Question 1

Which one of the following are examples of financial assets?
A) U.S. Treasury bonds.
B) Foreign bonds.
C) Home mortgage loan.
D) Common stock.
E) All of the above

Accepted Answer

All the options listed (U.S. Treasury bonds, foreign bonds, home mortgage loans, and common stock) are examples of financial assets. Financial assets represent a claim to future cash flows or ownership in an entity.

Question 2

Financial assets are referred to as debt instruments in the case of:
A) U.S. Treasury bonds.
B) Corporate bonds.
C) Corporate stock.
D) Municipal bonds.
E) a, b, and d only.

Accepted Answer

U.S. Treasury bonds, corporate bonds, and municipal bonds are all examples of debt instruments because they represent a loan made by the investor to the issuer. Corporate stock, however, represents equity ownership in a company and is not a debt instrument.

Question 3

Financial assets represent a residual claim in the case of:
A) Preferred stock.
B) Common stock.
C) Partnership share.
D) b and c only.
E) All of the above.

Accepted Answer

Common stock and partnership shares represent a residual claim, meaning holders are paid after all other claims such as debts and preferred stock dividends are settled. Preferred stock typically has a fixed dividend and does not represent a residual claim in the same way.

Question 4

The process of valuing financial assets does not include:
A) Estimating the cash flows.
B) Determining the length of time the asset is held.
C) Determining the appropriate discount rate.
D) Discounting the expected cash flows.
E) All of the above.

Accepted Answer

The answer of The process of valuing financial assets does...

Question 5

Which of the following risks are associated with realizing the expected cash flows?
A) Default risk.
B) Purchasing power risk.
C) Foreign-exchange risk.
D) All of the above.

Accepted Answer

All of the options listed are risks associated with realizing the expected cash flows. Default risk pertains to the possibility that a borrower may not be able to make the required payments. Purchasing power risk, also known as inflation risk, concerns the potential decrease in the value of cash flows due to inflation. Foreign-exchange risk involves the risk that the value of cash flows will fluctuate due to changes in currency exchange rates.

Question 6

The principal economic functions of financial assets include:
A) The transfer of funds from those with surplus funds to those who need funds.
B) The transfer of ownership from seller to buyer.
C) The transfer of funds so as to redistribute the unavoidable risk associated with the cash flow generated by tangible assets among those seeking and providing the funds.
D) a and c only.
E) All of the above.

Accepted Answer

The answer of The principal economic functions of financial assets...

Question 7

The length of time between the date the instrument was issued and is scheduled to make final payment is called:
A) Holding period.
B) Term to maturity.
C) Maturity.
D) b and c only.
E) All of the above.

Accepted Answer

The terms "term to maturity" and "maturity" both refer to the length of time between when a financial instrument is issued and when it is scheduled to make its final payment, making both B and C correct.

Question 8

The price discovery process is an economic function, which refers to:
A) Financial markets that reduce the search and information costs.
B) Financial markets that signal how funds in the economy should be allocated among financial assets.
C) Financial markets that provide a mechanisms for an investor to sell a financial asset.
D) Financial markets that offer liquidity.
E) None of the above.

Accepted Answer

The price discovery process in financial markets primarily signals how funds should be allocated among various financial assets, reflecting the value and potential return of these assets based on supply and demand dynamics.

Question 9

Common stock issued by Digital Equipment Corporation is traded in which of the following markets?
A) Money market.
B) Debt market.
C) Derivatives market.
D) Capital market.
E) None of the above.

Accepted Answer

Common stock issued by companies, including Digital Equipment Corporation, is traded in the capital market. The capital market is where long-term securities, including stocks and bonds, are bought and sold.

Question 10

When an issuer sells a new financial asset to the public, it is sold in the:
A) Primary market.
B) Intermediate market.
C) Secondary market.
D) Commodities market.
E) None of the above.

Accepted Answer

When an issuer sells a new financial asset to the public for the first time, it occurs in the primary market. This is where securities are created, and it's the market that allows issuers to raise capital from investors.

Question 11

Financial assets that are bought and sold amongst investors are traded in the:
A) Derivatives market.
B) Primary market.
C) Secondary market.
D) Commodities market.
E) None of the above.

Accepted Answer

Financial assets that are bought and sold amongst investors after their initial issuance are traded in the secondary market. This includes stocks, bonds, and other securities trading after the primary market issuance.

Question 12

Securities with a maturity of less than one year are traded in the:
A) Bond market.
B) Money market.
C) Capital market.
D) Euromarket.
E) None of the above.

Accepted Answer

Securities with a maturity of less than one year are typically traded in the money market, which is a segment of the financial market where short-term financial instruments and securities are bought and sold.

Question 13

Which of the following is not a factor in the integration of financial markets throughout the world?
A) Increased institutionalization of financial markets.
B) Advances in telecommunications and computer technologies.
C) Deregulation or liberalization of major financial markets.
D) Expanded role of the World Bank.
E) None of the above.

Accepted Answer

The expanded role of the World Bank is not a direct factor in the integration of financial markets globally. The integration is primarily driven by increased institutionalization, advances in technology, and deregulation of financial markets, rather than the activities of the World Bank, which focuses on providing financial and technical assistance to developing countries for development programs (e.g., infrastructure, health) that are expected to improve economic prospects and quality of life.

Question 14

Securities of issuers not domiciled in the country are traded in which market(s)?
A) Domestic market.
B) Foreign market.
C) International market.
D) Euromarket.
E) None of the above.

Accepted Answer

The answer of Securities of issuers not domiciled in the...

Question 15

Which of the following statements is incorrect?
A) Derivative instruments derive their value from the price of the underlying financial instrument.
B) Derivative instruments give the holder the right, but not the obligations, to buy or sell a financial assets.
C) Derivative instruments can be used for speculative purposes.
D) Derivative instruments can be used for accomplishing a specific financial objective.
E) None of the above.

Accepted Answer

Not all derivative instruments give the holder the right but not the obligation; for example, futures contracts obligate the holder to buy or sell the underlying asset.

Question 16

Two basic types of derivative instruments are:
A) Stocks and bonds.
B) Options and futures.
C) Bonds and swaps.
D) Forward contracts and stocks.
E) None of the above.

Accepted Answer

Options and futures are the two basic types of derivative instruments, as they derive their value from the performance of underlying assets.

Question 17

The bid-ask spread:
A) Is the difference between the price the market maker is willing to sell a financial asset and the price the market maker is willing to buy a financial asset.
B) Reflects the amount of risk the market maker is assuming by making a market.
C) Is affected by the thickness of the market.
D) All of the above are correct.
E) None of the above.

Accepted Answer

The bid-ask spread represents the difference between the buying price (bid) and selling price (ask) that a market maker offers, reflects the market maker's perceived risk, and is influenced by market liquidity or thickness.

Question 18

The risk attached to financial assets whose cash flows are not denominated in U.S. dollars is called:
A) Credit risk.
B) Inflation risk.
C) Foreign-exchange risk.
D) Market risk.
E) None of the above.

Accepted Answer

Foreign-exchange risk arises because the value of foreign-denominated cash flows can fluctuate due to changes in exchange rates, affecting the value of financial assets when converted back to U.S. dollars.

Question 19

Securities traded in the external market are distinguished by:
A) Being accessible only to foreign investors.
B) Being offered simultaneously to investors in a number of countries.
C) Being issued outside the jurisdiction of any single country.
D) Being traded in Europe only.
E) b and c only.

Accepted Answer

Securities traded in the external market, often referred to as Eurobonds or foreign bonds, are characterized by their availability to investors in multiple countries and not being confined to the jurisdiction of a single country. This makes options B and C correct, as they accurately describe the nature of securities in the external market.

Question 20

Financial assets, financial instruments, or securities are intangible assets.

Accepted Answer

Financial assets, financial instruments, or securities represent ownership of an asset or a contractual right to receive or deliver money or another financial instrument, and they do not have a physical form, making them intangible assets.

Quiz 1: Introduction

Which one of the following are examples of financial assets?

Financial assets are referred to as debt instruments in the case of:

Financial assets represent a residual claim in the case of:

The process of valuing financial assets does not include:

Which of the following risks are associated with realizing the expected cash flows?

The principal economic functions of financial assets include:

The length of time between the date the instrument was issued and is scheduled to make final payment is called:

The price discovery process is an economic function, which refers to:

Common stock issued by Digital Equipment Corporation is traded in which of the following markets?

When an issuer sells a new financial asset to the public, it is sold in the:

Financial assets that are bought and sold amongst investors are traded in the:

Securities with a maturity of less than one year are traded in the:

Which of the following is not a factor in the integration of financial markets throughout the world?

Securities of issuers not domiciled in the country are traded in which market(s) ?

Which of the following statements is incorrect?

Two basic types of derivative instruments are:

The bid-ask spread:

The risk attached to financial assets whose cash flows are not denominated in U.S. dollars is called:

Securities traded in the external market are distinguished by:

Financial assets, financial instruments, or securities are intangible assets.