market C) primary market D) secondary market

C) primary market

The direct trading of exchange listed securities that takes place away from an exchange is an example of a A) first market transaction B) second market transaction C) third market transaction D) fourth market transaction

C) third market transaction

Which of the following factors would have the least effect on a bond's price? A) A rating agency places the issuer's debt on notice for a downgrade B) The issuer defaults on a different tranche of debt in its capital structure. C) A decrease in interest rates D) A significant increase in the price of the issuer's common stock

D) A significant increase in the price of the issuer's common stock

An alternative type of trading system that facilitates computerized trading of financial products away from an exchange is know as a(n) A) Direct Trading System B) Electronic Portal Network C) Internal Crossing Network D) Electronic Communications Network

D) Electronic Communications Network

he global network in which investors buy, sell, exchange and speculate on currency is A) Liffe B) Interbank Market C) Euronext D) Forex

D) Forex

All of the following statements regarding credit ratings and rating agencies are true EXCEPT A) Companies pay rating agencies to provide a rating B) Most significant bond issues must have at least one rating from a nationally recognized ratings agency. C) Ratings agencies often have a familiar relationship with corporate management D) High ratings typically correspond with low volatility and high liquidity

D) High ratings typically correspond with low volatility and high liquidity

The Federal Reserve Board sells U.S. Treasury Securities. This is an example of which TWO of the following? I. Fiscal Policy II. Monetary Policy III. An expansionary Policy IV. A contractionary Policy A) I & III B) I & IV C) II & III D) II & IV

D) II & IV

Corporations are able to exclude from taxation I. 30% of dividends from common and preferred stock held in the company's portfolio II. 70% of dividends from common and preferred stock held in the company's portfolio III. 70% of interest received on bonds held in the company's portfolio IV. 0% of interest received on bonds held in the company's portfolio A) I and III B) I and IV C) II and III D) II and IV

D) II and IV

The financial market where debt instruments with high liquidity and very short maturities are traded is the A) Derivatives market B) Commodities market C) Capital market D) Money market

D) Money market

Which of the following best describes the OTC Bulletin Board? A) Trading platform for exchange listed and non-exchange listed securities B) Trading platform for non-exchange listed securities only C) Quotation facility for exchange listed and non-exchanged listed securities D) Quotation facility for non-exchange listed securities only

D) Quotation facility for non-exchange listed securities only

A diversified strategy of debt investments could be accomplished through investing in all of the following EXCEPT A) ETFs (Exchange Traded Funds) B) Bond mutual funds C) Unit investment trusts D) REITS (Real Estate Investement Trusts)

D) REITS (Real Estate Investement Trusts)

In the event of a corporate liquidation, a hybrid preferred generally has a priority in liquidation A) equal to common stock B) above common stock but below preferred stock C) equal to preferred stock D) equal to unsecured debt

D) equal to unsecured debt

An investor purchases bonds of 1, 3, 5 and 10 year maturities in a buy and hold portfolio. The investor has created a A) diversified portfolio B) income maximization strategy C) total return strategy D) laddered strategy

D) laddered strategy

Following its initial offering, the subsequent trading of stock takes place in the A) Auction market B) over-the-counter market C) primary market D) secondary market

D) secondary market