Question 1

It is difficult for individuals to participate in the direct financial markets for the following reason:

Accepted Answer

A)  The direct financial markets re retail markets with a typical minimum transaction size of $1 million. 
B)  The direct financial markets are wholesale markets with a typical minimum transaction size of $1 million. 
C)  Major buyers and sellers of securities in indirect financial markets include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals. 
D)  Major buyers and sellers of securities in direct financial markets do not include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals. 
A)  The direct financial markets re retail markets with a typical minimum transaction size of $1 million. 
B)  The direct financial markets are wholesale markets with a typical minimum transaction size of $1 million. 
C)  Major buyers and sellers of securities in indirect financial markets include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals. 
D)  Major buyers and sellers of securities in direct financial markets do not include commercial banks, large corporations, the federal government, hedge funds, and some wealthy individuals.

Question 2

If you are a borrower, which would you prefer to occur during the life of your loan?

Accepted Answer

A)  A level of inflation that is higher than that anticipated at the outset of the loan. 
B)  A level of inflation that is lower than that anticipated at the outset of the loan. 
C)  A level of inflation that is exactly as anticipated at the outset of the loan. 
D)  No inflation at all 
A)  A level of inflation that is higher than that anticipated at the outset of the loan. 
B)  A level of inflation that is lower than that anticipated at the outset of the loan. 
C)  A level of inflation that is exactly as anticipated at the outset of the loan. 
D)  No inflation at all

Question 3

If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?

Accepted Answer

A)  5 percent. 
B)  10 percent. 
C)  25 percent. 
D)  None of the above. 
A)  5 percent. 
B)  10 percent. 
C)  25 percent. 
D)  None of the above.

Question 4

Business finance companies obtain the majority of their funds by selling equity.

Accepted Answer

A) True 
 B)False

Question 5

Most securities sales on the New York Stock Exchange are secondary market transactions.

Accepted Answer

A) True 
 B)False

Question 6

Real rates of interest are perfectly observable in the financial markets.

Accepted Answer

A) True 
 B)False

Question 7

The law that prohibited commercial banks from engaging investment banking activities is the Financial Services Modernization Act of 1999.

Accepted Answer

A) True 
 B)False

Question 8

An important function of the financial system is:

Accepted Answer

A)  to direct money to the best investment opportunities in the economy. 
B)  to allow the federal government to view all financial transactions. 
C)  to help state governments to coordinate state tax levies. 
D)  to direct the money from borrower-lenders to lender-savers. 
A)  to direct money to the best investment opportunities in the economy. 
B)  to allow the federal government to view all financial transactions. 
C)  to help state governments to coordinate state tax levies. 
D)  to direct the money from borrower-lenders to lender-savers.

Question 9

What is the typical minimum denominated transaction size in the direct financial markets?

Accepted Answer

A)  $10,000. 
B)  $100,000. 
C)  $1,000,000. 
D)  $10,000,000. 
A)  $10,000. 
B)  $100,000. 
C)  $1,000,000. 
D)  $10,000,000.

Question 10

Savings by _____ in small dollar amounts is the origin of much of the money that funds business loans in an economy.

Accepted Answer

A)  households 
B)  the U.S. government 
C)  small businesses 
D)  none of the above 
A)  households 
B)  the U.S. government 
C)  small businesses 
D)  none of the above

Question 11

_____ are the principal lender-savers in the economy.

Accepted Answer

A)  Households 
B)  Investment banks 
C)  State governments 
D)  Businesses 
A)  Households 
B)  Investment banks 
C)  State governments 
D)  Businesses

Question 12

Which of the following theories states that security prices reflect all public information, but not all private information?

Accepted Answer

A)  Weak-form efficiency. 
B)  Semistrong-form efficiency. 
C)  Strong-form efficiency. 
D)  Nominal-form efficiency. 
A)  Weak-form efficiency. 
B)  Semistrong-form efficiency. 
C)  Strong-form efficiency. 
D)  Nominal-form efficiency.

Question 13

A financial system's primary function is funneling money from:

Accepted Answer

A)  wealthy individuals to non-wealthy individuals. 
B)  lender-savers to borrower-spenders. 
C)  borrower-spenders to lender-savers. 
D)  the government to wealthy individuals. 
A)  wealthy individuals to non-wealthy individuals. 
B)  lender-savers to borrower-spenders. 
C)  borrower-spenders to lender-savers. 
D)  the government to wealthy individuals.

Question 14

The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called:

Accepted Answer

A)  financial bundling. 
B)  financial intermediation. 
C)  financial disintermediation. 
D)  none of the above. 
A)  financial bundling. 
B)  financial intermediation. 
C)  financial disintermediation. 
D)  none of the above.

Question 15

Brokers are market specialists who do not bear the risk of owning securities.

Accepted Answer

A) True 
 B)False

Question 16

Without a financial market, purchasing a house would require a cash purchase.

Accepted Answer

A) True 
 B)False

Question 17

Explain why secondary markets are so important to businesses that need to raise capital?

Accepted Answer

Secondary markets provide liquidity to t

Question 18

Businesses are the principal borrower-spenders in the economy.

Accepted Answer

A) True 
 B)False

Question 19

The most common reason that corporate firms use the futures and options markets is:

Accepted Answer

A)  to hedge risk. 
B)  to take risk. 
C)  to make deposits. 
D)  none of the above. 
A)  to hedge risk. 
B)  to take risk. 
C)  to make deposits. 
D)  none of the above.

Question 20

A mutual fund is an example of:

Accepted Answer

A)  a line of credit. 
B)  an endowment fund. 
C)  an investment fund. 
D)  a pension fund. 
A)  a line of credit. 
B)  an endowment fund. 
C)  an investment fund. 
D)  a pension fund.

Exam 2: The Financial System and the Level of Interest Rates

It is difficult for individuals to participate in the direct financial markets for the following reason:

If you are a borrower, which would you prefer to occur during the life of your loan?

If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?

Business finance companies obtain the majority of their funds by selling equity.

Most securities sales on the New York Stock Exchange are secondary market transactions.

Real rates of interest are perfectly observable in the financial markets.

The law that prohibited commercial banks from engaging investment banking activities is the Financial Services Modernization Act of 1999.

An important function of the financial system is:

What is the typical minimum denominated transaction size in the direct financial markets?

Savings by _____ in small dollar amounts is the origin of much of the money that funds business loans in an economy.

_____ are the principal lender-savers in the economy.

Which of the following theories states that security prices reflect all public information, but not all private information?

A financial system's primary function is funneling money from:

The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called:

Brokers are market specialists who do not bear the risk of owning securities.

Without a financial market, purchasing a house would require a cash purchase.

Explain why secondary markets are so important to businesses that need to raise capital?

Businesses are the principal borrower-spenders in the economy.

The most common reason that corporate firms use the futures and options markets is:

A mutual fund is an example of:

The Financial Manager and the Firm

The Financial System and the Level of Interest Rates

Analyzing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Stock Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics

The Cost of Capital

Working Capital Management

How Firms Raise Capital

Capital Structure Policy

Dividends, Stock Repurchases, and Payout Policy

Business Formation, Growth, and Valuation

Financial Planning and Managing Growth

Options and Corporate Finance

International Financial Management

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