Exam 2: The Creation of Financial Assets

The "syndicate's" role in an underwriting is to sell the new issue of securities.

When a seller executes a repurchase agreement,the seller agrees to repurchase the asset at a lower price.

If the initial offer price of a new issue is too low,

A commercial bank is an example of a financial intermediary.

The preliminary prospectus ("red herring")does not include the offer price of a new stock issue.

Which of the following is not part of the underwriting process?

Commercial paper is a secured,short-term note.

A Eurodollar CD is a certificate of deposit issued in the United States by a foreign bank.

Commercial banks issue 1)demand deposits (checking accounts) 2)negotiable certificates of deposit 3)money market accounts

A prospectus is required when a corporation issues new securities that are sold to the general public.

Treasury bills have no risk of default but risk of loss of interest payments.

The deregulation of the banking system has

A new issue of corporate securities sold to the general public must be registered with the SEC.

Money market mutual funds invest in 1)commercial paper 2)repurchase agreements 3)corporate bonds

Financial intermediaries 1)transfer funds from borrowers to savers 2)create claims on themselves 3)transfer funds from savers to borrowers 4)create claims on lenders

FDIC insures

Which of the following does not have default risk?

The final prospectus does not include

The primary role of organized security exchanges is to raise capital (money)for firms.

A direct transfer of funds from savers to firms occurs when new securities are issued in the primary market.