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Quiz on Chapter 2 Financial Markets, created by run2hurdle on 26/09/2015.

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Chapter 2 Financial Markets

Question 1 of 29

1

Money market securities have maturities of one year or less.

Select one of the following:

  • True
  • False

Explanation

Question 2 of 29

1

Preferred stock pays a variable dividend.

Select one of the following:

  • True
  • False

Explanation

Question 3 of 29

1

The cost of borrowing funds is most commonly called the interest rate.

Select one of the following:

  • True
  • False

Explanation

Question 4 of 29

1

The primary market is the only market in which the issuer is directly involved in the transaction and recieves direct benefits from the issue.

Select one of the following:

  • True
  • False

Explanation

Question 5 of 29

1

The over-the-counter market is generally reserved for stocks with very large trading volume.

Select one of the following:

  • True
  • False

Explanation

Question 6 of 29

1

T-Bonds are money market securities, while T-bills and T-notes are traded in the capital market.

Select one of the following:

  • True
  • False

Explanation

Question 7 of 29

1

Market makers include both specialist and dealers.

Select one of the following:

  • True
  • False

Explanation

Question 8 of 29

1

Specialist and dealers determine the price of the security.

Select one of the following:

  • True
  • False

Explanation

Question 9 of 29

1

Corporate bonds pay interest payments that are usually tax-exempt to investors.

Select one of the following:

  • True
  • False

Explanation

Question 10 of 29

1

The New York Stock Exchange is an example of an organized market.

Select one of the following:

  • True
  • False

Explanation

Question 11 of 29

1

Earnings should retained only if the firm needs capital very badly and would have difficulty raising it from external sources.

Select one of the following:

  • True
  • False

Explanation

Question 12 of 29

1

The importance of the role of financial management is emphasized by examples of companies whose strategic financing decisions contributed to their demise, or to their success when economic conditions changed rapidly.

Select one of the following:

  • True
  • False

Explanation

Question 13 of 29

1

The riskiness inherent in a firm's earnings per share (EPS) depends on both the types of projects the firm takes on and the manner in which the projects are financed.

Select one of the following:

  • True
  • False

Explanation

Question 14 of 29

1

The two most important functions of markets are to establish fair prices and provide liquidity.

Select one of the following:

  • True
  • False

Explanation

Question 15 of 29

1

Bonds are long-term loans that typically pay interest per year based on the average bank rate.

Select one of the following:

  • True
  • False

Explanation

Question 16 of 29

1

The _______ is a financial relationship created by a number of institutions with arrangements that allow the suppliers and demanders of long term funds to make transactions.

Select one of the following:

  • money market

  • bond market

  • capital market

  • eurobond market

Explanation

Question 17 of 29

1

The AMEX Exchange could be classified as a/an ______ security exchange.

Select one of the following:

  • organized

  • over-the-counter

  • primary

  • closed

Explanation

Question 18 of 29

1

In the over-the-counter market, dealers are linked with the purchasers and sellers of securities through the _____ system.

Select one of the following:

  • NASDAQ

  • bonds

  • stocks

  • short-term funds

Explanation

Question 19 of 29

1

Common stockholders expect to receive a return through capital gains and

Select one of the following:

  • interest payments

  • dividends

  • fixed periodic dividends

  • coupon payments

Explanation

Question 20 of 29

1

Bonds with an AAA rating will have a ______ interest rate compared to bonds with a BAA rating.

Select one of the following:

  • lower

  • equal

  • higher

  • undetermined

Explanation

Question 21 of 29

1

The______ is the financial market in which securities are initially issued.

Select one of the following:

  • OTC

  • secondary market

  • primary market

  • private placement

Explanation

Question 22 of 29

1

________ are long-term debt instruments that are used by business and government to raise large sums of money.

Select one of the following:

  • T-bills

  • Common stock

  • Preferred stock

  • Bonds

Explanation

Question 23 of 29

1

Shares of ____ are units of ownerships interest, or equity, in a corporation.

Select one of the following:

  • bank loans

  • common stock

  • debt

  • commercial paper

Explanation

Question 24 of 29

1

The possibility that the issuer of debt will not pay the principal as scheduled.

Select one of the following:

  • liquidity risk

  • default risk

  • contractual risk

  • maturity risk

Explanation

Question 25 of 29

1

Which of the following does not need to be considered when assessing the impact of financial decision?

Select one of the following:

  • Financial market conditions

  • timing of the earnings flow

  • project earnings

  • all of the above must be considered.

Explanation

Question 26 of 29

1

Money markets are markets for

Select one of the following:

  • foreign currency exchange

  • corporate stocks

  • long-term bonds

  • short-term debt securities

Explanation

Question 27 of 29

1

Which of the following is not a major participant in the money market.

Select one of the following:

  • Federal Reserve

  • Commercial Banks

  • Money Market Mutual Funds

  • Wall Street Dealers

Explanation

Question 28 of 29

1

If a $2,000 bond is quoted at 120:16, the price of the bond is ______

Select one of the following:

  • 1,205.31

  • 1,205.00

  • 2,410.62

  • 2,410.00

Explanation

Question 29 of 29

1

The difference between Common Stock and Preferred Stock lies in:

Select one of the following:

  • vote or not

  • fixed or variable dividends

  • Priority of claim on assets

  • all of the above

Explanation

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