Question 1

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Accepted Answer

A)   A money market transaction.
B)   A primary market transaction.
C)   A secondary market transaction.
D)   A futures market transaction.
E)   An over-the-counter market transaction.F) All of the above
G) C) and E)

Question 2

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held."
B)   "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.
C)   The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC.
D)   When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market.
E)   It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.F) B) and C)
G) A) and E) B

Question 3

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Accepted Answer

A) True 
 B)False

Question 4

Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A simple average of those returns (which gives equal weight to each company in the S&P 500) is then calculated. That average is called the "return on the S&P Index," and it is often used as an indicator of the "return on the market."

Accepted Answer

A) True 
 B)False  False

Question 5

If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the Nasdaq Index.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an example of a capital market instrument?

Accepted Answer

A)   Commercial paper.
B)   Preferred stock.
C)   U.S. Treasury bills.
D)   Banker's acceptances.
E)   Money market mutual funds.F) B) and E)
G) B) and D)

Question 7

Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market."

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)   Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.
B)   Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia.
C)   Hedge funds have more in common with investment banks than with any other type of financial institution.
D)   Hedge funds have more in common with commercial banks than with any other type of financial institution.
E)   Hedge funds are not as highly regulated as most other types of financial institutions. The justification for this light regulation is that only "sophisticated investors" (i.e., those with high net worths and high incomes)  are permitted to invest in these funds, and these investors supposedly can do any necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.F) A) and B)
G) B) and E)

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)   The most important difference between spot markets versus futures markets is the maturity of the instruments that are traded. Spot market transactions involve securities that have maturities of less than one year whereas futures markets transactions involve securities with maturities greater than one year.
B)   Capital market transactions involve only preferred stock or common stock.
C)   If General Electric were to issue new stock this year, this would be considered a secondary market transaction since the company already has stock outstanding.
D)   Both Nasdaq dealers and "specialists" on the NYSE hold inventories of stocks.
E)   Money market transactions do not involve securities denominated in currencies other than the U.S. dollar.F) D) and E)
G) C) and D)

Question 10

A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

Accepted Answer

A) True 
 B)False

Question 11

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a primary market transaction?

Accepted Answer

A)   You sell 200 shares of IBM stock on the NYSE through your broker.
B)   You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock.
C)   IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
D)   One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.
E)   IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.F) B) and E)
G) A) and E)

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)   The New York Stock Exchange is an auction market, and it has a physical location.
B)   Home mortgage loans are traded in the money market.
C)   If an investor sells shares of stock through a broker, then it would be a primary market transaction.
D)   Capital markets deal only with common stocks and other equity securities.
E)   While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.F) C) and E)
G) D) and E)

Question 14

Trades on the NYSE are generally completed by having a brokerage firm acting as a "dealer" buy securities and adding them to its inventory or selling from its inventory. The Nasdaq, on the other hand, operates as an auction market, where buyers offer to buy, and sellers to sell, and the price is negotiated on the floor of the exchange.

Accepted Answer

A) True 
 B)False  False

Question 15

Money markets are markets for

Accepted Answer

A)   Foreign currencies.
B)   Consumer automobile loans.
C)   Common stocks.
D)   Long-term bonds.
E)   Short-term debt securities such as Treasury bills and commercial paper.F) A) and E)
G) A) and C)

Question 16

The NYSE is defined as a "spot" market purely and simply because it has a physical location. The Nasdaq, on the other hand, is not a spot market because it has no one central location.

Accepted Answer

A) True 
 B)False

Question 17

Private markets are those like the NYSE, where transactions are handled by members of the organization, while public markets are those like the Nasdaq, where anyone can make transactions.

Accepted Answer

A) True 
 B)False

Question 18

Primary markets are large and important, while secondary markets are smaller and less important.

Accepted Answer

A) True 
 B)False

Question 19

In a "Dutch auction" for new stock, individual investors place bids for shares directly. Each potential bidder indicates the price he or she is willing to pay and how many shares he or she will purchase at that price. The highest price that permits the company to sell all the shares it wants to sell is determined, and this is the "market clearing price." All bidders who specified this price or higher are allowed to purchase their shares at the market clearing price.

Accepted Answer

A) True 
 B)False

Question 20

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Accepted Answer

A)   This is an example of a direct transfer of capital.
B)   This is an example of a primary market transaction.
C)   This is an example of an exchange of physical assets.
D)   This is an example of a money market transaction.
E)   This is an example of a derivative market transaction.F) A) and C)
G) A) and B)

Exam 2: Financial Markets

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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B

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Correct Answer
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Correct Answer
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False

If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the Nasdaq Index.

Correct Answer
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Which of the following is an example of a capital market instrument?

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

Correct Answer
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The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Correct Answer
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Which of the following is a primary market transaction?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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False

Money markets are markets for

Correct Answer
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The NYSE is defined as a "spot" market purely and simply because it has a physical location. The Nasdaq, on the other hand, is not a spot market because it has no one central location.

Correct Answer
verified

Private markets are those like the NYSE, where transactions are handled by members of the organization, while public markets are those like the Nasdaq, where anyone can make transactions.

Correct Answer
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Primary markets are large and important, while secondary markets are smaller and less important.

Correct Answer
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Correct Answer
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You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Correct Answer
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Exam 2: Financial Markets

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedB

A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFalse

If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the Nasdaq Index.

Correct AnswerverifiedShow Answer

Which of the following is an example of a capital market instrument?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

Correct AnswerverifiedShow Answer

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an order to buy a stock.

Correct AnswerverifiedShow Answer

Which of the following is a primary market transaction?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFalse

Money markets are markets for

Correct AnswerverifiedShow Answer

The NYSE is defined as a "spot" market purely and simply because it has a physical location. The Nasdaq, on the other hand, is not a spot market because it has no one central location.

Correct AnswerverifiedShow Answer

Private markets are those like the NYSE, where transactions are handled by members of the organization, while public markets are those like the Nasdaq, where anyone can make transactions.

Correct AnswerverifiedShow Answer

Primary markets are large and important, while secondary markets are smaller and less important.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Correct AnswerverifiedShow Answer

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B

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False

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False

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