Deck 2: Firms and the Financial Market

Question 1

Each of the following is true of managed funds except [blank].

A)funds are open or closed
B)open managed fund shares are bought from or sold to the fund
C)an index fund is the fund with the highest expenses payable by investors
D)the net asset value is the total value of the fund divided by the number of outstanding units

Answer 1

C

Question 2

All financial intermediaries are banks.

Answer 2

False

Question 3

Private equity firms are financial intermediaries that are not traded on public capital markets.

Answer 3

True

Question 4

In financial markets, borrowers and lenders most both be located in the same country.

Question 5

Insurance companies have a great deal of money to invest because [blank].

A)their profit margins are so high
B)they are reluctant to cover insurable losses
C)they must hold large reserves to pay potential claims
D)they are not well regulated

Question 6

Individuals are often savers because they wish to save for such things as retirement, a down payment on a home or graduate school.

Question 7

Within financial markets, savers are to [blank] as financial institutions are to [blank].

Question 8

Banks that are financial intermediaries generate earnings when they facilitate the transfer of money from savers to borrowers by paying savers a smaller return than they demand from borrowers.

Question 9

Capital markets are markets for short-term debt instruments maturing in less than one year, and money markets are markets for long-term debt instruments maturing in more than one year.

Question 10

All of the following operate as financial intermediaries except [blank].

A)commercial banks
B)mutual funds
C)insurance companies
D)the Australian Treasury

Question 11

All of the following are classified as non-bank financial intermediaries except [blank].

A)stock brokerages
B)investment banks
C)insurance companies
D)hedge funds

Question 12

The difference between managed funds and ETFs is that ETFs are traded on exchanges and mutual funds are not.

Question 13

Which of the following is true regarding money market corporations?

A)They tend to operate in wholesale markets.
B)They predominantly provide mortgage financing to homeowners.
C)They have a larger share of financial assets than superannuation funds.
D)They are not generally known as Registered Financial Corporations.

Question 14

The principal participants in the financial markets are [blank].

A)businesses, banks, government
B)borrowers, savers, financial institutions
C)mutual finds, hedge funds, investment bankers
D)dealers, brokers, regulators

Question 15

Financial intermediaries help bring savers and borrowers together.

Question 16

Managed funds and ETFs provide the investor a chance to diversify without having to buy shares in numerous corporations.

Question 17

The Commonwealth Bank of Australia is an example of a [blank].

A)investment firm
B)commercial bank
C)capital market
D)credit union

Question 18

In financial markets, borrowers pay savers by giving them a return on investment.

Question 19

All of the following are true about insurance companies except [blank].

A)they invest their reserves.
B)they may guarantee to reimburse lenders should lenders' loans go into default.
C)they participate in equipment leasing.
D)they may only invest their reserves in interest paying bank accounts under Federal law.

Question 20

The principal savers in the financial markets are [blank].

A)businesses
B)banks
C)individuals
D)governments

Question 21

There are no national boundaries on financial markets.

Question 22

Which of the following is true about preference shares?

A)Preference shares always have voting rights.
B)If the company does not have the funds to pay the preference dividend, the right of the preference shareholders to collect that dividend lapses.
C)Preference share dividends are not tax-deductible to the corporation.
D)Preference shares always have a maturity date, at which time the issue price must be repaid to shareholders.

Question 23

Colin, a private individual, sold 1000 shares of stock in DEF Corporation to Colleen, also a private individual.This represents a secondary market transaction.

Question 24

Owners of common shares are the owners of the firm.

Question 25

Each year, shareholders always receive a dividend equal to the firm's net earnings divided by the number of ordinary shares outstanding.

Question 26

Over the long term, mutual fund fee and expenses can have a significant impact on returns.

Question 27

Banking regulations are essentially the same in all developed economies.

Question 28

Describe the costs and benefits to investors of owning managed funds.

Question 29

Which of the following is true about bonds?

A)They are obligations from the investor to the corporation.
B)Their interest rate always varies with the Consumer Price Index.
C)They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year.
D)At maturity of the bond, the investor receives the market price of the bond.

Question 30

Primary markets are always larger than secondary markets.

Question 31

A bond matures in less than 10 years.

Question 32

The market for short-term debt is known as [blank].

A)the bond market
B)the notes market
C)the capital market
D)the money market

Question 33

Which of the following financial instruments is not traded in the capital markets?

A)debt with a maturity of less than one year
B)bonds
C)common stock
D)preferred stock

Question 34

Bonds are less risky than are stocks because their return is more predictable.

Question 35

ABC Corporation issued and sold 10 shares of stock to Irene Investor, a private individual.This represents a secondary market transaction.

Question 36

The financial crisis of 2008 was caused in part by declining real estate values and defaults on mortgage payments.

Question 37

Which of the following financial instruments entails the most risk and potentially the highest returns for investors?

A)Debt with a maturity of less than one year
B)Bonds
C)Common stock
D)Preferred stock

Question 38

A share's market value is dependent on investors' expectations of future cash flows to the firm.

Question 39

Characteristics of typical bonds include all of the following except [blank].

A)the par value
B)the dividend rate
C)the coupon rate
D)the maturity date

Question 40

A security is a written instrument that represents a financial claim.

Question 41

Established firms in need of additional capital can raise it in the secondary market.

Question 42

Organised security exchanges do not physically occupy space.

Question 43

More US technology stocks are listed on the National Association of Securities Dealers Automated Quotations (NASDAQ)rather than on the New York Stock Exchange (NYSE).

Question 44

Explain how securities markets provide a link between the corporation and investors.

Question 45

The process of packaging mortgages is called [blank].

Question 46

A company has the option to pay bond interest or not.

Question 47

Describe the tax benefits to a corporation of issuing debt rather than issuing shares.

Question 48

The prices of preference shares are solely dependent on investors' expectations of future cash flows to the corporation.