Exam 1: The Investment Environment

Which of the following is true about mortgage-backed securities I. They aggregate individual home mortgages into homogeneous pools. II. The purchaser receives monthly interest and principal payments received from payments made on the pool. III. The banks that originated the mortgages maintain ownership of them. IV. The banks that originated the mortgages continue to service them.

The ____________ refers to the potential conflict between management and shareholders.

An example of a derivative security is

During the period between 2000 and 2002, a large number of scandals were uncovered.Most of these scandals were related to I) manipulation of financial data to misrepresent the actual condition of the firm. II) misleading and overly optimistic research reports produced by analysts. III) allocating IPOs to executives as a quid pro quo for personal favors. IV) greenmail.

In 2012, ____________ was(were) the least significant liability(ies) of U.S.nonfinancial businesses in terms of total value.

_______ are real assets.

The means by which individuals hold their claims on real assets in a well-developed economy are

In 2012, ____________ was the most significant asset of U.S.households in terms of total value.

Financial intermediaries exist because small investors cannot efficiently

In 2012, ____________ was the least significant financial asset of U.S.households in terms of total value.

The Sarbanes-Oxley Act

Money market securities

The material wealth of a society is a function of

Discuss the agency problem in detail.

Although derivatives can be used as speculative instruments, businesses most often use them to

Asset allocation refers to

Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities.

Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.

The largest component of domestic net worth in 2012 was

Which of the following financial assets made up the greatest proportion of the financial assets held by U.S.households