57) The Federal National Mortgage Association buys mortgage loans from local lenders, bundles
them together, and resells them as securities.
58) Fannie Mae, Freddie Mac, and Sallie Mae are private stockholder-owned corporations whose
stocks are traded on the NYSE.
59) In times of recession, a company’s retained earnings may decline as a percent of internal
funds.
60) One of the advantages of the BATS exchange is that it simply matches orders in a very fast
pace.
61) A three-sector economy consists of business, government, and households, with the
household sector being the major supplier of funds for investment.
62) A key influence in recent years has been the growth in market value of futures exchanges.
63) All of these are recognized as important influences in the development of the banking crisis
of 2008 and the resulting credit crisis EXCEPT
A) Consumers, especially homeowners, took on too much debt.
B) Too many subprime loans were repackaged and sold as securities.
C) The U.S. government promised to buy unlimited amounts of debt from FHLB.
D) Real estate prices collapsed.
64) Which of the following was NOT a major supplier of funds to credit markets in 2008?
A) Households
B) Government sponsored agencies
C) Mutual funds and ETFs
D) All of the options were major suppliers of funds
65) The 1994 North American Free Trade Agreement was established between the U.S., Canada,
and Mexico which helped
A) reduce trade barriers.
B) allow trade to happen between these countries.
C) lower the amount of illegal trading.
D) all of the answers are correct.
66) When global capital markets collectively react to international events, like Russia’s default
on its sovereign debt, it is common to find
A) that there is no impact on the trade of foreign goods.
B) an impact on the ability to raise capital.
C) that Wall Street firms are so diversified that they are not affected by this event.
D) all of these options are true.
67) Which of the following is not a money market instrument?
A) Treasury bills
B) Commercial paper
C) Negotiable certificates of deposit
D) Treasury bonds
68) The euro is
A) established in all of the European countries.
B) a common currency with monetary policy controlled by the European Central Bank.
C) the most important international currency.
D) all of these options are true.
69) The formation of the European Monetary Union and its single currency Euro is expected to
A) eliminate foreign currency risk between its member countries.
B) create stock and bond prices denominated in euros.
C) have stock and bond indexes tracking a combined group of common stocks and bonds from
the member countries.
D) all of these options are true.
70) During the next several years, the major threat to the dominance of the U.S. money and
capital markets is expected to come from
A) Russia’s difficulty in transforming its economy into a capitalistic one.
B) Japan’s prolonged recession and banking crisis.
C) the Eurozone countries comprising the European Monetary Union and a single currency.
D) the huge Chinese economy and its billion-plus people.
71) Global capital markets are influenced by
A) interest rates.
B) investor confidence.
C) relative economic growth.
D) all of these options are true.
72) Companies list their stock around the globe to
A) capitalize on the inefficiency inherent in foreign markets.
B) decrease liquidity for their stockholders.
C) take advantage of currency differences.
D) increase liquidity for their stockholders and provide opportunities for the sale of new stock in
foreign countries.
73) Foreign investors have preferred to invest in the United States EXCEPT for which of the
following reasons?
A) Less stringent regulation of securities markets.
B) The political stability of the U.S. government.
C) The U.S. dollar is the world’s international currency.
D) All of these options are reasons that foreign investors prefer to invest in the United States.
74) With respect to the United States and its relationship with the rest of the world, it can be said
that
A) the U.S. has invested more dollars in the rest of the world than foreign countries have
invested in the U.S.
B) the U.S. has actively helped foreign countries finance their government deficits.
C) foreign investors hold large positions in U.S. government securities.
D) all of these options are true.
75) Financial instruments in the capital markets generally fall under which category in the
balance sheet?
A) Short-term liabilities and equity
B) Long-term liabilities and equity
C) Near cash assets
D) Retained earnings
76) Corporations prefer bonds over preferred stock for financing their operations because
A) preferred stocks require a dividend.
B) bond interest rates change with the economy, while stock dividends remain constant.
C) the after-tax cost of debt is less than the cost of preferred stock.
D) None of these options are true.
77) In general, when interest rates are expected to rise, financial managers
A) try to lock in long-term financing at low cost.
B) balance the company’s debt structure with more short-term debt and less long-term debt.
C) accept more risk.
D) rely more on internal sources of funds rather than external sources.
78) Federally sponsored credit agencies include all but which of the following?
A) Securities Investor Protection Corporation (SIPC)
B) Federal Home Loan Banks (FHLB)
C) Student Loan Marketing Association (Sallie Mae)
D) Federal National Mortgage Association (Fannie Mae)
79) Which of the following is an internal source of funds?
A) Cash flow from depreciation (tax shield)
B) Net loss
C) Repurchase of debt securities
D) Bank loan
80) The major supplier of funds for investment in the whole economy is
A) businesses.
B) households.
C) government.
D) financial institutions.
81) Financial intermediaries serve which of the following purposes?
A) They allow for indirect investment in the capital markets by households.
B) They aid in the flow of funds through the economy.
C) They help provide allocation of funds to the best investments.
D) All of these options are correct.
82) Which of the following is not an example of indirect investment by a household?
A) Investment in a mutual fund’s shares
B) Investment in an original offering of corporate securities
C) Investment in life insurance
D) A savings deposit in a commercial bank
83) Which of the following are benefits of financial intermediaries?
A) Increase market liquidity
B) Provide a direct market for investors
C) Act as agents of the government
D) Increase market liquidity and provide a direct market for investors
84) The purpose of secondary trading is to
A) provide liquidity and competition between investments.
B) provide a market to issue securities not handled in primary trading.
C) provide jobs for brokers and dealers.
D) provide lower commissions than on the organized exchanges.
85) The most important capital markets in the world (in terms of dollar value) are located in
A) New York.
B) London.
C) Toronto.
D) Tokyo.
86) Which federally supported credit agency was established to trade student loan debt?
A) Fannie Mae
B) Freddie Mac
C) Farmer Mac
D) Sallie Mae
87) Guidelines for insider trading require that:
A) the investor never profit from the sale of securities.
B) the investor includes everyone but employees of the company.
C) the investor hold securities for at least six months.
D) all of the answers are correct.
88) Middle- to small-sized companies that are centered in one city or state would most likely be
found on the
A) NASDAQ National Market.
B) NASDAQ Small Cap Market.
C) Supplemental list.
D) New York Stock Exchange.
89) The emergence of trading via ECNs has
A) provided a unique advantage not offered by the NYSE.
B) lowered the cost of trading.
C) made trading more difficult for insider traders.
D) all of these options are true.
90) Which characteristic is not true of electronic communication networks (ECNs)?
A) automatically match buy and sell orders at specific prices via computers.
B) have forced organized security exchanges to make significant changes in their operations and
structures.
C) have increased the cost of trading.
D) none of these options are false.
91) Which of the following is NOT a criterion for an efficient market?
A) Prices adjust rapidly to new information.
B) Large dollar amounts of securities can be absorbed without price destabilization.
C) Each successive trade is made at a price close to the previous trade.
D) Computerized handling of transactions is necessary.
92) Security markets are efficient EXCEPT for when which of the following exists?
A) Security prices follow the leading indicators such as the DJIA very closely.
B) The markets absorb large dollar amounts of stock without destabilizing the price.
C) Prices adjust rapidly to new information.
D) There is a continuous market where each successive trade is made at a price close to the
previous trade.
93) The efficient market hypothesis deals primarily with
A) random speculation in securities.
B) the degree to which prices adjust to new information.
C) the degrees to which price movements are the result of past trends.
D) how an investor can significantly outperform the market in general.
94) The efficient market hypothesis has several forms. The weak form states that
A) past price data is unrelated to future prices.
B) prices reflect all public information.
C) all information both public and private is immediately reflected in stock prices.
D) none of these options are true.
95) Security markets provide liquidity
A) by allowing corporations to raise funds by buying new issues.
B) by creating a market in which owners may easily turn an investment into cash through a
purchase.
C) by allowing corporations to raise funds by selling new issues and by creating a market in
which owners may easily turn an investment into cash through its sale.
D) none of these options are correct.
96) The “semi-strong” form of the efficient market hypothesis states that
A) past price data is unrelated to future prices.
B) prices reflect all public information.
C) all information both public and private is immediately reflected in stock prices.
D) none of these options are correct.
97) The “strong” form of the efficient market hypothesis states that
A) past price data is positively correlated to future prices.
B) prices reflect all public information.
C) all information both public and private is immediately reflected in stock prices.
D) none of these options are correct.
98) The Securities Act of 1933 is primarily concerned with
A) original issues of securities.
B) secondary trading of securities.
C) the national securities markets.
D) protecting customers of bankrupt securities firms.
99) The Securities Act of 1933 did not
A) require that all securities sold in more than one state be registered with the SEC.
B) hold corporate officers liable for losses for those who were misled by false information in the
prospectus.
C) set guidelines for insiders who trade in the securities of their own firm.
D) require a prospectus for all new issues of securities, which contains all information appearing
in the registration statement.
100) Of the following efficient market hypotheses, researchers have stated that the ________
market is not efficient.
A) weak
B) semi-strong
C) strong
D) weak and semi-strong
101) Markets in general are considered efficient when
A) Prices adjust rapidly to new information
B) There is a continuous market, in which each successive trade is made at a price close to the
previous price.
C) The market can absorb large dollar amounts of securities without destabilizing the prices.
D) all of the above are true.
102) The Securities Exchange Act of 1934 is primarily concerned with
A) a central market system.
B) regulation of organized exchanges.
C) protecting customers of bankrupt securities firms.
D) original issues of securities.
103) Dark pools are considered:
A) areas in the market that securities are considered worthless.
B) areas in the market where securities are traded and concealed from the public market.
C) areas in the market where an investor would generally not make any money.
D) trades that hedge fund, mutual fund, and insurance companies tend to stay away from.