Question 1

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 2

Electronic communications networks (ECNs) provide an alternative trading medium, which has increased competition among the stock exchanges.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following agreements is included in the Basel III Accord (2010) ?

Accepted Answer

A)  Agreement to increase banks' capital (owners' equity)  requirements in an effort to reduce the risk that mega bank failures will cause future financial crises
B)  Agreement to put restrictions on the ability of the U.S. government to use taxpayers' funds to bail out large financial institutions
C)  Agreement to create new organizations to help provide consumers clear and accurate information related to credit so that better-informed decisions can be made
D)  Agreement to permit the U.S. government to purchase up to $700 billion in troubled mortgages in an attempt to improve liquidity in the financial markets
E)  Agreement to limit the salaries of executives whose companies received Troubled Asset Relief Program (TARP)  funds.

Question 7

When issuing new securities, which of the following decisions is made jointly by a corporation and its investment banker?

Accepted Answer

A)  Deciding whether to go for a competitive bid or a negotiated deal with the investment banker
B)  Deciding which investment banker to use
C)  Deciding whether to go for a best-efforts or underwritten issue
D)  Deciding on the investment project for which to raise additional capital
E)  Deciding which member of the senior management team deals with the investment banker

Question 8

During the past decade, the areas of greatest worldwide growth in the financial markets have occurred in _____.

Accepted Answer

A)  China, India, and Brazil
B)  China, India, and Argentina
C)  India, Brazil, and South Africa
D)  China, Brazil, and Argentina
E)  China, South Africa, and Argentina

Question 9

The expenditure incurred by a company in connection with its initial public offer is called the _____.

Accepted Answer

A)  shelf registration cost
B)  competitive spread
C)  initiation cost
D)  flotation cost
E)  bid spread D

Question 10

Which of the following statements is true of a term life insurance?

Accepted Answer

A)  A term life insurance policy is administered primarily by the trust departments of commercial banks.
B)  The premiums associated with a term insurance policy are fixed payments computed as an average of the premiums required over the expected life of the insured person.
C)  A term life insurance offers both insurance coverage and a savings feature.
D)  A term life insurance is a relatively short-term contract that provides financial protection for a temporary period.
E)  The cost of a term life insurance generally decreases with each renewal as the risk of premature death increases as the insured ages.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following acts limits the salaries of executives whose companies received Troubled Asset Relief Program (TARP)  funds?

Accepted Answer

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

Question 13

The New York Stock Exchange (NYSE) is an example of an over-the-counter exchange.

Accepted Answer

A) True 
 B)False

Question 14

As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals.

Accepted Answer

A) True 
 B)False

Question 15

The mandatory trade-through rule followed for trading in securities does not work to the benefit of shareholders.

Accepted Answer

A) True 
 B)False  False

Question 16

Which of the following financial intermediaries operates as a not-for-profit organization?

Accepted Answer

A)  Commercial bank
B)  Credit union
C)  Thrift institution
D)  Mutual fund
E)  Whole-life insurance company

Question 17

When issuing new securities, which of the following decisions does the firm make by itself?

Accepted Answer

A)  Deciding whether to go for a competitive bid or a negotiated deal with an investment banker
B)  Deciding whether to go for a best-efforts or an underwritten issue
C)  Determining the flotation costs
D)  Deciding the offering price
E)  Reevaluating the decisions about the size of the issue and the type of securities to be issued A

Question 18

An agreement for the sale of securities in which the investment bank handling the transaction gives no assurance that the entire issue will be sold is called a(n)  _____.

Accepted Answer

A)  private placement
B)  guaranteed issue arrangement
C)  underwritten arrangement
D)  best-efforts arrangement
E)  shelf registration

Question 19

Organizations that create various loans and investments from funds provided by depositors are known as _____.

Accepted Answer

A)  investment banks
B)  financial intermediaries
C)  derivatives markets
D)  over-the-counter markets
E)  designated market makers

Question 20

Which of the following is true about the process of setting the offering price of a security issue?

Accepted Answer

A)  The offering price of an initial public offering (IPO)  of the stock of a privately held company is determined by a financial intermediary.
B)  An investment banker has an easier job of selling the issue if it carries a relatively high price.
C)  An investment bank finds it easier to set the offering price of an initial public offering as compared to that of a seasoned offering.
D)  An investment bank finds it easier to set the offering price of a seasoned offering of a private company than a seasoned offering of a public company.
E)  If the company is already publicly owned, the offering price will be based on the existing market price of the stock or the yield on the firm's existing bonds.

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

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.

Correct AnswerverifiedShow Answer

Electronic communications networks (ECNs) provide an alternative trading medium, which has increased competition among the stock exchanges.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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 _____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following agreements is included in the Basel III Accord (2010) ?

Correct AnswerverifiedShow Answer

When issuing new securities, which of the following decisions is made jointly by a corporation and its investment banker?

Correct AnswerverifiedShow Answer

During the past decade, the areas of greatest worldwide growth in the financial markets have occurred in _____.

Correct AnswerverifiedShow Answer

The expenditure incurred by a company in connection with its initial public offer is called the _____.

Correct AnswerverifiedD

Which of the following statements is true of a term life insurance?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following acts limits the salaries of executives whose companies received Troubled Asset Relief Program (TARP) funds?

Correct AnswerverifiedShow Answer

The New York Stock Exchange (NYSE) is an example of an over-the-counter exchange.

Correct AnswerverifiedShow Answer

As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals.

Correct AnswerverifiedShow Answer

The mandatory trade-through rule followed for trading in securities does not work to the benefit of shareholders.

Correct AnswerverifiedFalse

Which of the following financial intermediaries operates as a not-for-profit organization?

Correct AnswerverifiedShow Answer

When issuing new securities, which of the following decisions does the firm make by itself?

Correct AnswerverifiedA

An agreement for the sale of securities in which the investment bank handling the transaction gives no assurance that the entire issue will be sold is called a(n) _____.

Correct AnswerverifiedShow Answer

Organizations that create various loans and investments from funds provided by depositors are known as _____.

Correct AnswerverifiedShow Answer

Which of the following is true about the process of setting the offering price of a security issue?

Correct AnswerverifiedShow Answer

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D

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False

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A

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