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Financial Markets > chapter 1 to 2 (chapter quiz) > Flashcards

chapter 1 to 2 (chapter quiz) Flashcards

1
Q

A five-year security was purchased two years ago by an investor who plans to resell it. the investor will sell the security in the

A. secondary market
B. primary market
C. deficit market
D. surplus market

A

A. secondary market

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2
Q

____________ are long-term debt obligations issued by corporations and government agencies to support their operations.

A. common stock
B. derivative securities
C. bonds
D. none of them are correct

A

C. bonds

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3
Q

_________ are NOT considered capital market securities.

A. derivative securities
B. treasury bonds
C. corporate bonds
D. equity securities
E. mortgages

A

A. derivative securities

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4
Q

Bonds issued by corporations have a _________ expected return and _______ risk than treasury bonds.

A. lower; lower
B. lower; higher
C. higher; lower
D. higher; higher

A

D. higher; higher

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4
Q

Equity securites

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

A

C. represent ownership in the issuer

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5
Q

Financial market participants who provide funds are called

A. deficit units
B. surplus units
C. primary units
D. secondary units

A

B. surplus units

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6
Q

financial markets facilitating the flow of short-term debt securities with maturities of one year or less are known as

a. secondary markets
b. capital markets
c. primary markets
d. money markets
e. none of these are correct

A

d. money markets

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7
Q

funds are provided to the initial issuer of securities in the
a. secondary market
b. primary market
c. deficit market
d. surplus market

A

b. primary market

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8
Q

In aggregate, __________ are the most dominant depository institution, with more total assets than other depository institutions.
A) commercial banks
B) savings banks
C) credit unions
D) S&LS

A

A) commercial banks

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9
Q

Investors in equity securities may earn a return from

A) coupon payments and the return of principal at the maturity date.
B) coupon payments and a capital gain when they sell the securities.
C) quarterly dividends (if paid) and a capital gain when they sell the securities.
D) quarterly dividends (if paid) and the return of principal at the maturity date.

A

C) quarterly dividends (if paid) and a capital gain when they sell the securities.

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10
Q

Money market securities generally have

A) relatively low liquidity, low expected return, and a high degree of credit risk
B) relatively high liquidity, high expected return, and a high degree of credit risk
C) relatively low liquidity, high expected return, and a low degree of credit risk
D) relatively high liquidity, low expected return, and a low degree of credit risk

A

D) relatively high liquidity, low expected return, and a low degree of credit risk

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11
Q

___________ securities have a maturity of one year or less; _________ securities generally have relatively high liquidity.
A) Money market; capital market
B) Money market; money market
C) Capital market; money market
D) Capital market; capital market

A

B) Money market; money market

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12
Q

Stock issued by a corporation is an example of a
A) debt security.
B) money market security.
C) equity security.
D) debt security AND money market security.

A

C) equity security.

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13
Q

The financial markets that facilitate the flow of short-term funds are known as
a. money markets.
b. capital markets.
c, primary markets.
d. secondary markets.

A

a. money markets.

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14
Q

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 are correct.

A

A) positive

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15
Q

Those participants who receive more money than they spend are referred to as

A) deficit units.
B) surplus units.
C) borrowing units.
D) govemment units.

A

B) surplus units.

16
Q

Which of the following are NOT considered money market securities?
A) Treasury bills
B) mortgage-backed securities
C) negotiable certificates of deposit
D) commercial paper

A

B) mortgage-backed securities

17
Q

Which of the following financial intermediaries commonly invest in stocks and bonds?

A) pension funds
B) insurance companies
C) mutual funds
D) All of these are correct.

A

D) All of these are correct.

18
Q

Which of the following is a capital market instrument?
A) a six-month certificate of deposit
B) a three-month Treasury bill
C) a ten-year bond
D) an agreement for a bank to loan funds directly to a company for nine months

A

C) a ten-year bond

19
Q

Which of the following is a money market security?
A) Treasury note
B) municipal bond
C) mortgage
D) commercial paper

A

D) commercial paper

20
Q

Which of the following is an example of an asymmetric information problem?

A) A corporation releases toxic wastes into a river.
B) A corporation relocates to Ireland to take advantage of lower corporate tax rates.
C) A stock analyst rates a stock higher than it deserves because the securities firm she works for wants to obtain business from the corporation that issued the stock.
D) A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China.

A

D) A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China.

21
Q

Which of the following is NOT an issuer of bonds?
a. households
b. corporations
c. the U.S. Treasury
d. government agencies

A

a. households

22
Q

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.

A

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

23
Q

which of the following transactions would NOT be considered a secondary market transaction?

a. an individual investor purchases some existing shares of stock in Apple through her broker
b. an institutional investor sells some shares Disney stock through its broker
c, a firm that was privately held engages in an offering of stock to the public
d, all of these are correct

A

c. a firm that was privately held engages in an offering of stock to the public

24
Q

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.

A

D) information and transaction costs would be higher.

25
Q

Assume that a credit crisis causes a weak economy, and the BSP increases money supply. These conditions should cause

A) an increase in both the supply of and the demand for loanable funds,
b. a decrease in both the supply of and the demand for loanable funds.
C) a decrease in the supply of loanable funds and an increase in the demand for loanable funds.
D) an increase in the supply of loanable funds and a decrease in the demand for loanable funds.

A

D) an increase in the supply of loanable funds and a decrease in the demand for loanable funds.

26
Q

Assume that foreign investors who have invested in Philippine securities decide to decrease their holdings of Philippine securites and increase their holdings of securities in their own countries. This should cause the supply of loanable funds in the Philippines to________ and should place ___________ pressure on Philippine interest rates.

A) decrease; upward
8) decrease: downward
C) increase; downward
D) increase; upward

A

A) decrease; upward

27
Q

At any given point in time, households would demand a _________ quantity of loanable funds at __________ rates of interest.

A) greater, higher
B) greater, lower
C) smaller, lower
D) None of these are correct

A

B) greater, lower

28
Q

Businesses demand loanable funds to

A) finance installment debt.
B) subsidize other companies.
C) invest in long-term (fixed) assets.
D) None of these are correct

A

C) invest in long-term (fixed) assets.

29
Q

If economic conditions become less favorable, then

A) expected cash flows on various projects will increase.
B) the required rate of return on projects will increase.
C) there will be additional acceptable business projects.
D) there will be a decreased demand by business for loanable funds.

A

B) the required rate of return on projects will increase.

30
Q

if economic expansion is expected lo decrease, the demand for loanable funds should _______ and interest rates should ___________.
A) increase, Increase
8) increase; decrease
C) decrease; decrease
D) decrease; incroase

A
31
Q

If interest rates are __________ projects will have expected retums that exceed a business’s
particular required rate of return.

A) higher, more
B) lower, more
C) lower, no
D) None of these are correct.

A
32
Q

If investors shift funds from stocks into bank deposite, this ___________ the supply of loanable funds a places pressure on interest rates.

A) increases; upward
B) increases, dowward
C) decreases; downward
D) decreases; upward

A
33
Q

If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be a __________ of loanable funds.

A) increase; surplus
B) increase, shortage
C) decrease; surplus
D) decrease; shortage

A
34
Q

The demand for funds resulting from business investment in new projects is __________ related to the
number of projects implemented, and is therefore ______________ related to the interest rate.

A) inversely, positively
B) positively, inversely
C) inversely, inversely
D) positively: positively

A
35
Q

The equilibrium interest rate

A) equates the aggregate demand for loanable funds with the aggregate supply of loanable funds.
B) equates the elasticity of the aggregate demand for and supply of loanable funds.
C) decreases as the aggregate supply of loanable funds decreases.
D) increases as the aggregate demand for loanable funds decreases.

A
36
Q

The ___________ sector is the largest supplier of loanable funds.

A) household
8) govemment
C) business
D) None of these are correct.

A
37
Q

The ___________ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.

a. Fisher effect
b. loanable funds theory
c. real interest rate
d. None of these are correct.

A

Financial Markets (2 decks)

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