Question 1

Which of the following is true of the Securities Act of 1933?

Accepted Answer

The Securities Act of 1933 was designed to ensure transparency in financial statements so investors can make informed decisions and to prohibit deceit, misrepresentations, and other fraud in the sale of securities.

Question 2

Colbert Blanc is a financial intermediary that helps firms raise their capital by facilitating the firms in issuing new securities and making sure that the securities are sold out in the market. In this scenario, Colbert Blanc is a(n) _____.

Accepted Answer

Colbert Blanc is acting as an investment bank, which is a financial intermediary that assists firms in raising capital by underwriting and issuing new securities.

Question 3

Vincent is actively engaged in the stock market and frequently buys and sells stocks for personal profits. With a good insight about the market trends, Vincent is mostly able to sell his stocks at higher prices than the prices at which he purchases them. Vincent is a(n) _____.

Accepted Answer

The answer of Vincent is actively engaged in the stock...

Question 4

In the context of the deregulation during the 1980s and 1990s, critics argued that laws such as the Glass-Steagall Act and the Securities Exchange Act represented an onerous government intrusion into the financial sector that:

Accepted Answer

Critics of financial regulation during the 1980s and 1990s argued that laws like the Glass-Steagall Act stifled competition by imposing restrictions on the financial sector, limiting the ability of banks to engage in a broader range of financial services.

Question 5

The Securities and Exchange Commission (SEC) has the authority to go after individuals who engage in illegal insider trading, which is the practice of:

Accepted Answer

Insider trading involves using non-public, material information to make trades in a company's securities, which is illegal and falls under the SEC's enforcement authority.

Question 6

The _____ of 2010 expanded the Fed's regulatory authority over nondepository financial institutions, such as hedge funds and mortgage brokers that had previously operated with little regulatory oversight or accountability.

Accepted Answer

The Dodd-Frank Act of 2010 was enacted to increase regulation and oversight of financial institutions, including nondepository entities, following the 2008 financial crisis.

Question 7

A(n) _____ is a financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets.

Accepted Answer

An investment bank is a financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets.

Question 8

Ellizon Fiber Optics, a publicly traded firm, has approximately 1200 shareholders and $32 million in assets. Given the specifications of the company, the Securities and Exchange Commission (SEC) mandates Ellizon Fiber Optics to:

Accepted Answer

Ellizon Fiber Optics, being a publicly traded firm with a significant number of shareholders and assets, is required by the SEC to file quarterly and annual financial reports to ensure transparency and protect investors.

Question 9

The rationale behind why the Glass-Steagall Act mandated the ban on commercial banks from dealing in securities markets and selling insurance was that such activities:

Accepted Answer

The Glass-Steagall Act aimed to reduce the risk to banks and their depositors by separating commercial banking from investment banking activities, as involvement in securities markets and insurance could expose banks to higher levels of financial risk.

Question 10

_____ overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks.

Accepted Answer

The Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, repealed the Glass-Steagall Act's restrictions, allowing commercial banks to engage in investment banking and insurance services.

Question 11

Grenville Osborn Corp., a commercial bank in the United States, faces legal action for its private dealings in the securities market and in selling insurance. The Grenville Osborn & Co. is in violation of the:

Accepted Answer

The Glass-Steagall Act separated commercial banking from investment banking, and Grenville Osborn Corp.'s involvement in securities and insurance suggests a violation of this act.

Question 12

A wave of bank failures occurred in the United States in the early 1930s as the economy sank into the Great Depression. Congress responded by passing the _____ of 1933.

Accepted Answer

The Banking Act of 1933, also known as the Glass-Steagall Act, was passed to restore confidence in the banking system and included measures such as the establishment of the FDIC.

Question 13

The Federal Reserve System was:

Accepted Answer

The Federal Reserve System was created in 1913 to serve as the central bank of the United States, with the purpose of providing the country with a safe, flexible, and stable monetary and financial system.

Question 14

The difference between the prices at which securities dealers buy and sell a security is called _____.

Accepted Answer

The spread is the difference between the bid price (what dealers are willing to pay for a security) and the ask price (what dealers are willing to sell it for).

Question 15

Elyon holds a savings account in the Rochester City Bank in the United States. During an economic downturn, the bank suffers great losses. Elyon, however, is insured under the Federal Deposit Insurance Corporation and his savings are protected as the insurance covers his deposit value. Which of the following laws ensured the protection of depositors from a bank's failure?

Accepted Answer

The Glass-Steagall Act established the Federal Deposit Insurance Corporation (FDIC) which insures deposits, protecting depositors from bank failures.

Question 16

Reese buys securities in a pharmaceutical company for $3300. After a period of eight months, when the prices of the securities go up in the market, she sells her securities for $3700. In this case, the difference of $400 in the prices of the securities is called:

Accepted Answer

The difference between the buying and selling price of a security is referred to as the spread.

Question 17

According to critics, the Glass-Steagall Act:

Accepted Answer

Critics argue that the Glass-Steagall Act, which separated commercial and investment banking, impeded financial innovation by restricting the types of financial activities banks could engage in.

Question 18

Danner City Bank, a commercial bank in Oklahoma, was suffering from financial losses. Once the U.S. government passed the _____ in 1999, the bank started recovering from its losses as it was allowed to sell its securities.

Accepted Answer

The Gramm-Leach-Bliley Act, passed in 1999, allowed commercial banks to engage in securities and insurance activities, which helped banks like Danner City Bank recover from financial losses by expanding their services.

Question 19

The Securities Exchange Act of 1934 required that all publicly traded firms with at least _____ shareholders and $10 million in assets file quarterly and annual financial reports with the Securities and Exchange Commission (SEC).

Accepted Answer

The Securities Exchange Act of 1934 mandates that publicly traded companies with at least 500 shareholders and $10 million in assets must file regular financial reports with the SEC.

Question 20

The banking panic of 1907 in the United States created pressure for Congress to find a way to stabilize the nation's banking system. The result was the:

Accepted Answer

The Federal Reserve Act of 1913 was enacted in response to the banking panic of 1907 to establish a central banking system, the Federal Reserve, to provide stability to the financial system.

Quiz 10: Securities Markets: Trading Financial Resources