Exam 3: Financial Indices, Market Information, and Economic Data

Of the $14.4 trillion US gross domestic product in 2008, the federal, state and local governments used approximately $2.9 trillion.

The weak form of the efficient markets hypothesis (EMH) argues that the price history and the past volume of trading of an asset can be used by an investor to generate persistent excess returns.

Trading based on informational asymmetries is always illegal.

Both bonds and notes pay fixed rates of return to the investor.

According to the Flow of Funds Accounts, the annual volume of debt instruments in U.S. financial markets is normally less than the annual volume of new stock issues (including both preferred and common equity shares).

Important sources of detailed information on general economic and financial conditions are contained in all but one of the following sources. Which source listed below does not contain such information?

Insider trading, by definition, applies only to employees working inside a firm.

When a note or bond is selling at a premium over its par value and carries various possible maturity dates, the yield on the note or bond is generally figured to the nearest maturity date.

Moral hazard is a problem that can arise between management (agents) and stockholders (principals) because:

In 19X1 the household sector purchased $50 billion in U.S. Government securities and sold $30 billion worth of U.S. Government securities; the accounting system of the Flow of Funds Accounts would show that the household sector's holdings of the U.S. Government securities had changed by $80 billion.

A comprehensive US stock-index would be

The S&P 400 Index consists of midsize companies.

Wal-Mart, McDonald's, bowling, Citigroup and Exxon Mobil are all part of the Dow Jones transportation Index.

According to your text, the sources of information relied upon by financial decision-makers may be divided into five broad groups. Four of these five information groups are (1) bond prices and yields; (2) stock prices and dividend yields; (3) financial condition of security issuers; and (4) general economic and financial conditions. The fifth source-of-information group not listed above is:

According to the Flow of Funds Accounts, the most important asset held by households is corporate equity.

Balance sheets must always "balance" for a given sector of the economy; however, sources-and-uses-of-funds statements do not necessarily balance except at the level of the whole economy.

Construct a sources and uses of fund statement for the commercial banking sector for the year immediately concluded. Note that the increase in liabilities was the unknown quantity to be solved from the information provided.

Notes, by convention, carry shorter maturities than bonds.

Bid prices on notes and bonds normally are higher than asked prices.

A sources-and-uses-of-funds statement in the Flow of Funds Accounts shows changes in net worth as well as changes in holdings of financial assets and liabilities taken from each sector's balance sheet at the beginning and end of a calendar quarter or year.