Question 1

You recently sold 100 shares of Microsoft stock to your brother at a family reunion.At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates.Which of the following best describes this transaction?

Accepted Answer

A)   This is an example of a direct transfer of capital.
B)   This is an example of a primary market transaction.
C)   This is an example of an exchange of physical assets.
D)   This is an example of a money market transaction.
E)   This is an example of a derivative market transaction.

Question 2

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."

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   The NYSE does not exist as a physical location.Rather it represents a loose collection of dealers who trade stock electronically.
B)   An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift.
C)   Capital market instruments include both long-term debt and common stocks.
D)   If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles,this would be a primary market transaction.
E)   While the two frequently perform similar functions,investment banks generally specialize in lending money,whereas commercial banks generally help companies raise large blocks of capital from investors.

Question 4

Which of the following statements is CORRECT?

Accepted Answer

A)   Hedge funds are legal in Europe and Asia,but they are not permitted to operate in the United States.
B)   Hedge funds are legal in the United States,but they are not permitted to operate in Europe or Asia.
C)   Hedge funds have more in common with investment banks than with any other type of financial institution.
D)   Hedge funds have more in common with commercial banks than with any other type of financial institution.
E)   Hedge funds are not as highly regulated as most other types of financial institutions.The justification for this light regulation is that only "sophisticated" investors (i.e. ,those with high net worths and high incomes) are permitted to invest in these funds,and these investors supposedly can do any necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.

Question 5

In a "Dutch auction" for new stock,individual investors place bids for shares directly.Each potential bidder indicates the price he or she is willing to pay and how many shares he or she will purchase at that price.The highest price that permits the company to sell all the shares it wants to sell is determined,and this is the "market clearing price." All bidders who specified this price or higher are allowed to purchase their shares at the market clearing price.

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

​Which of the following is a primary market transaction?

Accepted Answer

A)   ​You sell 200 shares of IBM stock on the NYSE through your broker.
B)   ​You buy 200 shares of IBM stock from your brother.The trade is not made through a broker;you just give him cash and he gives you the stock.
C)   ​IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
D)   ​One financial institution buys 200,000 shares of IBM stock from another institution.An investment banker arranges the transaction.
E)   ​IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

Question 8

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution)places an order to buy a stock.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   When a corporation's shares are owned by a few individuals,we say that the firm is "closely,or privately,held."
B)   "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.
C)   The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC.
D)   When stock in a closely held corporation is offered to the public for the first time,the transaction is called "going public,or an IPO," and the market for such stock is called the new issue or IPO market.
E)   It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A)   The New York Stock Exchange is an auction market,and it has a physical location.
B)   Home mortgage loans are traded in the money market.
C)   If an investor sells shares of stock through a broker,then it would be a primary market transaction.
D)   Capital markets deal only with common stocks and other equity securities.
E)   While the distinctions are blurring,investment banks generally specialize in lending money,whereas commercial banks generally help companies raise capital from other parties.

Exam 2: Financial Markets and Institutions

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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You recently sold 100 shares of Microsoft stock to your brother at a family reunion.At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates.Which of the following best describes this transaction?

Correct Answer
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Which of the following is a primary market transaction?

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
verified

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.

Correct Answer
verified

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution)places an order to buy a stock.

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified

Exam 2: Financial Markets and Institutions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

You recently sold 100 shares of Microsoft stock to your brother at a family reunion.At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates.Which of the following best describes this transaction?

Correct AnswerverifiedShow Answer

​Which of the following is a primary market transaction?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution)places an order to buy a stock.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Which of the following is a primary market transaction?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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