Question 1

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.F) A) and B)
G) None of the above

Question 2

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.F) A) and C)
G) B) and E)

Question 3

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 4

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

Question 5

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.F) A) and B)
G) B) and E)

Question 6

Which of the following is an example of a capital market instrument?

Accepted Answer

A)   Commercial paper.
B)   Preferred stock.
C)   U.S. Treasury bills.
D)   Banker's acceptances.
E)   Money market mutual funds.F) A) and B)
G) A) and C)

Question 7

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.F) A) and E)
G) A) and C)

Question 8

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Accepted Answer

A)   This is an example of a direct transfer of capital.
B)   This is an example of a primary market transaction.
C)   This is an example of an exchange of physical assets.
D)   This is an example of a money market transaction.
E)   This is an example of a derivative market transaction.F) B) and D)
G) C) and D)

Question 9

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 10

A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

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 14

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.F) A) and E)
G) A) and B)

Exam 2: Financial Markets

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
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following is an example of a capital market instrument?

Correct Answer
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Which of the following is a primary market transaction?

Correct Answer
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Money markets are markets for

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

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

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

A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

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

Which of the following statements is CORRECT?

Correct Answer
verified

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

Exam 2: Financial Markets

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

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following is an example of a capital market instrument?

Correct AnswerverifiedShow Answer

Which of the following is a primary market transaction?

Correct AnswerverifiedShow Answer

Money markets are markets for

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

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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

A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.

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

Which of the following statements is CORRECT?

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

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