Test Bank Ch 1

Topics: Financial markets, Investment, Financial market Pages: 17 (3760 words) Published: July 11, 2013
Chapter 1: Introduction

True/False

1. Primary markets are markets where users of funds raise cash by selling securities to funds suppliers.

Answer: True
Level: Easy

2. Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period.

Answer: False
Level: Easy

3. In a private placement the issuer typically sells the entire issue to one or only a few institutional buyers.

Answer: True
Level: Easy

4. The NYSE is an example of a secondary market.

Answer: True
Level: Easy

5. Privately placed securities are usually sold to one or more investment bankers and then resold to the general public.

Answer: False
Level: Easy

6. Money markets are the markets for securities with an original maturity of 1 year or less.

Answer: True
Level: Easy

7. Eurodollar bonds are dollar denominated bonds issued outside the United States.

Answer: True
Level: Easy

8. Financial intermediaries such as banks typically have assets that are riskier than their liabilities.

Answer: True
Level: Easy

9. Spinning is the process of allocating shares in a ‘hot’ IPO to certain favored clients of investment banking firms in exchange for receiving additional investment banking business.

Answer: True
Level: Easy

10. Many stock research analysts of investment banking firms have been accused of issuing overly optimistic stock research reports on firms in order to help support the investment bankers’ underwriting business.

Answer: True
Level: Medium

11. There are three types of major financial markets today; primary, secondary and derivatives markets. The NYSE and NASDAQ are both examples of derivatives markets.

Answer: False
Level: Easy

12. Thrift accounts are primarily used by investors to fund retirement savings.

Answer: False
Level: Easy

Multiple Choice

13. What factors are encouraging financial institutions to offer overlapping financial services such as banking, investment banking, brokerage, etc? I. Regulatory changes allowing institutions to offer more services II. Technological improvements reducing the cost of providing financial services III. Increasing competition from full service global financial institutions IV. Reduction in the need to manage risk at financial institutions A) I only

B) II and III only
C) I, II and III only
D) I, II and IV only
E) I, II, III and IV

Answer: C
Level: Easy

Refer to the statement below for questions 14 & 15:
Figure 1-1
IBM creates and sells additional stock to the investment banker, Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public.

14. This transaction is an example of a(n)
A) Primary market transaction
B) Asset transformation by Morgan Stanley
C) Money market transaction
D) Foreign exchange transaction
E) Forward transaction

Answer: A
Refer To: 1-1
Level: Easy

15. Morgan Stanley is acting as a(n)
A) Asset transformer
B) Asset broker
C) Government regulator
D) Foreign service representative

Answer: B
Refer To: 1-1
Level: Medium

16. A corporation seeking to sell new equity securities to the public for the first time in order to raise cash for capital investment would most likely A) conduct an IPO with the assistance of an investment banker B) engage in a secondary market sale of equity

C) conduct a private placement to a large number of potential buyers D) place an ad in the Wall Street Journal soliciting retail suppliers of funds E) none of the above

Answer: A
Level: Medium

17. The largest capital market security outstanding in 2007 measured by market value was A) securitized mortgages
B) corporate bonds
C) municipal bonds
D) Treasury bonds
E) corporate stocks

Answer: E
Level: Easy

18. The process of allocating shares of hot IPO issues to directors and/or executives of potential investment banking clients in exchange for subsequent...
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