Question 1

The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.

Accepted Answer

A)   financial market
B)   capital market
C)   money market
D)   credit marketE) A) and B)
F) None of the above

Question 2

The nonexclusive sale of either bonds or stocks to the general public is called

Accepted Answer

A)   private placement.
B)   public offering.
C)   organized selling.
D)   none of the above.E) B) and C)
F) All of the above

Question 3

Firms that require funds from external sources can obtain them from

Accepted Answer

A)   private placement.
B)   financial institutions.
C)   financial markets.
D)   all of the above.E) A) and D)
F) A) and B)

Question 4

Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on

Accepted Answer

A)   $100,000 of ordinary income.
B)   $ 30,000 of ordinary income.
C)   $ 70,000 of ordinary income.
D)   $ 70,000 of capital gain.E) A) and D)
F) All of the above

Question 5

A public offering is the sale of a new security issuetypically debt or preferred stockdirectly to an investor or group of investors.

Accepted Answer

A) True 
 B)False

Question 6

The marginal tax rate represents the rate at which additional income is taxed.

Accepted Answer

A) True 
 B)False

Question 7

The shadow banking system describes a group of institutions that engage in lending activities, much like traditional banks, but these institutions do not accept deposits and are therefore not subject to the same regulations as traditional banks.

Accepted Answer

A) True 
 B)False

Question 8

Securitization made it harder for banks to lend money because they could not pass the risk on to other investors.

Accepted Answer

A) True 
 B)False

Question 9

The primary risk of mortgage-backed securities is that

Accepted Answer

A)   the prices of housing will go down.
B)   the prices of housing will increase.
C)   the government will not be able to meet the guarantees on the cash flows.
D)   homeowners may not be able to, or choose not to, repay their loans.E) A) and B)
F) B) and C)

Question 10

Trading is carried out in the Over-the-Counter (OTC)  Exchange by

Accepted Answer

A)   the competitive bid process.
B)   the competitive bid process and the negotiation process.
C)   the auction process.
D)   an investment banker.E) A) and C)
F) B) and C)

Question 11

The ________ stock exchange is a primary market where new public issues are sold.

Accepted Answer

A)   regional
B)   American
C)   New York
D)   over-the-counterE) B) and C)
F) All of the above

Question 12

All dividend income received by one corporation from an investment in the common and preferred stock of another corporation is excluded from taxation.

Accepted Answer

A) True 
 B)False

Question 13

By definition, the money market involves the buying and selling of

Accepted Answer

A)   stocks and bonds.
B)   short-term funds.
C)   funds that mature in more than one year.
D)   flows of funds.E) A) and D)
F) B) and C) B

Question 14

All of the following are true EXCEPT

Accepted Answer

A)   Interest income received by a corporation is taxed as ordinary income.
B)   Corporations pay taxes on all dividends received from other corporations, no matter their share of ownership.
C)   Corporations may pay taxes on only 30 percent of the dividends received from other corporations, depending on their percentage of ownership.
D)   Capital gains is taxed as ordinary income.E) A) and D)
F) A) and C)

Question 15

The ________ is created by a financial relationship between suppliers and demanders of short-term funds.

Accepted Answer

A)   stock market
B)   capital market
C)   financial market
D)   money marketE) C) and D)
F) B) and D) D

Question 16

The major securities traded in the capital markets are

Accepted Answer

A)   commercial paper and Treasury bills.
B)   Treasury bills and certificates of deposit.
C)   stocks and bonds.
D)   bonds and commercial paper.E) C) and D)
F) A) and B) C

Question 17

In the year 2000, real estate loans accounted for less than 40% of the total loan portfolios of large banks, but by 2007 real estate loans grew to more than half of all loans made by large banks.

Accepted Answer

A) True 
 B)False

Question 18

An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth-maximizing investors.

Accepted Answer

A) True 
 B)False

Question 19

Congress allows corporations to exclude from taxes 70 to 100 percent of dividends received from other corporations. Congress did this to

Accepted Answer

A)   encourage corporations to invest in each other.
B)   avoid double taxation on dividends.
C)   eliminates most of the potential tax liability from the dividends received by the second and any subsequent corporations.
D)   lower the cost of equity financing for corporations.E) A) and B)
F) All of the above

Question 20

Securities exchanges create efficient markets that do all of the following EXCEPT

Accepted Answer

A)   ensure a market in which the price reflects the true value of the security.
B)   allocate funds to the most productive uses.
C)   control the supply and demand for securities through price.
D)   allow the price to be determined by supply and demand of securities.E) B) and C)
F) A) and D)

Exam 2: The Financial Market Environment

The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.

Correct AnswerverifiedShow Answer

The nonexclusive sale of either bonds or stocks to the general public is called

Correct AnswerverifiedShow Answer

Firms that require funds from external sources can obtain them from

Correct AnswerverifiedShow Answer

Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on

Correct AnswerverifiedShow Answer

A public offering is the sale of a new security issuetypically debt or preferred stockdirectly to an investor or group of investors.

Correct AnswerverifiedShow Answer

The marginal tax rate represents the rate at which additional income is taxed.

Correct AnswerverifiedShow Answer

The shadow banking system describes a group of institutions that engage in lending activities, much like traditional banks, but these institutions do not accept deposits and are therefore not subject to the same regulations as traditional banks.

Correct AnswerverifiedShow Answer

Securitization made it harder for banks to lend money because they could not pass the risk on to other investors.

Correct AnswerverifiedShow Answer

The primary risk of mortgage-backed securities is that

Correct AnswerverifiedShow Answer

Trading is carried out in the Over-the-Counter (OTC) Exchange by

Correct AnswerverifiedShow Answer

The ________ stock exchange is a primary market where new public issues are sold.

Correct AnswerverifiedShow Answer

All dividend income received by one corporation from an investment in the common and preferred stock of another corporation is excluded from taxation.

Correct AnswerverifiedShow Answer

By definition, the money market involves the buying and selling of

Correct AnswerverifiedB

All of the following are true EXCEPT

Correct AnswerverifiedShow Answer

The ________ is created by a financial relationship between suppliers and demanders of short-term funds.

Correct AnswerverifiedD

The major securities traded in the capital markets are

Correct AnswerverifiedC

In the year 2000, real estate loans accounted for less than 40% of the total loan portfolios of large banks, but by 2007 real estate loans grew to more than half of all loans made by large banks.

Correct AnswerverifiedShow Answer

An efficient market is a market that allocates funds to their most productive use as a result of competition among wealth-maximizing investors.

Correct AnswerverifiedShow Answer

Congress allows corporations to exclude from taxes 70 to 100 percent of dividends received from other corporations. Congress did this to

Correct AnswerverifiedShow Answer

Securities exchanges create efficient markets that do all of the following EXCEPT

Correct AnswerverifiedShow Answer

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B

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D

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C

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