29) ________ perform a direct connection function in capital markets.
A) Insurance brokers
B) Investment banks
C) Pension fund managers
D) Commercial banks
30) ________ requires a corporation to repay a predetermined portion of the loan amount at
regular intervals regardless of how much profit it is making.
A) An equity loan
B) A stock loan
C) A debt loan
D) A bonded loan
31) The liquidity of the market is ________ in a purely domestic capital market.
A) held in reserves
B) unlimited
C) based upon the stock market
D) limited
32) The cost of capital is
A) higher in a purely domestic capital market than in a global market.
B) lower in a domestic capital market than in an international market.
C) higher in a global market than in a purely domestic capital market.
D) the same in either a global market or a purely domestic capital market.
33) The risk associated with a portfolio
A) declines exponentially as the number of stocks purchased increases and continues to decline
until a point of zero risk is reached.
B) decreases as the investor increases the number of stocks in her portfolio.
C) grows exponentially with the number of stocks purchased.
D) increases as the investor increases the number of stocks in her portfolio.
34) The systematic risk of the stock market is the
A) movement in a stock portfolio‘s value that is attributable to the individual selections made for
that portfolio.
B) level of diversifiable risk in an economy.
C) movement of the economy of a country.
D) level of nondiversifiable risk in an economy.
35) A ________ brings together those who want to invest money and those who want to borrow
money.
A) consumer market
B) value chain
C) supply chain
D) capital market
36) Market makers are
A) financial service companies that connect investors and borrowers.
B) nonbank financial institutions who want to invest money.
C) high net worth individuals with surplus cash to reinvest.
D) those who want to borrow money including individuals, companies, and governments.
37) Which of the following statements is true of market makers?
A) Commercial banks are not allowed to function as market makers.
B) Market makers are large investors who drive an economy.
C) Market makers facilitate only equity–based loans.
D) Market makers connect investors and borrowers in a capital market.
38) An equity loan is made when
A) a corporation pledge equities or other assets to borrow money.
B) corporations avail cash loans from individuals.
C) a corporation sells stock to investors.
D) corporations issue bonds to individual investors.
39) Which of the following statements is true of debt loans?
A) Management has the discretion in paying the amount to investors.
B) Debt loans should be repaid at regular intervals.
C) Returns from debt loans are variable in nature.
D) Corporations need not pay back the debt loans if they incur losses.
40) When an investor purchases a corporate bond, he purchases the right to receive a
A) share of the overall revenues that the company generates.
B) part of the title for the assets that the corporate holds.
C) specified fixed stream of income from the corporation.
D) share of the profits that the company generates through operations.
41) An important drawback of a purely domestic capital market is that the
A) investment does not receive protection from governments.
B) investments are riskier than in global capital markets.
C) market lacks a strong regulatory mechanism.
D) cost of capital tends to be higher than it is in a global market.
42) A purely domestic capital market faces the problem of
A) foreign exchange risk.
B) limited liquidity.
C) lack of regulation.
D) deregulated markets.
43) The cost of capital is the
A) interest received on investments made by the company.
B) price of borrowing money.
C) difference between cost of inputs and outputs.
D) total value of raw materials that a company uses.
44) As investors increase the number of stocks in their portfolio, the portfolio‘s risk
A) increases initially and declines later.
B) declines slowly and steadily.
C) increases exponentially.
D) declines rapidly in the beginning.
45) Systematic risk refers to movements in a stock portfolio‘s value that are
A) attributable to macroeconomic forces affecting an economy.
B) specific to the firm or individuals who invest in a portfolio.
C) attributable to factors pertaining to an individual firm.
D) specific to the company that facilitates the investment portfolio.
46) The relatively low correlation between the movement of stock markets in different countries
indicates that
A) diversifying a portfolio will increase the risk of investing.
B) most countries face similar economic conditions.
C) countries pursue different macroeconomic policies.
D) most stock markets are highly segmented from each other.
47) The element of risk into investing in foreign assets is greater with ________ exchange rates.
A) floating
B) pegged
C) fixed
D) managed
48) ________ is made when a corporation sells stock to investors.
A) A corporate bond sale
B) A debt loan
C) A Eurobond investment
D) An equity loan