Chapter 1: The investment environment Flashcards
Real Asset
The land, buildings, machines and knowledge that can be used to produce goods and services
Financial Asset
Something like stocks, bonds, hard currency, etc. These are claims to real assets, and are a way to show who owns what portion of real assets.
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.
I, II, IV
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.
I, II, III
Which country has banned initial coin offerings?
China
In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2018 was(were)
“Other” Category (not bonds, bank loans, other loans, or trade debt)
In 2018, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value.
bank loans
The ____________ refers to the potential conflict between management and shareholders.
Agency Problem
Which of the following are mechanisms that have evolved to mitigate potential agency problems?
I) Using the firm’s stock options for compensation
II) Hiring bickering family members as corporate spies
III) Boards of directors forcing out underperforming management
IV) Security analysts monitoring the firm closely
V) Takeover threats
I, III, IV, V
________ specialize in helping companies raise capital by selling securities.
Investment Bankers
The Sarbanes-Oxley Act
- requires corporations to have more independent directors.
- requires the firm’s CFO to personally vouch for the firm’s accounting statements.
- prohibits auditing firms from providing other services to clients.
- requires corporations to have more independent directors and requires the firm’s CFO to personally vouch for the firm’s accounting statements.
Investors trade previously issued securities in the ________ market(s).
Secondary
Asset allocation refers to_________?
the allocation of assets into broad asset classes.
An example of a derivative security is
a common share of Microsoft.
a call option on Intel stock.
a commodity futures contract.
a call option on Intel stock and a commodity futures contract.
a common share of Microsoft and a call option on Intel stock.
a call option on Intel stock and a commodity futures contract.
In 2018, ____________ was the most significant real asset of U.S. households in terms of total value.
Real estate
Although derivatives can be used as speculative instruments, businesses most often use them to
Hedge risks
Financial assets permit all of the following except:
consumption timing.
allocation of risk.
separation of ownership and control.
elimination of risk.
Elimination of risk
Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities.
Glass-Steagall
_______ are examples of financial intermediaries.
Commercial banks
Insurance companies
Investment companies
Credit unions
All of the options
All of the options
In 2018, ____________ was(were) the most significant financial asset(s) of U.S. commercial banks in terms of total value.
loans and leases
cash
real estate
deposits
investment securities
Loans and leases
_______ 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.
Stocks
Bonds
Derivatives
Collateralized debt obligations
All of the options
Collateralized debt obligations
