Question 1

Behavioral finance

Accepted Answer

A) applies concepts from sociology and anthropology to the behavior of market participants. 
B) studies the behavior of financial markets in response to changes in Federal Reserve policy. 
C) applies psychology to financial decision making. 
D) explains why markets are efficient. 
A) applies concepts from sociology and anthropology to the behavior of market participants. 
B) studies the behavior of financial markets in response to changes in Federal Reserve policy. 
C) applies psychology to financial decision making. 
D) explains why markets are efficient.

Question 2

If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

Accepted Answer

A) lower; lower 
B) lower; higher 
C) higher; lower 
D) higher; higher 
A) lower; lower 
B) lower; higher 
C) higher; lower 
D) higher; higher

Question 3

When a depository institution offers a loan, it is acting as a creditor.

Accepted Answer

A) True 
 B)False

Question 4

The adoption of the euro by 19 European countries has increased business between those countries and created a more competitive environment in Europe.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is NOT a reason why depository financial institutions are popular?

Accepted Answer

A) They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units. 
B) They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units. 
C) They accept the risk on loans that they provide. 
D) They use their information resources to act as brokers , executing securities transactions between two parties. 
E) They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units. 
A) They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units. 
B) They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units. 
C) They accept the risk on loans that they provide. 
D) They use their information resources to act as brokers , executing securities transactions between two parties. 
E) They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units.

Question 6

When security prices fully reflect all available information, the markets for these securities are said to be perfect.

Accepted Answer

A) True 
 B)False

Question 7

Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific payments at regular intervals.

Accepted Answer

A) True 
 B)False

Question 8

Securities that are not as safe and liquid as other securities are never considered for investment by anyone.

Accepted Answer

A) True 
 B)False

Question 9

____________ applies psychology to financial decisions and offers an explanation for why markets are not always efficient.

Accepted Answer

A) Psychological marketing 
B) Behavioral finance 
C) Inefficient markets theory 
D) Financial psychology 
A) Psychological marketing 
B) Behavioral finance 
C) Inefficient markets theory 
D) Financial psychology

Question 10

Which of the following transactions would NOT be considered a secondary market transaction?

Accepted Answer

A) An individual investor purchases some existing shares of stock in Apple through her broker. 
B) An institutional investor sells some Disney stock through its broker. 
C) A firm that was privately held engages in an offering of stock to the public. 
D) All of these are correct. 
A) An individual investor purchases some existing shares of stock in Apple through her broker. 
B) An institutional investor sells some Disney stock through its broker. 
C) A firm that was privately held engages in an offering of stock to the public. 
D) All of these are correct.

Question 11

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

Accepted Answer

A) perfect 
B) active 
C) inefficient 
D) in equilibrium 
A) perfect 
B) active 
C) inefficient 
D) in equilibrium

Question 12

If security prices fully reflect all available information, the markets for these securities are

Accepted Answer

A) efficient. 
B) primary. 
C) overvalued. 
D) undervalued. 
A) efficient. 
B) primary. 
C) overvalued. 
D) undervalued.

Question 13

____ are long-term debt obligations issued by corporations and government agencies to support their operations.

Accepted Answer

A) Common stock 
B) Derivative securities 
C) Bonds 
D) None of these are correct. 
A) Common stock 
B) Derivative securities 
C) Bonds 
D) None of these are correct.

Question 14

____ concentrate on mortgage loans.

Accepted Answer

A) Finance companies 
B) Commercial banks 
C) Savings institutions 
D) Credit unions 
A) Finance companies 
B) Commercial banks 
C) Savings institutions 
D) Credit unions

Question 15

____ securities have a maturity of one year or less; ____ securities generally have relatively high liquidity.

Accepted Answer

A) Money market; capital market 
B) Money market; money market 
C) Capital market; money market 
D) Capital market; capital market 
A) Money market; capital market 
B) Money market; money market 
C) Capital market; money market 
D) Capital market; capital market

Question 16

Which of the following is NOT an issuer of bonds?

Accepted Answer

A) households 
B) corporations 
C) the U.S. Treasury 
D) government agencies 
A) households 
B) corporations 
C) the U.S. Treasury 
D) government agencies

Question 17

A broker executes securities transactions between two parties and charges a commission for the transaction.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following are NOT major investors in stocks?

Accepted Answer

A) commercial banks 
B) insurance companies 
C) mutual funds 
D) pension funds 
A) commercial banks 
B) insurance companies 
C) mutual funds 
D) pension funds

Question 19

The foreign exchange market facilitates the exchange of

Accepted Answer

A) information between investors in different countries. 
B) debt securities. 
C) equity securities. 
D) currencies. 
A) information between investors in different countries. 
B) debt securities. 
C) equity securities. 
D) currencies.

Question 20

If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

Accepted Answer

A) lower; lower 
B) lower; higher 
C) higher; lower 
D) higher; higher 
A) lower; lower 
B) lower; higher 
C) higher; lower 
D) higher; higher

Exam 1: Role of Financial Markets and Institutions

Behavioral finance

If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

When a depository institution offers a loan, it is acting as a creditor.

The adoption of the euro by 19 European countries has increased business between those countries and created a more competitive environment in Europe.

Which of the following is NOT a reason why depository financial institutions are popular?

When security prices fully reflect all available information, the markets for these securities are said to be perfect.

Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific payments at regular intervals.

Securities that are not as safe and liquid as other securities are never considered for investment by anyone.

____________ applies psychology to financial decisions and offers an explanation for why markets are not always efficient.

Which of the following transactions would NOT be considered a secondary market transaction?

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

If security prices fully reflect all available information, the markets for these securities are

____ are long-term debt obligations issued by corporations and government agencies to support their operations.

____ concentrate on mortgage loans.

____ securities have a maturity of one year or less; ____ securities generally have relatively high liquidity.

Which of the following is NOT an issuer of bonds?

A broker executes securities transactions between two parties and charges a commission for the transaction.

Which of the following are NOT major investors in stocks?

The foreign exchange market facilitates the exchange of

If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will probably achieve returns, and they are exposed to relatively risk.

securities have a maturity of one year or less; securities generally have relatively high liquidity.

If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve returns, and they are exposed to relatively risk.