Exam 2: Financial Markets and Institutions

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

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.

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

Hedge funds are somewhat similar to mutual funds.The primary differences are that hedge funds are less highly regulated,have more flexibility regarding what they can buy,and restrict their investors to wealthy,sophisticated individuals and institutions.

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.

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.

​Which of the following statements is CORRECT?

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."

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

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

​Which of the following is a primary market transaction?

Which of the following statements is CORRECT?

Financial institutions are more diversified today than they were in the past,when federal laws kept investment banks,commercial banks,insurance companies,and similar organizations quite separate.Today the larger financial services corporations offer a variety of services,ranging from checking accounts,to insurance,to underwriting securities,to stock brokerage.