43) Which of the following is not a financial intermediary?
A) a mutual fund
B) an insurance company
C) a real estate brokerage firm
D) a credit union
44) The combined liabilities of American households represent approximately ________ of
combined assets.
A) 11%
B) 14%
C) 25%
D) 33%
45) In real assets represented approximately ________ of the total asset holdings of American
households.
A) 30%
B) 42%
C) 48%
D) 55%
46) In 2017 mortgages represented approximately ________ of total liabilities and net worth of
American households.
A) 10%
B) 14%
C) 28%
D) 42%
47) Liabilities equal approximately ________ of total assets for nonfinancial U.S. businesses.
A) 10%
B) 25%
C) 45%
D) 75%
48) Which of the following is not an example of a financial intermediary?
A) Goldman Sachs
B) Allstate Insurance
C) First Interstate Bank
D) IBM
49) Real assets represent about ________ of total assets for commercial banks.
A) 1%
B) 15%
C) 25%
D) 40%
50) Money market securities are characterized by:
I. Maturity less than 1 year
II. Safety of the principal investment
III. Low rates of return
A) I only
B) I and II only
C) I and III only
D) I, II, and III
51) After much investigation, an investor finds that Intel stock is currently underpriced. This is
an example of ________.
A) asset allocation
B) security analysis
C) top-down portfolio management
D) passive management
52) After considering current market conditions, an investor decides to place 60% of her funds in
equities and the rest in bonds. This is an example of ________.
A) asset allocation
B) security analysis
C) top-down portfolio management
D) passive management
53) Suppose an investor is considering one of two investments that are identical in all respects
except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he
can expect to ________.
A) earn no more than the Treasury-bill rate on either security.
B) pay less for the security that has higher risk.
C) pay less for the security that has lower risk.
D) earn more if interest rates are lower.
54) The efficient market hypothesis suggests that ________.
A) active portfolio management strategies are the most appropriate investment strategies
B) passive portfolio management strategies are the most appropriate investment strategies
C) either active or passive strategies may be appropriate, depending on the expected direction of
the market
D) a bottom-up approach is the most appropriate investment strategy
55) In a perfectly efficient market the best investment strategy is probably ________.
A) an active strategy
B) a passive strategy
C) asset allocation
D) market timing
56) Market signals will help to allocate capital efficiently only if investors are acting ________.
A) on the basis of their individual hunches
B) as directed by financial experts
C) as dominant forces in the economy
D) on accurate information
57) Which of the following is (are) true about hedge funds?
I. They are open to institutional investors.
II. They are open to wealthy individuals.
III. They are more likely than mutual funds to pursue simple strategies.
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III
58) Venture capital is ________.
A) frequently used to expand the businesses of well-established companies
B) supplied by venture capital funds and individuals to start-up companies
C) illegal under current U.S. laws
D) most frequently issued with the help of investment bankers
59) Individuals may find it more advantageous to purchase claims from a financial intermediary
rather than directly purchasing claims in capital markets because:
I. Intermediaries are better diversified than most individuals.
II. Intermediaries can exploit economies of scale in investing that individual investors cannot.
III. Intermediated investments usually offer higher rates of return than direct capital market
claims.
A) I only
B) I and II only
C) II and III only
D) I, II, and III
60) Surf City Software Company develops new surf forecasting software. It sells the software to
Microsoft in exchange for 1,000 shares of Microsoft common stock. Surf City Software has
exchanged a ________ asset for a ________ asset in this transaction.
A) real; real
B) financial; financial
C) real; financial
D) financial; real
61) Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory
note to pay back the loan over 5 years. In this transaction, ________.
A) a new financial asset was created
B) a financial asset was traded for a real asset
C) a financial asset was destroyed
D) a real asset was created
62) Which of the following firms was not engaged in a major accounting scandal between 2000
and 2005?
A) General Electric
B) Parmalat
C) Enron
D) WorldCom
63) Accounting scandals can often be attributed to a particular concept in the study of finance
known as the ________.
A) agency problem
B) risk-return trade-off
C) allocation of risk
D) securitization
64) An intermediary that pools and manages funds for many investors is called ________.
A) an investment company
B) a credit union
C) an investment banker
D) a commercial bank
65) Financial institutions that specialize in assisting corporations in primary market transactions
are called ________.
A) mutual funds
B) investment bankers
C) pension funds
D) globalization specialists
66) When a pass-through mortgage security is issued, what does the issuing agency expect to
receive?
A) the amount of the original loan plus a servicing fee
B) the principal and interest that are paid by the homeowner
C) the principal and interest that are paid by the homeowner, minus a servicing fee
D) the interest paid by the homeowner, plus a servicing fee
67) In 2008 the largest corporate bankruptcy in U.S. history involved the investment banking
firm of ________.
A) Goldman Sachs
B) Lehman Brothers
C) Morgan Stanley
D) Merrill Lynch
68) The inability of shareholders to influence the decisions of managers, despite overwhelming
shareholder support, is a breakdown in what process or mechanism?
A) auditing
B) public finance
C) corporate governance
D) public reporting
69) Real assets are ________.
A) assets used to produce goods and services
B) always the same as financial assets
C) always equal to liabilities
D) claims on a company’s income
70) A major cause of the mortgage market meltdown in 2007 and 2008 was linked to ________.
A) private equity investments
B) securitization
C) negative analyst recommendations
D) online trading
71) In recent years the greatest dollar amount of securitization occurred for which type of loan?
A) home mortgages
B) credit card debt
C) automobile loans
D) equipment leasing
72) Which of the following is (are) true about nonconforming mortgage loans?
A) They are also known as subprime loans.
B) They have higher default risk than conforming loans.
C) They were able to be offered without due diligence.
D) All of the options are true.
73) The systemic risk that led to the financial crisis of 2008 was increased by ________.
A) collateralized debt obligations
B) subprime mortgages
C) credit default swaps
D) all of the options
74) An investment adviser has decided to purchase gold, real estate, stocks, and bonds in equal
amounts. This decision reflects which part of the investment process?
A) asset allocation
B) investment analysis
C) portfolio analysis
D) security selection
75) The Volcker Rule
A) prohibits banks from proprietary trading.
B) restricts banks’ investments in hedge funds.
C) restricts banks’ investments in private equity funds.
D) All of the options.
76) Until 1999, the ________ Act separated commercial banking and investment banking
activities.
A) Dodd-Frank Wall Street Reform and Consumer Protection
B) Sarbanes-Oxley
C) Glass-Steagall
D) Volcker Rule
77) The difference between LIBOR and the Treasury-bill rate
A) is called the TED spread.
B) measures credit risk in the banking sector.
C) was very low just before the 2008 financial crisis.
D) All of the options.
78) The Dodd-Frank Reform Act does all of the following except:
A) reduces capital requirements for banks.
B) increases transparency in the derivatives market
C) limits the risk-taking in which banks can engage
D) requires public companies to set “claw-back” provisions
E) creates an office within the SEC to oversee credit rating agencies.
79) Which insurance company sold more than $400 billion of CDS contracts on subprime
mortgages prior to the 2008 market crash?
A) Metlife
B) AIG
C) Northwestern Mutual
D) New York Life