Exam 2: Financial Markets and Institutions

The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year,divided by its beginning-of-year price.

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 statements is NOT CORRECT?

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.

A share of common stock is not a derivative,but an option to buy the stock is a derivative because the value of the option is derived from the value of the stock.

The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer.

Trades on the NYSE are generally completed by having a brokerage firm acting as a "dealer" buy securities and adding them to its inventory or selling from its inventory.The NASDAQ,on the other hand,operates as an auction market,where buyers offer to buy,and sellers to sell,and the price is negotiated on the floor of the exchange.

Which of the following statements is CORRECT?

The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the world.

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."

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

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 simple average of those returns (which gives equal weight to each company in the S&P 500)is then calculated.That average is called "the return on the S&P Index," and it is often used as an indicator of the "return on the market."

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.

When a corporation's shares are owned by a few individuals who are associated with the firm's management,we say that the stock is closely held.

The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year,divided by its beginning-of-year price.If you obtain such data on a large portfolio of stocks,like those in the S&P 500,find the rate of return on each stock,and then average those returns,this would give you an idea of stock market returns for the year in question.

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.

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.

The NYSE is defined as a "spot" market purely and simply because it has a physical location.The NASDAQ,on the other hand,is not a spot market because it has no one central location.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?