Question 1

The largest capital market security outstanding in 2010 measured by market value was

Accepted Answer

A)  securitized mortgages.
B)  corporate bonds.
C)  municipal bonds.
D)  Treasury bonds.
E)  corporate stocks.F) B) and E)
G) B) and D)

Question 2

_________ and __________ allow a financial intermediary to offer safe liquid liabilities such as deposits while investing the depositors' money in riskier illiquid assets.

Accepted Answer

A)  Diversification; high equity returns
B)  Price risk; collateral
C)  Free riders; regulations
D)  Monitoring; diversification
E)  Primary markets; foreign exchange marketsF) All of the above
G) A) and B)

Question 3

What have been the major factors contributing to growth in the foreign financial markets?

Accepted Answer

Factors include:
1. The amount of saving...

Question 4

Insolvency risk at a financial intermediary (FI) is the risk

Accepted Answer

A)  that promised cash flows from loans and securities held by FIs may not be paid in full.
B)  incurred by an FI when the maturities of its assets and liabilities do not match.
C)  that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices.
D)  incurred by an FI when its investments in technology do not result in cost savings or revenue growth.
E)  risk that an FI may not have enough capital to offset a sudden decline in the value of its assets.F) B) and D)
G) A) and D)

Question 5

Money markets trade securities that
I. mature in one year or less.
II. have little chance of loss of principal.
III. must be guaranteed by the federal government.

Accepted Answer

A)  I only
B)  II only
C)  I and II only
D)  I and III only
E)  I,II,and IIIF) None of the above
G) B) and D)

Question 6

How can brokers and dealers make money?
 Which activity is riskier?
 Why?

Accepted Answer

An asset broker assists buyers and selle...

Question 7

As of 2013,which one of the following derivatives instruments had the greatest amount of notional principal outstanding?

Accepted Answer

A)  Futures
B)  Swaps
C)  Options
D)  Bonds
E)  ForwardsF) B) and D)
G) A) and C)

Question 8

Primary markets are markets in which users of funds raise cash by selling securities to funds' suppliers.

Accepted Answer

A) True 
 B)False

Question 9

The diagram below is a diagram of the

Accepted Answer

A)  secondary markets.
B)  primary markets.
C)  money markets.
D)  derivatives markets.
E)  commodities markets.F) C) and D)
G) A) and E)

Question 10

What does an asset transformer do?
 Why is asset transformation a risky activity?

Accepted Answer

An asset transformer buys one security f...

Question 11

IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public. Morgan Stanley is acting as a(n)

Accepted Answer

A)  asset transformer.
B)  asset broker.
C)  government regulator.
D)  foreign service representative.E) C) and D)
F) A) and B)

Question 12

Corporate security issuers are always directly involved in funds transfers in the secondary market.

Accepted Answer

A) True 
 B)False

Question 13

Commercial paper is

Accepted Answer

A)  a time draft payable to a seller of goods,with payment guaranteed by a bank.
B)  a loan to an individual or business to purchase a home,land,or other real property.
C)  short-term funds transferred between financial institutions usually for no more than one day.
D)  a marketable bank issued time deposit that specifies the interest rate earned and a fixed maturity date.
E)  a short-term unsecured promissory note issued by a company to raise funds for a short time period.F) B) and C)
G) C) and D)

Question 14

IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public. This transaction is an example of a(n)

Accepted Answer

A)  primary market transaction.
B)  asset transformation by Morgan Stanley.
C)  money market transaction.
D)  foreign exchange transaction.
E)  forward transaction.F) A) and C)
G) C) and D)

Question 15

The Securities Exchange Commission (SEC) does not

Accepted Answer

A)  decide whether a public issue is fairly priced.
B)  decide whether a firm making a public issue has provided enough information for investors to decide whether the issue is fairly priced.
C)  require exchanges to monitor trading to prevent insider trading.
D)  attempt to reduce excessive price fluctuations.
E)  monitor the major securities exchanges.F) A) and C)
G) A) and B)

Question 16

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because

Accepted Answer

A)  loans to corporations are part of the money supply.
B)  bank and thrift loans are tightly regulated.
C)  U.S. DIs compete with foreign financial institutions.
D)  DI deposits are a major portion of the money supply.
E)  thrifts provide a large amount of credit to finance residential real estate.F) A) and E)
G) A) and D)

Question 17

Which of the following are capital market instruments?

Accepted Answer

A)  10-year corporate bonds
B)  30-year mortgages
C)  20-year Treasury bonds
D)  15-year U.S. government agency bonds
E)  All of the optionsF) B) and E)
G) C) and D)

Question 18

You are a corporate treasurer seeking to raise funds for your firm. What are some advantages of raising funds via a financial intermediary (FI)rather than by selling securities to the public?

Accepted Answer

Advantages include:
* Speed: Funds can n...

Question 19

The New York Stock Exchange (NYSE)is an example of a secondary market.

Accepted Answer

A) True 
 B)False

Question 20

A corporation seeking to sell new equity securities to the public for the first time in order to raise cash for capital investment would most likely

Accepted Answer

A)  conduct an IPO with the assistance of an investment banker.
B)  engage in a secondary market sale of equity.
C)  conduct a private placement to a large number of potential buyers.
D)  place an ad in the Wall Street Journal soliciting retail suppliers of funds.
E)  none of the options.F) C) and D)
G) B) and D)

Exam 1: Introduction

As of 2013,which one of the following derivatives instruments had the greatest amount of notional principal outstanding?

Correct AnswerverifiedShow Answer

The diagram below is a diagram of the

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The New York Stock Exchange (NYSE)is an example of a secondary market.

Correct AnswerverifiedShow Answer

IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public. Morgan Stanley is acting as a(n)

Correct AnswerverifiedShow Answer

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because

Correct AnswerverifiedShow Answer

The largest capital market security outstanding in 2010 measured by market value was

Correct AnswerverifiedShow Answer

What does an asset transformer do? Why is asset transformation a risky activity?

Correct AnswerverifiedAn asset transformer buys one security f...View AnswerShow Answer

Insolvency risk at a financial intermediary (FI) is the risk

Correct AnswerverifiedShow Answer

Money markets trade securities that I. mature in one year or less. II. have little chance of loss of principal. III. must be guaranteed by the federal government.

Correct AnswerverifiedShow Answer

You are a corporate treasurer seeking to raise funds for your firm. What are some advantages of raising funds via a financial intermediary (FI)rather than by selling securities to the public?

Correct AnswerverifiedAdvantages include:* Speed: Funds can n...View AnswerShow Answer

_________ and __________ allow a financial intermediary to offer safe liquid liabilities such as deposits while investing the depositors' money in riskier illiquid assets.

Correct AnswerverifiedShow Answer

Corporate security issuers are always directly involved in funds transfers in the secondary market.

Correct AnswerverifiedShow Answer

Primary markets are markets in which users of funds raise cash by selling securities to funds' suppliers.

Correct AnswerverifiedShow Answer

A corporation seeking to sell new equity securities to the public for the first time in order to raise cash for capital investment would most likely

Correct AnswerverifiedShow Answer

How can brokers and dealers make money? Which activity is riskier? Why?

Correct AnswerverifiedAn asset broker assists buyers and selle...View AnswerShow Answer

What have been the major factors contributing to growth in the foreign financial markets?

Correct AnswerverifiedFactors include:1. The amount of saving...View AnswerShow Answer

IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public. This transaction is an example of a(n)

Correct AnswerverifiedShow Answer

Which of the following are capital market instruments?

Correct AnswerverifiedShow Answer

Commercial paper is

Correct AnswerverifiedShow Answer

The Securities Exchange Commission (SEC) does not

Correct AnswerverifiedShow Answer

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An asset transformer buys one security f...
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Advantages include:
* Speed: Funds can n...
View Answer

_ and __ allow a financial intermediary to offer safe liquid liabilities such as deposits while investing the depositors' money in riskier illiquid assets.

Correct Answer
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An asset broker assists buyers and selle...
View Answer

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Factors include:
1. The amount of saving...
View Answer

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