Question 1

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 2

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 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)   The most important difference between spot markets versus futures markets is the maturity of the instruments that are traded.Spot market transactions involve securities that have maturities of less than one year whereas futures markets transactions involve securities with maturities greater than one year.
B)   Capital market transactions involve only preferred stock or common stock.
C)   If General Electric were to issue new stock this year,this would be considered a secondary market transaction since the company already has stock outstanding.
D)   Both NASDAQ dealers and "specialists" on the NYSE hold inventories of stocks.
E)   Money market transactions do not involve securities denominated in currencies other than the U.S.dollar. D

Question 5

The NYSE is defined as a "spot" market purely and simply because it has a physical location.The NASDAQ,on the other hand,is not a spot market because it has no one central location.

Accepted Answer

A) True 
 B)False

Question 6

Private markets are those like the NYSE,where transactions are handled by members of the organization,while public markets are those like the NASDAQ,where anyone can make transactions.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   The term "IPO" stands for Introductory Price Offered,and it is the price at which shares of a new company are offered to the public.
B)   IPO prices are generally established by the market,and buyers of the new stock must pay the price that prevails at the close of trading on the day the stock is offered to the public.
C)   In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay.The company determines how many shares it wants to sell.The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay.
D)   It is possible that the price set in an IPO is so high that investors will refuse to buy the number of shares that the company wants to sell.In this situation,the IPO is said to be oversubscribed.
E)   It is possible that the price set in an IPO is so low that investors will want to buy more shares than the company wants to sell.In that case,the company will have to issue more shares than it wants to sell.

Question 8

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 9

You recently sold 200 shares of Disney stock,and the transfer was made through a broker.This is an example of:

Accepted Answer

A)   A money market transaction.
B)   A primary market transaction.
C)   A secondary market transaction.
D)   A futures market transaction.
E)   An over-the-counter market transaction.

Question 10

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 11

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. B

Question 12

​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 13

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 14

Money markets are markets for

Accepted Answer

A)   Foreign currencies.
B)   Consumer automobile loans.
C)   Common stocks.
D)   Long-term bonds.
E)   Short-term debt securities such as Treasury bills and commercial paper.

Question 15

Hedge funds are somewhat similar to mutual funds.The primary differences are that hedge funds are less highly regulated,have more flexibility regarding what they can buy,and restrict their investors to wealthy,sophisticated individuals and institutions.

Accepted Answer

A) True 
 B)False

Question 16

Trades on the NYSE are generally completed by having a brokerage firm acting as a "dealer" buy securities and adding them to its inventory or selling from its inventory.The NASDAQ,on the other hand,operates as an auction market,where buyers offer to buy,and sellers to sell,and the price is negotiated on the floor of the exchange.

Accepted Answer

A) True 
 B)False

Question 17

Primary markets are large and important,while secondary markets are smaller and less important.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False  True

Question 19

If you wanted to know what rate of return stocks have provided in the past,you could examine data on the Dow Jones Industrial Index,the S&P 500 Index,or the NASDAQ Index.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 2: Financial Markets and Institutions

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

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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D

The NYSE is defined as a "spot" market purely and simply because it has a physical location.The NASDAQ,on the other hand,is not a spot market because it has no one central location.

Correct Answer
verified

Private markets are those like the NYSE,where transactions are handled by members of the organization,while public markets are those like the NASDAQ,where anyone can make transactions.

Correct Answer
verified

Which of the following statements is CORRECT?

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

You recently sold 200 shares of Disney stock,and the transfer was made through a broker.This is an example of:

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

Which of the following statements is NOT CORRECT?

Correct Answer
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B

Which of the following is a primary market transaction?

Correct Answer
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Correct Answer
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Money markets are markets for

Correct Answer
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Hedge funds are somewhat similar to mutual funds.The primary differences are that hedge funds are less highly regulated,have more flexibility regarding what they can buy,and restrict their investors to wealthy,sophisticated individuals and institutions.

Correct Answer
verified

Correct Answer
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Primary markets are large and important,while secondary markets are smaller and less important.

Correct Answer
verified

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.

Correct Answer
verified
True

If you wanted to know what rate of return stocks have provided in the past,you could examine data on the Dow Jones Industrial Index,the S&P 500 Index,or the NASDAQ Index.

Correct Answer
verified

Correct Answer
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Exam 2: Financial Markets and Institutions

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

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedD

The NYSE is defined as a "spot" market purely and simply because it has a physical location.The NASDAQ,on the other hand,is not a spot market because it has no one central location.

Correct AnswerverifiedShow Answer

Private markets are those like the NYSE,where transactions are handled by members of the organization,while public markets are those like the NASDAQ,where anyone can make transactions.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

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

You recently sold 200 shares of Disney stock,and the transfer was made through a broker.This is an example of:

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

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedB

​Which of the following is a primary market transaction?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Money markets are markets for

Correct AnswerverifiedShow Answer

Hedge funds are somewhat similar to mutual funds.The primary differences are that hedge funds are less highly regulated,have more flexibility regarding what they can buy,and restrict their investors to wealthy,sophisticated individuals and institutions.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Primary markets are large and important,while secondary markets are smaller and less important.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedTrue

If you wanted to know what rate of return stocks have provided in the past,you could examine data on the Dow Jones Industrial Index,the S&P 500 Index,or the NASDAQ Index.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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D

Correct Answer
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B

Which of the following is a primary market transaction?

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True

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