Chapter 02 Test Bank - Static
Student: ___________________________________________________________________________
1. Only small companies can go through financial markets to obtain financing.
True False
2. The reinvestment of cash back into the firm's operations is an example of a flow of savings to investment.
True False
3. Smaller businesses are especially dependent upon internally generated funds.
True False
4. An individual can save and invest in a corporation by lending money to it or by purchasing additional shares.
True False
5. Previously issued securities are traded among investors in the secondary markets.
True False
6. Only the IPOs for large corporations are sold in primary markets.
True False
7. Hedge fund managers, unlike mutual fund managers, do not receive fund-performance-related fees.
True False
8. The markets for long-term debt and equity are called capital markets.
True False
9. The stocks of major corporations trade in many markets throughout the world on a continuous or near-continuous
basis.
True False
10. The market for derivatives is also a source of financing for corporations.
True False
11. During the Financial Crisis of 2007-2009, the U.S. government bailed out all firms in danger of failing.
True False
12. In the United States, banks are the most important source of long-term financing for corporations.
True False
13. A financial intermediary invests in financial assets rather than real assets.
True False
14. Households hold directly three quarters of U.S. corporate equities.
True False
15. The key to the banks' ability to make illiquid loans is their ability to pool liquid deposits from thousands of depositors.
True False
16. From June 2001 to June 2006, house prices in the United States rose sharply.
True False
17. For corporate bonds, the higher the credit quality of an issuer, the higher the interest rate.
True False
18. The cost of capital is the interest rate paid on a loan from a bank or some other financial institution.
True False
19. Like public companies, private companies can also use their stock price as a measure of performance.
True False
20. The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on
investments with the same risk as the firm's capital investments.
True False
21. Once Apple Computer had become a public company, it was able to raise financing from venture capital companies
True False
22. Insurance companies provide a mechanism for individuals to pool their risks.
True False
23. Financial markets and intermediaries allow investors and businesses to reduce and reallocate risk.
True False
24. The effects of the financial crisis of 2007-2009 were confined to the U.S. and domestic companies.
True False
25. The cost of capital is the minimum acceptable rate of return for capital investment.
True False
26. One root of the financial crisis of 2007-2009 was the strict money policies promoted by the U.S. Federal Reserve and
other central banks after the technology bubble burst (i.e., money was relatively expensive during this time).
True False
27. The rates of return on investments outside the corporation set the minimum return for investment projects inside the
corporation.
True False
28. Financing for public corporations must flow through financial markets.
True False
29. Financing for private companies must flow through financial intermediaries such as mutual funds.
True False
30. Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London.
True False
31. Corporate financing comes ultimately from:
A. savings by households and foreign
investors.
B. cash generated from the firm's
operations.
C. the financial markets and
intermediaries.
D. the issue of shares in the
firm.
32. A company can pay for its expansion in all the following ways except:
A. by using the earnings generated from its sale of obsolete
equipment.
B. by persuading a director's mother to make a personal loan to the
company.
C. by purchasing bonds in the secondary
market.
D. by plowing back part of its
profits.
33. "Reinvestment" means:
A. new investment in new
operations.
B. additional investment in existing
operations.
C. new investment by new
shareholders.
D. the reinvestment of earnings into new
projects.
34. Financing for public corporations flows through:
A. the financial markets
only.
B. financial intermediaries
only.
C. derivatives
markets.
D. the financial markets, financial intermediaries, or
both.
35. When corporations need to raise funds through stock issues, they rely on the:
A. primary
market.
B. secondary
market.
C. tertiary
market.
D. centralized NASDAQ
exchange.
36. A primary market would be utilized when:
A. investors buy or sell existing
securities.
B. shares of common stock are
exchanged.
C. securities are initially
issued.
D. a commission must be paid on the
transaction.
37. The primary distinction between securities sold in the primary and secondary markets is:
A. the riskiness of the
securities.
B. the price of the
securities.
C. whether the securities are new or already
exist.
D. the profitability of the issuing
corporation.
38. Which of the following are both a financial intermediary and a financial institution?
A. Mutual
funds
B. Pension
funds
C. Insurance
companies
D. Hedge
funds
39. A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125. Who
profits from this sale?
A. IBM
B. The first
investor
C. The second
investor
D. IBM and both
investors
40. Which of the following financial assets is least likely to have an active secondary market?
A. Common stock of a large public
firm
B. Bank loans made to smaller
firms
C. Bonds of a major, multinational
corporation
D. Debt issued by the U.S.
Treasury
41. When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of
GM stock, GM receives:
A. the dollar value of the
transaction.
B. the dollar amount of the transaction, less
brokerage fees.
C. only the par value of the common
stock.
D. nothing
.
42. Which one of these is a money market security?
A. Commercial
paper
B. Common
stock
C. 2-year
bond
D. 20-year
bond
43. A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant run
by her family. Which type of financing is she looking to obtain?
A. Public bond
issue
B. IP
O
C. Micro
loan
D. Futures contract on a
commodity
44. Corporate debt instruments are most commonly traded:
A. on the
NYSE.
B. on
NASDAQ.
C. in the money
market.
D. in the over-the-counter
market.
45. A bond differs from a share of stock in that a bond:
A. represents a claim on the
firm.
B. has more
risk.
C. has guaranteed
returns.
D. has a maturity
date.
46. Short-term financing transactions commonly occur in the:
A. primary
markets.
B. secondary
markets.
C. capital
markets.
D. money
markets.
47. Long-term financing decisions commonly occur in the:
A. option
markets.
B. secondary
markets.
C. capital
markets.
D. money
markets.
48. You can buy silver in the:
A. capital
markets.
B. foreign exchange
markets.
C. commodities
markets.
D. option
markets.
49. Commodity and derivative markets:
A. are additional sources of financing for corporate
projects.
B. enable the financial manager to adjust a firm's exposure to various
business risks.
C. are always over-the-counter
markets.
D. deal only in foreign
currencies.
50. Foreign currencies are traded:
A. only by banks in New York and
London.
B. over the
counter.
C. on both the NYSE and
NASDAQ.
D. on the Intercontinental
Exchange.
51. Which one of the following statements is not characteristic of mutual funds?
A. They are always considered to be financial
institutions.
B. They raise money by selling shares to
investors.
C. They pool the savings of many
investors.
D. They offer professional management and portfolio
diversification.
52. Which one of these correctly applies to mutual funds?
A. Mutual funds are a costly means of achieving portfolio
diversification.
B. Funds are required to limit their annual fees and expenses to less than 1 percent of the
portfolio value.
C. You can generally buy additional shares in the fund at
any time.
D. Shareholders sell their shares to other
shareholders.
53. "Balanced" mutual funds:
A. invest in both stocks and
bonds.
B. spread their investments equally over a specified
geographic area.
C. spread their investments equally over various
industries.
D. charge a management fee that is proportionate to the
investment return.
54. Who was responsible for the financial crisis of 2007-2009?
A. The U.S. Federal Reserve, for its policy of easy
money
B. The U.S. government, for pushing banks to expand credit for low-income
housing
C. Bankers, who aggressively promoted and resold subprime
mortgages
D. The U.S. Federal Reserve, the U.S. government, rating agencies, and
bankers
55. Which one of the following funds provides a tax advantage to individual investors?
A. Balanced
funds
B. Pension
funds
C. Bond
funds
D. Funds that invest in foreign
countries
56. A financial institution:
A. is a kind of financial
intermediary.
B. simply pools and invests
savings.
C. raises financing by selling
shares.
D. invests primarily in
commodities.
57. Which type of financial institution generally does not accept deposits but does underwrite stock offerings?
A. Insurance
company
B. Mutual
fund
C. Commercial
bank
D. Investment
bank
58. Which one of the following financial intermediaries has shown the greatest preference for investing in long-term
financial assets?
A. Commercial
banks
B. Insurance
companies
C. Finance
companies
D. Savings
banks
59. Which one of these may provide a financial return to some investors while not providing any financial return to other
investors?
A. Mutual
funds
B. Pension
funds
C. Insurance
companies
D. Hedge
fund
60. Insurance companies can usually cover the claims of policyholders because:
A. the incidence of claims normally averages out across all
policyholders.
B. they issue a very limited number of
policies.
C. they are fully insured by the U.S.
government.
D. their stockholders will cover any cash shortfalls encountered by the
company.
61. Which of the following is not typically considered a function of financial intermediaries?
A. Providing a payment
mechanism
B. Investing in real
assets
C. Accumulating funds from smaller
investors
D. Spreading, or pooling risk among
individuals
62. U.S. bonds and other debt securities are mostly held by:
A. institutional
investors.
B. household
s.
C. foreign
investors.
D. state and local
governments.
63. Approximately what percentage of U.S. corporate equities are held by households?
A. 20
%
B. 40
%
C. 60
%
D. 80
%
64. Which of the following are major holders of corporate bonds?
A. household
s.
B. bank
s.
C. insurance
companies.
D. New York Stock
Exchange.
65. Which of the following is not a function of financial markets?
A. allow individuals to diversify their
risk.
B. provide convenient ways to make large
payments.
C. allow individuals to purchase a range of goods
online.
D. provide funds to companies that wish to
expand.
66. Which one of these transports income forward in time?
A. Retirement
savings
B. Car
loan
C. Bank line of
credit
D. Credit card
purchase
67. Which one of these assists in shifting an individual's consumption forward in time?
A. A bank line of
credit
B. A bank savings
account
C. A life insurance
policy
D. A retirement savings
plan
68. One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks:
A. can shift loan risk to their deposit
customers.
B. are motivated by the potential for
profit.
C. do not have any income tax
liability.
D. have information to evaluate
creditworthiness.
69. Which one of the following is least liquid?
A. Foreign
currency
B. U.S. Treasury
bonds
C. Real
estate
D. Bank
deposit
70. Financial markets and intermediaries:
A. channel savings to real
investment.
B. increase risks for
businesses.
C. generally reduce the liquidity of
securities.
D. prevent the transportation of cash across
time.
71. Which of the following functions does not require financial markets?
A. Retention of cash by
corporations
B. Provision of
liquidity
C. Risk reduction by investment in diversified
portfolios
D. Provision of pricing
information
72. Liquidity is important to a mutual fund primarily because:
A. a fund that is less liquid will attract more
investors.
B. the fund's shareholders may want to redeem their shares at
any time.
C. new investors may invest in the fund at any
time.
D. the fund requires cash to pay its
taxes.
73. Which one of the following is the biggest provider of payment mechanisms?
A. Hedge
funds
B. Bank
s
C. Mutual
funds
D. Insurance
companies
74. Which of the following actions does not help reduce risk?
A. Extending the service warranty for your
notebook
B. Converting your money market account to a mutual fund
account
C. Contracting to sell your farm produce to the neighborhood
grocery
D. Buying Japanese yen now when you plan to study in Japan
next year
75. Insurance companies primarily reduce an individual's risk by:
A. transporting that risk forward in
time.
B. providing payment
services.
C. spreading that risk across many
individuals.
D. providing low-interest-rate
loans.
76. Which of the following information is not provided by the financial markets?
A. The price of six ounces of
gold
B. The cost of borrowing $500,000 for 5
years
C. Microsoft's earnings in
2013
D. The cost of one million yen in U.S.
dollars
77. A capital investment that generates a 10% rate of return is worthwhile if:
A. corporate bonds of similar risk offer 8% rates of
return.
B. corporate bonds of similar risk offer 11% rates of
return.
C. top-quality corporate bonds offer 10% rates of
return.
D. the expected rate of return on the stock market is
12%.
78. The cost of capital:
A. is the expected rate of return on a capital
investment.
B. is an opportunity cost determined by the risk-free rate of
return.
C. is the interest rate that the firm pays on a loan from a bank or insurance
company.
D. for risky investments is normally higher than the firm's borrowing
rate.
79. Excess cash held by a firm should be:
A. reinvested by the firm in projects offering the highest rate of
return.
B. reinvested by the firm in projects offering rates of return higher than the cost of
capital.
C. reinvested by the firm in the financial
markets.
D. distributed to bondholders in the form of extra coupon
payments.
80. One contributing factor to the 2007-2009 financial crisis was the structuring of mortgage loans with:
A. high initial payments, offset by significantly lower payments
later.
B. low initial payments, offset by significantly higher payments
later.
C. high initial payments, offset by high payments
later.
D. very short
maturities.
81. The opportunity cost of capital:
A. is the interest rate that the firm pays on a loan from a financial
institution.
B. is the maximum acceptable rate of return on a
project.
C. is the minimum acceptable rate of return on a
project.
D. is always less than
10%.
82. During the Financial Crisis of 2007-2009, the U.S. government bailed out all of the following firms except:
A. AIG.
B. Fannie
Mae.
C. Lehman
Brothers.
D. Freddie
Mac.
83. If Apple Computer Inc. is used as the model, then new firms should expect to raise capital in which one of these
orders? Start with the first money raised.
A. Owners, venture capitalists, suppliers, public
investors
B. Owners, suppliers, venture capitalists, public
investors
C. Venture capitalists, owners, public investors,
suppliers
D. Owners, public investors, venture capitalists,
suppliers
84. Which one of these parties cannot invest in a hedge fund?
A. Small retail
investors
B. Pension
funds
C. Insurance
companies
D. Wealthy
individuals
85. Which one of these enterprises generally acts as an underwriter for an initial public offering?
A. Commercial
bank
B. Governme
nt
C. Investment
bank
D. Insurance
company
86. Which of these institutions are not major investors in U.S. equities?
A. mutual
funds
B. bank
s
C. pension
funds
D. hedge
funds
87. Firms can often determine the price of any commodities they use in their production process by consulting the price
quotes provided by:
A. their investment
bank.
B. the New York Mercantile
Exchange.
C. the New York Stock
Exchange.
D. the Standard & Poor's market
indexes.
88. How is the relationship between a bond's credit rating and its interest rate best defined?
A. Inverse
relationship
B. Direct
relationship
C. Unrelate
d
D. Logarithmi
c
89. The financial crisis of 2007-2009 contributed to the largest sovereign default in history by which one of these
countries?
A. Italy
B. Portug
al
C. Irelan
d
D. Greec
e
90. Which one of these was a contributing factor to the need for many foreign banks to seek aid from their governments
as a result of the financial crisis of 2007-2009?
A. Decrease in their exchange
rates
B. Investments in U.S. subprime
mortgages
C. Interest rate
spikes
D. Currency
controls
91. Which one of these was a major cause of the deep recession and severe unemployment throughout much of Europe
that followed the financial crisis of 2007-2009?
A. Government actions to raise interest
rates
B. Investor
speculation
C. Risk-adverse investor
attitudes
D. Government actions to lower government
debt
92. Which one of these is generally a key difference between U.S. and foreign commercial banks?
A. Pooling and investing
savings
B. Accepting investor
deposits
C. Providing debt financing to
corporations
D. Making equity investments in
corporations
Chapter 02 Test Bank - Static Key
1. Only small companies can go through financial markets to obtain financing.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
2. The reinvestment of cash back into the firm's operations is an example of a flow of savings to investment.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Financial institution functions
3. Smaller businesses are especially dependent upon internally generated funds.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Financial institution functions
4. An individual can save and invest in a corporation by lending money to it or by purchasing additional shares.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Financial institution functions
5. Previously issued securities are traded among investors in the secondary markets.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
6. Only the IPOs for large corporations are sold in primary markets.
FALSE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Initial public offerings
7. Hedge fund managers, unlike mutual fund managers, do not receive fund-performance-related fees.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
8. The markets for long-term debt and equity are called capital markets.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Capital markets
9. The stocks of major corporations trade in many markets throughout the world on a continuous or near-continuous
basis.
TRUE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Stock trading
10. The market for derivatives is also a source of financing for corporations.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Derivatives and other securities
11. During the Financial Crisis of 2007-2009, the U.S. government bailed out all firms in danger of failing.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
12. In the United States, banks are the most important source of long-term financing for corporations.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Financial institution functions
13. A financial intermediary invests in financial assets rather than real assets.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Financial institutions
14. Households hold directly three quarters of U.S. corporate equities.
FALSE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Raising capital
15. The key to the banks' ability to make illiquid loans is their ability to pool liquid deposits from thousands of
depositors.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
16. From June 2001 to June 2006, house prices in the United States rose sharply.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
17. For corporate bonds, the higher the credit quality of an issuer, the higher the interest rate.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Bond ratings and credit risk
18. The cost of capital is the interest rate paid on a loan from a bank or some other financial institution.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Cost of capital-general
19. Like public companies, private companies can also use their stock price as a measure of performance.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Stock market prices and reporting
20. The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets
on investments with the same risk as the firm's capital investments.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Expected (required) return
21. Once Apple Computer had become a public company, it was able to raise financing from venture capital
companies
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Raising capital
22. Insurance companies provide a mechanism for individuals to pool their risks.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
23. Financial markets and intermediaries allow investors and businesses to reduce and reallocate risk.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
24. The effects of the financial crisis of 2007-2009 were confined to the U.S. and domestic companies.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
25. The cost of capital is the minimum acceptable rate of return for capital investment.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Expected (required) return
26. One root of the financial crisis of 2007-2009 was the strict money policies promoted by the U.S. Federal Reserve
and other central banks after the technology bubble burst (i.e., money was relatively expensive during this time).
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
27. The rates of return on investments outside the corporation set the minimum return for investment projects inside
the corporation.
TRUE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Expected (required) return
28. Financing for public corporations must flow through financial markets.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
29. Financing for private companies must flow through financial intermediaries such as mutual funds.
FALSE
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
30. Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London.
FALSE
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Foreign exchange markets
31. Corporate financing comes ultimately from:
A. savings by households and foreign
investors.
B. cash generated from the firm's
operations.
C. the financial markets and
intermediaries.
D. the issue of shares in the
firm.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Financial institution functions
32. A company can pay for its expansion in all the following ways except:
A. by using the earnings generated from its sale of obsolete
equipment.
B. by persuading a director's mother to make a personal loan to the
company.
C. by purchasing bonds in the secondary
market.
D. by plowing back part of its
profits.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Raising capital
33. "Reinvestment" means:
A. new investment in new
operations.
B. additional investment in existing
operations.
C. new investment by new
shareholders.
D. the reinvestment of earnings into new
projects.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Raising capital
34. Financing for public corporations flows through:
A. the financial markets
only.
B. financial intermediaries
only.
C. derivatives
markets.
D. the financial markets, financial intermediaries, or
both.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
35. When corporations need to raise funds through stock issues, they rely on the:
A. primary
market.
B. secondary
market.
C. tertiary
market.
D. centralized NASDAQ
exchange.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
36. A primary market would be utilized when:
A. investors buy or sell existing
securities.
B. shares of common stock are
exchanged.
C. securities are initially
issued.
D. a commission must be paid on the
transaction.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
37. The primary distinction between securities sold in the primary and secondary markets is:
A. the riskiness of the
securities.
B. the price of the
securities.
C. whether the securities are new or already
exist.
D. the profitability of the issuing
corporation.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
38. Which of the following are both a financial intermediary and a financial institution?
A. Mutual
funds
B. Pension
funds
C. Insurance
companies
D. Hedge
funds
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institutions
39. A share of IBM stock is purchased by an individual investor for $75 and later sold to another investor for $125.
Who profits from this sale?
A. IBM
B. The first
investor
C. The second
investor
D. IBM and both
investors
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Stock returns and yields
40. Which of the following financial assets is least likely to have an active secondary market?
A. Common stock of a large public
firm
B. Bank loans made to smaller
firms
C. Bonds of a major, multinational
corporation
D. Debt issued by the U.S.
Treasury
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
41. When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount
of GM stock, GM receives:
A. the dollar value of the
transaction.
B. the dollar amount of the transaction, less
brokerage fees.
C. only the par value of the common
stock.
D. nothing
.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
42. Which one of these is a money market security?
A. Commercial
paper
B. Common
stock
C. 2-year
bond
D. 20-year
bond
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Money and capital markets
43. A mother in a developing country wants to borrow the equivalent of $20 to enable her to start a small restaurant
run by her family. Which type of financing is she looking to obtain?
A. Public bond
issue
B. IP
O
C. Micro
loan
D. Futures contract on a
commodity
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Debt
44. Corporate debt instruments are most commonly traded:
A. on the
NYSE.
B. on
NASDAQ.
C. in the money
market.
D. in the over-the-counter
market.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Primary and secondary markets
45. A bond differs from a share of stock in that a bond:
A. represents a claim on the
firm.
B. has more
risk.
C. has guaranteed
returns.
D. has a maturity
date.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Bond features
46. Short-term financing transactions commonly occur in the:
A. primary
markets.
B. secondary
markets.
C. capital
markets.
D. money
markets.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Money and capital markets
47. Long-term financing decisions commonly occur in the:
A. option
markets.
B. secondary
markets.
C. capital
markets.
D. money
markets.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Money and capital markets
48. You can buy silver in the:
A. capital
markets.
B. foreign exchange
markets.
C. commodities
markets.
D. option
markets.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Money and capital markets
49. Commodity and derivative markets:
A. are additional sources of financing for corporate
projects.
B. enable the financial manager to adjust a firm's exposure to various
business risks.
C. are always over-the-counter
markets.
D. deal only in foreign
currencies.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Derivatives and other securities
50. Foreign currencies are traded:
A. only by banks in New York and
London.
B. over the
counter.
C. on both the NYSE and
NASDAQ.
D. on the Intercontinental
Exchange.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Foreign exchange markets
51. Which one of the following statements is not characteristic of mutual funds?
A. They are always considered to be financial
institutions.
B. They raise money by selling shares to
investors.
C. They pool the savings of many
investors.
D. They offer professional management and portfolio
diversification.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
52. Which one of these correctly applies to mutual funds?
A. Mutual funds are a costly means of achieving portfolio
diversification.
B. Funds are required to limit their annual fees and expenses to less than 1 percent of the
portfolio value.
C. You can generally buy additional shares in the fund at
any time.
D. Shareholders sell their shares to other
shareholders.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
53. "Balanced" mutual funds:
A. invest in both stocks and
bonds.
B. spread their investments equally over a specified
geographic area.
C. spread their investments equally over various
industries.
D. charge a management fee that is proportionate to the
investment return.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
54. Who was responsible for the financial crisis of 2007-2009?
A. The U.S. Federal Reserve, for its policy of easy
money
B. The U.S. government, for pushing banks to expand credit for low-income
housing
C. Bankers, who aggressively promoted and resold subprime
mortgages
D. The U.S. Federal Reserve, the U.S. government, rating agencies, and
bankers
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
55. Which one of the following funds provides a tax advantage to individual investors?
A. Balanced
funds
B. Pension
funds
C. Bond
funds
D. Funds that invest in foreign
countries
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
56. A financial institution:
A. is a kind of financial
intermediary.
B. simply pools and invests
savings.
C. raises financing by selling
shares.
D. invests primarily in
commodities.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institutions
57. Which type of financial institution generally does not accept deposits but does underwrite stock offerings?
A. Insurance
company
B. Mutual
fund
C. Commercial
bank
D. Investment
bank
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
58. Which one of the following financial intermediaries has shown the greatest preference for investing in long-term
financial assets?
A. Commercial
banks
B. Insurance
companies
C. Finance
companies
D. Savings
banks
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Financial institution functions
59. Which one of these may provide a financial return to some investors while not providing any financial return to
other investors?
A. Mutual
funds
B. Pension
funds
C. Insurance
companies
D. Hedge
fund
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
60. Insurance companies can usually cover the claims of policyholders because:
A. the incidence of claims normally averages out across all
policyholders.
B. they issue a very limited number of
policies.
C. they are fully insured by the U.S.
government.
D. their stockholders will cover any cash shortfalls encountered by the
company.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Types of financial institutions
61. Which of the following is not typically considered a function of financial intermediaries?
A. Providing a payment
mechanism
B. Investing in real
assets
C. Accumulating funds from smaller
investors
D. Spreading, or pooling risk among
individuals
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Financial institution functions
62. U.S. bonds and other debt securities are mostly held by:
A. institutional
investors.
B. household
s.
C. foreign
investors.
D. state and local
governments.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Raising capital
63. Approximately what percentage of U.S. corporate equities are held by households?
A. 20
%
B. 40
%
C. 60
%
D. 80
%
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Raising capital
64. Which of the following are major holders of corporate bonds?
A. household
s.
B. bank
s.
C. insurance
companies.
D. New York Stock
Exchange.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Raising capital
65. Which of the following is not a function of financial markets?
A. allow individuals to diversify their
risk.
B. provide convenient ways to make large
payments.
C. allow individuals to purchase a range of goods
online.
D. provide funds to companies that wish to
expand.
AACSB: Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
66. Which one of these transports income forward in time?
A. Retirement
savings
B. Car
loan
C. Bank line of
credit
D. Credit card
purchase
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
67. Which one of these assists in shifting an individual's consumption forward in time?
A. A bank line of
credit
B. A bank savings
account
C. A life insurance
policy
D. A retirement savings
plan
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
68. One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks:
A. can shift loan risk to their deposit
customers.
B. are motivated by the potential for
profit.
C. do not have any income tax
liability.
D. have information to evaluate
creditworthiness.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
69. Which one of the following is least liquid?
A. Foreign
currency
B. U.S. Treasury
bonds
C. Real
estate
D. Bank
deposit
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
70. Financial markets and intermediaries:
A. channel savings to real
investment.
B. increase risks for
businesses.
C. generally reduce the liquidity of
securities.
D. prevent the transportation of cash across
time.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
71. Which of the following functions does not require financial markets?
A. Retention of cash by
corporations
B. Provision of
liquidity
C. Risk reduction by investment in diversified
portfolios
D. Provision of pricing
information
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
72. Liquidity is important to a mutual fund primarily because:
A. a fund that is less liquid will attract more
investors.
B. the fund's shareholders may want to redeem their shares at
any time.
C. new investors may invest in the fund at any
time.
D. the fund requires cash to pay its
taxes.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Financial institution functions
73. Which one of the following is the biggest provider of payment mechanisms?
A. Hedge
funds
B. Bank
s
C. Mutual
funds
D. Insurance
companies
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
74. Which of the following actions does not help reduce risk?
A. Extending the service warranty for your
notebook
B. Converting your money market account to a mutual fund
account
C. Contracting to sell your farm produce to the neighborhood
grocery
D. Buying Japanese yen now when you plan to study in Japan
next year
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
75. Insurance companies primarily reduce an individual's risk by:
A. transporting that risk forward in
time.
B. providing payment
services.
C. spreading that risk across many
individuals.
D. providing low-interest-rate
loans.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Financial institution functions
76. Which of the following information is not provided by the financial markets?
A. The price of six ounces of
gold
B. The cost of borrowing $500,000 for 5
years
C. Microsoft's earnings in
2013
D. The cost of one million yen in U.S.
dollars
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
77. A capital investment that generates a 10% rate of return is worthwhile if:
A. corporate bonds of similar risk offer 8% rates of
return.
B. corporate bonds of similar risk offer 11% rates of
return.
C. top-quality corporate bonds offer 10% rates of
return.
D. the expected rate of return on the stock market is
12%.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Expected (required) return
78. The cost of capital:
A. is the expected rate of return on a capital
investment.
B. is an opportunity cost determined by the risk-free rate of
return.
C. is the interest rate that the firm pays on a loan from a bank or insurance
company.
D. for risky investments is normally higher than the firm's borrowing
rate.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Cost of capital-general
79. Excess cash held by a firm should be:
A. reinvested by the firm in projects offering the highest rate of
return.
B. reinvested by the firm in projects offering rates of return higher than the cost of
capital.
C. reinvested by the firm in the financial
markets.
D. distributed to bondholders in the form of extra coupon
payments.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Goal of financial management
80. One contributing factor to the 2007-2009 financial crisis was the structuring of mortgage loans with:
A. high initial payments, offset by significantly lower payments
later.
B. low initial payments, offset by significantly higher payments
later.
C. high initial payments, offset by high payments
later.
D. very short
maturities.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
81. The opportunity cost of capital:
A. is the interest rate that the firm pays on a loan from a financial
institution.
B. is the maximum acceptable rate of return on a
project.
C. is the minimum acceptable rate of return on a
project.
D. is always less than
10%.
AACSB: Communication
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Expected (required) return
82. During the Financial Crisis of 2007-2009, the U.S. government bailed out all of the following firms except:
A. AIG.
B. Fannie
Mae.
C. Lehman
Brothers.
D. Freddie
Mac.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
83. If Apple Computer Inc. is used as the model, then new firms should expect to raise capital in which one of these
orders? Start with the first money raised.
A. Owners, venture capitalists, suppliers, public
investors
B. Owners, suppliers, venture capitalists, public
investors
C. Venture capitalists, owners, public investors,
suppliers
D. Owners, public investors, venture capitalists,
suppliers
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds, and pension funds.
Topic: Raising capital
84. Which one of these parties cannot invest in a hedge fund?
A. Small retail
investors
B. Pension
funds
C. Insurance
companies
D. Wealthy
individuals
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Hedging
85. Which one of these enterprises generally acts as an underwriter for an initial public offering?
A. Commercial
bank
B. Governme
nt
C. Investment
bank
D. Insurance
company
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Underwriting
86. Which of these institutions are not major investors in U.S. equities?
A. mutual
funds
B. bank
s
C. pension
funds
D. hedge
funds
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate investment.
Topic: Raising capital
87. Firms can often determine the price of any commodities they use in their production process by consulting the
price quotes provided by:
A. their investment
bank.
B. the New York Mercantile
Exchange.
C. the New York Stock
Exchange.
D. the Standard & Poor's market
indexes.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
88. How is the relationship between a bond's credit rating and its interest rate best defined?
A. Inverse
relationship
B. Direct
relationship
C. Unrelate
d
D. Logarithmi
c
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Bond ratings and credit risk
89. The financial crisis of 2007-2009 contributed to the largest sovereign default in history by which one of these
countries?
A. Italy
B. Portug
al
C. Irelan
d
D. Greec
e
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
90. Which one of these was a contributing factor to the need for many foreign banks to seek aid from their
governments as a result of the financial crisis of 2007-2009?
A. Decrease in their exchange
rates
B. Investments in U.S. subprime
mortgages
C. Interest rate
spikes
D. Currency
controls
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
91. Which one of these was a major cause of the deep recession and severe unemployment throughout much of
Europe that followed the financial crisis of 2007-2009?
A. Government actions to raise interest
rates
B. Investor
speculation
C. Risk-adverse investor
attitudes
D. Government actions to lower government
debt
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subsequent eurozone crisis.
Topic: Financial distress
92. Which one of these is generally a key difference between U.S. and foreign commercial banks?
A. Pooling and investing
savings
B. Accepting investor
deposits
C. Providing debt financing to
corporations
D. Making equity investments in
corporations
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 02-03 Explain the functions of financial markets and institutions.
Topic: Financial institution functions
Chapter 02 Test Bank - Static Summary
Category # of Questions
AACSB: Thinking 1
AACSB: Communication 21
AACSB: Reflective Thinking 70
Accessibility: Keyboard Navigation 92
Blooms: Apply 16
Blooms: Remember 24
Blooms: Understand 52
Difficulty: 1 Easy 19
Difficulty: 2 Medium 67
Difficulty: 3 Hard 6
Gradable: automatic 92
Learning Objective: 02-01 Understand how financial markets and institutions channel savings to corporate in
vestment.
10
Learning Objective: 02-02 Understand the basic structure of banks, insurance companies, mutual funds,
and pension funds.
16
Learning Objective: 02-03 Explain the functions of financial markets and institutions. 56
Learning Objective: 02-04 Understand the main events behind the financial crisis of 2007-2009 and the subs
equent eurozone crisis.
10
Topic: Bond features 1
Topic: Bond ratings and credit risk 2
Topic: Capital markets 1
Topic: Cost of capital-general 2
Topic: Debt 1
Topic: Derivatives and other securities 2
Topic: Expected (required) return 5
Topic: Financial distress 10
Topic: Financial institution functions 28
Topic: Financial institutions 3
Topic: Foreign exchange markets 2
Topic: Goal of financial management 1
Topic: Hedging 1
Topic: Initial public offerings 1
Topic: Money and capital markets 4
Topic: Primary and secondary markets 7
Topic: Raising capital 9
Topic: Stock market prices and reporting 1
Topic: Stock returns and yields 1
Topic: Stock trading 1
Topic: Types of financial institutions 8
Topic: Underwriting 1
