Question 1

Whether a fund is organized as a closed- or an open-end fund, is will have the same basic organizational structure.

Accepted Answer

A) True 
 B)False

Question 2

Government bonds are essentially default risk-free, ________ returns.

Accepted Answer

A) and will yield high 
B) and will yield the highest 
C) but will have relatively low 
D) none of the above 
A) and will yield high 
B) and will yield the highest 
C) but will have relatively low 
D) none of the above

Question 3

How did money market mutual funds originate and why did they become especially popular in the late 1970s and early 1980s?

Accepted Answer

Money market mutual funds originated in

Question 4

Mutual fund companies frequently offer a number of separate mutual funds called ________.

Accepted Answer

A) indexes 
B) complexes 
C) components 
D) actuaries 
A) indexes 
B) complexes 
C) components 
D) actuaries

Question 5

A deferred load is a fee charged when shares in a mutual fund are redeemed.

Accepted Answer

A) True 
 B)False

Question 6

________ means the investors can convert their investment into cash quickly at a low cost.

Accepted Answer

A) Liquidity intermediation 
B) Denomination intermediation 
C) Diversification 
D) Managerial expertise 
A) Liquidity intermediation 
B) Denomination intermediation 
C) Diversification 
D) Managerial expertise

Question 7

All ________ are open-end investment funds that invest only in money market securities.

Accepted Answer

A) Stock funds 
B) Bond funds 
C) Money market mutual funds 
D) all of the above 
A) Stock funds 
B) Bond funds 
C) Money market mutual funds 
D) all of the above

Question 8

Which of the following is a feature of index funds?

Accepted Answer

A) They have lower fees. 
B) They select and hold stocks to match the performance of a stock index. 
C) They do not require managers to select stocks and decide when to buy and sell. 
D) All of the above. 
A) They have lower fees. 
B) They select and hold stocks to match the performance of a stock index. 
C) They do not require managers to select stocks and decide when to buy and sell. 
D) All of the above.

Question 9

Most mutual funds are structured in two ways. The most common structure is a(n)________ fund, from which shares can be redeemed at any time at a price that is tied to the asset value of the fund. A(n)________ fund has a fixed number of nonredeemable shares that are traded in the over-the-counter market.

Accepted Answer

A) closed-end; open-end 
B) open-end; closed-end 
C) no-load; closed-end 
D) no-load; load 
E) load; no-load 
A) closed-end; open-end 
B) open-end; closed-end 
C) no-load; closed-end 
D) no-load; load 
E) load; no-load

Question 10

When investors switch between funds within the same fund family, mutual funds may charge

Accepted Answer

A) a contingent deferred sales charge. 
B) a redemption fee. 
C) an exchange fee. 
D) 12b-1 fees. 
E) an account maintenance fee. 
A) a contingent deferred sales charge. 
B) a redemption fee. 
C) an exchange fee. 
D) 12b-1 fees. 
E) an account maintenance fee.

Question 11

Discuss the four primary classes of mutual funds available to investors.

Accepted Answer

The four primary classes of mutual funds

Question 12

Mutual funds

Accepted Answer

A) pool the resources of many small investors by selling these investors shares and using the proceeds to buy securities. 
B) allow small investors to obtain the benefits of lower transaction costs in purchasing securities. 
C) provide small investors a diversified portfolio that reduces risk. 
D) do all of the above. 
E) do only A and B of the above. 
A) pool the resources of many small investors by selling these investors shares and using the proceeds to buy securities. 
B) allow small investors to obtain the benefits of lower transaction costs in purchasing securities. 
C) provide small investors a diversified portfolio that reduces risk. 
D) do all of the above. 
E) do only A and B of the above.

Question 13

One factor explaining the rapid growth in mutual funds is that they are financial intermediaries that are not regulated by the federal government.

Accepted Answer

A) True 
 B)False

Question 14

The largest share of total investment in mutual funds is in

Accepted Answer

A) stock funds. 
B) hybrid funds 
C) bond funds. 
D) money market funds. 
A) stock funds. 
B) hybrid funds 
C) bond funds. 
D) money market funds.

Question 15

Open-end mutual funds are more common than closed-end funds.

Accepted Answer

A) True 
 B)False

Question 16

The Securities Acts of 1933 and 1934 did not

Accepted Answer

A) regulate the activities of investment funds. 
B) require funds to register with the SEC. 
C) include antifraud rules covering the purchase and sale of fund shares. 
D) apply to investment funds. 
A) regulate the activities of investment funds. 
B) require funds to register with the SEC. 
C) include antifraud rules covering the purchase and sale of fund shares. 
D) apply to investment funds.

Question 17

Describe the practices of late trading and market timing and explain how these practices harm a mutual fund's shareholders.

Accepted Answer

Late trading and market timing are both

Question 18

SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.

Accepted Answer

A) True 
 B)False

Question 19

Mutual funds are regulated under four federal laws designed to protect investors.

Accepted Answer

A) True 
 B)False

Question 20

The majority of mutual fund assets are now owned by

Accepted Answer

A) individual investors. 
B) institutional investors. 
C) fiduciaries. 
D) business organizations. 
E) retirees. 
A) individual investors. 
B) institutional investors. 
C) fiduciaries. 
D) business organizations. 
E) retirees.

Exam 20: The Mutual Fund Industry

Whether a fund is organized as a closed- or an open-end fund, is will have the same basic organizational structure.

Government bonds are essentially default risk-free, ________ returns.

How did money market mutual funds originate and why did they become especially popular in the late 1970s and early 1980s?

Mutual fund companies frequently offer a number of separate mutual funds called ________.

A deferred load is a fee charged when shares in a mutual fund are redeemed.

________ means the investors can convert their investment into cash quickly at a low cost.

All ________ are open-end investment funds that invest only in money market securities.

Which of the following is a feature of index funds?

When investors switch between funds within the same fund family, mutual funds may charge

Discuss the four primary classes of mutual funds available to investors.

Mutual funds

One factor explaining the rapid growth in mutual funds is that they are financial intermediaries that are not regulated by the federal government.

The largest share of total investment in mutual funds is in

Open-end mutual funds are more common than closed-end funds.

The Securities Acts of 1933 and 1934 did not

Describe the practices of late trading and market timing and explain how these practices harm a mutual fund's shareholders.

SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.

Mutual funds are regulated under four federal laws designed to protect investors.

The majority of mutual fund assets are now owned by

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

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