Question 1

A primary market is any financial market in which owners of outstanding securities can resell them to other investors.

Accepted Answer

A) True 
 B)False  False

Question 2

The financial system is nothing more than a collection of financial markets.

Accepted Answer

A) True 
 B)False  False

Question 3

The nominal rate of interest is indirectly related to real rates.

Accepted Answer

A) True 
 B)False  False

Question 4

Casualty insurance companies sell

Accepted Answer

A)  protection against loss of income in the event of the death of the insured. 
B)  protection against loss of property from fire, theft, accidents, and other predictable causes. 
C)  protection against a loss of pension revenue for retirees. 
D)  all of the above. 
A)  protection against loss of income in the event of the death of the insured. 
B)  protection against loss of property from fire, theft, accidents, and other predictable causes. 
C)  protection against a loss of pension revenue for retirees. 
D)  all of the above.

Question 5

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 6

Secondary financial markets are similar to

Accepted Answer

A)  direct auction markets. 
B)  new-car markets. 
C)  used-car markets. 
D)  all of the above. 
A)  direct auction markets. 
B)  new-car markets. 
C)  used-car markets. 
D)  all of the above.

Question 7

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 8

During an economic expansion, we would expect

Accepted Answer

A)  interest rates to increase. 
B)  interest rates to decrease. 
C)  interest rates to remain the same. 
D)  the price of money to decrease. 
A)  interest rates to increase. 
B)  interest rates to decrease. 
C)  interest rates to remain the same. 
D)  the price of money to decrease.

Question 9

If you just purchased a share of IBM through a New York Stock Exchange-based transaction, you participated in

Accepted Answer

A)  a primary market transaction. 
B)  a secondary market transaction. 
C)  a futures market transaction. 
D)  none of the above. 
A)  a primary market transaction. 
B)  a secondary market transaction. 
C)  a futures market transaction. 
D)  none of the above.

Question 10

Which of the following grants the owner the right to purchase an asset at a prespecified price for a prespecified period of time?

Accepted Answer

A)  a call option 
B)  a put option 
C)  a futures contract 
D)  all of the above 
A)  a call option 
B)  a put option 
C)  a futures contract 
D)  all of the above

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is the process by which investment bankers purchase new securities directly from the issuing company and resell them to the public?

Accepted Answer

A)  Agency marketing 
B)  Underwriting 
C)  Distribution 
D)  Private placement 
A)  Agency marketing 
B)  Underwriting 
C)  Distribution 
D)  Private placement

Question 13

Direct financing occurs when

Accepted Answer

A)  an lender-savers borrows directly from a borrower-spenders. 
B)  a borrower-spenders borrows directly from a lender-savers. 
C)  an lender-savers borrows from the federal government. 
D)  a borrower-spenders borrows from the federal government. 
A)  an lender-savers borrows directly from a borrower-spenders. 
B)  a borrower-spenders borrows directly from a lender-savers. 
C)  an lender-savers borrows from the federal government. 
D)  a borrower-spenders borrows from the federal government.

Question 14

The existence of an active secondary market for a security will help enhance the price for a security in the primary market.

Accepted Answer

A) True 
 B)False

Question 15

LIBOR refers to the rate that U.S. banks quote to each other for overnight borrowing.

Accepted Answer

A) True 
 B)False

Question 16

The price of borrowing money is called

Accepted Answer

A)  inflation. 
B)  return. 
C)  interest. 
D)  all of the above. 
A)  inflation. 
B)  return. 
C)  interest. 
D)  all of the above.

Question 17

________ are the principal lender-savers in the economy.

Accepted Answer

A)  Households 
B)  The federal government 
C)  State governments 
D)  Businesses 
A)  Households 
B)  The federal government 
C)  State governments 
D)  Businesses

Question 18

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)  all of the above. 
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)  all of the above.

Question 19

It is impossible for the nominal rate of interest to be below the real rate of interest.

Accepted Answer

A) True 
 B)False

Question 20

What is the theory that security prices reflect all information, whether public or private?

Accepted Answer

A)  Weak-form efficiency 
B)  Semi-strong-form efficiency 
C)  Strong-form efficiency 
D)  Nominal-form efficiency 
A)  Weak-form efficiency 
B)  Semi-strong-form efficiency 
C)  Strong-form efficiency 
D)  Nominal-form efficiency

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

A primary market is any financial market in which owners of outstanding securities can resell them to other investors.

The financial system is nothing more than a collection of financial markets.

The nominal rate of interest is indirectly related to real rates.

Casualty insurance companies sell

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

Secondary financial markets are similar to

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

During an economic expansion, we would expect

If you just purchased a share of IBM through a New York Stock Exchange-based transaction, you participated in

Which of the following grants the owner the right to purchase an asset at a prespecified price for a prespecified period of time?

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

Which of the following is the process by which investment bankers purchase new securities directly from the issuing company and resell them to the public?

Direct financing occurs when

The existence of an active secondary market for a security will help enhance the price for a security in the primary market.

LIBOR refers to the rate that U.S. banks quote to each other for overnight borrowing.

The price of borrowing money is called

________ are the principal lender-savers in the economy.

An important function of the financial system is

It is impossible for the nominal rate of interest to be below the real rate of interest.

What is the theory that security prices reflect all information, whether public or private?

The Financial Manager and the Company

Financial Statements, Cash Flows and Tax

Analysing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Bond Valuation and the Structure of Interest Rates

Share Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics and Capital Rationing

The Cost of Capital

Working Capital Management

How Companies Raise Capital

Capital Structure Policy

Dividends and Dividend Policy

Business Formation, Growth and Valuation

Strategic Financial Planning and Forecasting

Options and Corporate Finance

International Financial Management

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