Question 1

Whole-life polices offer both insurance coverage and a savings feature, whereas term life policies do not.

Accepted Answer

A) True 
 B)False

Question 2

In the United States, sales of new stocks and bonds are regulated by the Securities and Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

Question 3

Identify the form of market efficiency where the information about past trends in investment prices is of no use in selecting winning investments, but the investors can still make use of privately held information to earn abnormal return.

Accepted Answer

A)  economic efficiency 
B)  strong-form efficiency 
C)  semistrong-form efficiency 
D)  weak-form efficiency 
E)  real-time efficiency

Question 4

Credit unions, mutual funds, and thrift institutions are all examples of _____.

Accepted Answer

A)  financial intermediaries 
B)  investment banks 
C)  regulatory bodies 
D)  underwriters 
E)  over-the-counter markets

Question 5

Primary markets are markets _____.

Accepted Answer

A)  where the instruments traded have original maturities equal to one year or less 
B)  where loans are traded 
C)  where options and futures are issued by corporations 
D)  where financial assets that have previously been issued by various organizations are traded among investors 
E)  in which various organizations raise funds by issuing new securities

Question 6

Dual listing of a stock leads to a decrease in the liquidity of the stock.

Accepted Answer

A) True 
 B)False

Question 7

The provision of dual listing of stocks has defeated the efforts made to increase competition in the stock markets.

Accepted Answer

A) True 
 B)False

Question 8

The existence of financial intermediaries greatly increases the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a costlier process.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true about financial institutions in the United States and those in other countries?

Accepted Answer

A)  U.S. financial institutions have been much more heavily regulated as compared to their foreign counterparts with regard to expansion (branching) and the services that could be offered. 
B)  U.S. financial institutions have been much more leniently regulated as compared to their foreign counterparts with regard to expansion (branching) and the services that could be offered. 
C)  U.S. financial institutions and their foreign counterparts have similar regulations with regard to expansion (branching) and the services that could be offered. 
D)  Most U.S. intermediaries are allowed to engage in nonbanking (nonfinancial) business activities, whereas the nonbanking activities of foreign financial institutions have been severely restricted until recently. 
E)  U.S. financial institutions and their foreign counterparts have similar regulations with regard to engaging in nonbanking activities.

Question 10

Investment companies that use the money provided by savers to buy various types of financial assets, including stocks and bonds are called _____.

Accepted Answer

A)  commercial banks 
B)  investment banks 
C)  credit unions 
D)  mutual funds 
E)  thrift institutions

Question 11

Treasury bills are issued by the U.S. government. In which type of financial market do outstanding, or already issued treasury bills trade?

Accepted Answer

A)  Capital market 
B)  Primary market 
C)  Stock market 
D)  Money market 
E)  Derivatives market

Question 12

An individual investor is using the services of a broker to buy and sell stocks currently being traded in the stock market. This transaction is referred to as a primary market transaction.

Accepted Answer

A) True 
 B)False

Question 13

An over-the-counter market is a network of brokers and dealers, connected electronically by telephones and computers that provides for trading in securities not listed on the physical stock exchanges.

Accepted Answer

A) True 
 B)False

Question 14

Under a best efforts arrangement, the investment bank purchases all of the shares from the issuing firm and then resells the shares to the public. Under this arrangement, the investment banks assume significant risk.

Accepted Answer

A) True 
 B)False

Question 15

Zync Corporation offers a block of its securities for sale to the investment banker that submits the highest price of all interested investment bankers. This procedure is known as a _____.

Accepted Answer

A)  financial intermediation 
B)  negotiated deal 
C)  competitive bid 
D)  shelf registration 
E)  dual listing

Question 16

Creation of new organizations to monitor rules associated with the capital, liquidity, and risk of institutions to help prevent future failures of mega financial organizations was proposed in which of the following acts?

Accepted Answer

A)  Securities and Exchange Commission Act 
B)  Wall Street Transparency and Accountability Act 
C)  Emergency Economic Stabilization Act of 2008 
D)  Basel III Accord (2010) 
E)  Dodd-Frank Wall Street Reform and Consumer Protection Act

Question 17

The process by which commercial banks transform funds provided by savers into funds used by borrowers is called _____.

Accepted Answer

A)  investment banking 
B)  shelf registration 
C)  diversification 
D)  underwriting 
E)  financial intermediation

Question 18

The Securities and Exchange Commission (SEC) cannot exercise control over stock trades by corporate insiders.

Accepted Answer

A) True 
 B)False

Question 19

An over-the-counter (OTC) market is a physical exchange, much like the New York Stock Exchange, where securities dealers provide trading in unlisted securities.

Accepted Answer

A) True 
 B)False

Question 20

Zync Corporation decides that instead of simply offering a block of its debt securities for sale to the investment banker that submits the highest price, it should come up with a plan with a single investment banker. The procedure that the company has decided to follow is known as a _____.

Accepted Answer

A)  best-efforts arrangement 
B)  competitive bid 
C)  negotiated deal 
D)  trade-through arrangement 
E)  financial intermediation

Exam 3: The Financial Environment: Markets, Institutions, and Investment Banking

Whole-life polices offer both insurance coverage and a savings feature, whereas term life policies do not.

In the United States, sales of new stocks and bonds are regulated by the Securities and Exchange Commission (SEC).

Identify the form of market efficiency where the information about past trends in investment prices is of no use in selecting winning investments, but the investors can still make use of privately held information to earn abnormal return.

Credit unions, mutual funds, and thrift institutions are all examples of _____.

Primary markets are markets _____.

Dual listing of a stock leads to a decrease in the liquidity of the stock.

The provision of dual listing of stocks has defeated the efforts made to increase competition in the stock markets.

The existence of financial intermediaries greatly increases the efficiency of financial markets because, without them, savers would have to provide funds directly to borrowers, which would be a costlier process.

Which of the following is true about financial institutions in the United States and those in other countries?

Investment companies that use the money provided by savers to buy various types of financial assets, including stocks and bonds are called _____.

Treasury bills are issued by the U.S. government. In which type of financial market do outstanding, or already issued treasury bills trade?

An individual investor is using the services of a broker to buy and sell stocks currently being traded in the stock market. This transaction is referred to as a primary market transaction.

An over-the-counter market is a network of brokers and dealers, connected electronically by telephones and computers that provides for trading in securities not listed on the physical stock exchanges.

Under a best efforts arrangement, the investment bank purchases all of the shares from the issuing firm and then resells the shares to the public. Under this arrangement, the investment banks assume significant risk.

Zync Corporation offers a block of its securities for sale to the investment banker that submits the highest price of all interested investment bankers. This procedure is known as a _____.

Creation of new organizations to monitor rules associated with the capital, liquidity, and risk of institutions to help prevent future failures of mega financial organizations was proposed in which of the following acts?

The process by which commercial banks transform funds provided by savers into funds used by borrowers is called _____.

The Securities and Exchange Commission (SEC) cannot exercise control over stock trades by corporate insiders.

An over-the-counter (OTC) market is a physical exchange, much like the New York Stock Exchange, where securities dealers provide trading in unlisted securities.

Zync Corporation decides that instead of simply offering a block of its debt securities for sale to the investment banker that submits the highest price, it should come up with a plan with a single investment banker. The procedure that the company has decided to follow is known as a _____.