Question 1

What feature gives the bondholder or preferred stockholder the right to exchange the bond or preferred stock for a fixed number of shares of common stock?

Accepted Answer

The feature described is convertible securities, which give the bondholder or preferred stockholder the right to exchange their securities for a fixed number of shares of common stock. This allows investors to potentially benefit from an increase in the value of the common stock, while also receiving the fixed income or preferred dividends from their initial investment.

Question 2

The ______ is a collection of financial markets in which previously issued securities are traded among investors.

Accepted Answer

The secondary market is where previously issued securities are traded among investors. In contrast, the primary market is where new securities are issued and sold to investors for the first time, while the government market refers specifically to the market for government-issued securities. "Super market" is not a financial market term.

Question 3

Which of the following stock exchanges is the most international of all stock markets?

Accepted Answer

The London Stock Exchange is the most international of all stock markets as it has over 3,000 companies from 70 countries listed on its exchange. The other options have a more limited international presence.

Question 4

One of the largest stock exchange outside the United States is the ______.

Accepted Answer

The London Stock Exchange is one of the largest stock exchanges in the world and is the largest in Europe. The other options, NYSE, TSX, and HKSE, are all significant stock exchanges but are either located in the United States, Canada, or Hong Kong, respectively.

Question 5

The basic form of corporate ownership is ______.

Accepted Answer

Common stock is the most basic form of corporate ownership as it represents ownership in a company and comes with voting rights at shareholder meetings. Preferred stock and convertible securities may also represent ownership in a company, but they have additional features and may not carry voting rights. Standard stock is not a commonly used term in the context of corporate ownership.

Question 6

The most common type of order is called a ______. It instructs the broker to obtain the best possible price-the highest price when selling and the lowest price when buying.

Accepted Answer

A market order instructs the broker to buy or sell a security at the prevailing market price, which means obtaining the best possible price. Therefore, the correct answer is D) market order.

Question 7

The ______ handles four to five times the dollar value of securities that are handled in the primary market.

Accepted Answer

The secondary market handles the trading of securities that have already been issued in the primary market. It is often much larger and more active than the primary market, handling higher dollar volumes as securities change hands between investors. The other answer choices (A, C, and D) are either too broad or specific to fully encompass the activity of the secondary market.

Question 8

Bonds with ratings of BBB and above are classified as ______.

Accepted Answer

Bonds with ratings of BBB and above are considered relatively safe and are classified as investment-grade bonds. This means that these bonds are issued by companies with a lower risk of default, making them a more secure investment compared to speculative or junk bonds. Corporate bonds are a broader category of bonds that include both investment-grade and non-investment-grade bonds.

Question 9

Securities are issued and traded in the ______.

Accepted Answer

Securities are issued and traded in the financial market, which is a broad term that refers to a marketplace where buyers and sellers trade financial assets like stocks, bonds, currencies, and commodities. The financial market can be further divided into various segments like the money market, capital market, derivatives market, etc.

Question 10

What provision allows the issuer to redeem the bond before its maturity at a specified price?

Accepted Answer

The provision that allows the issuer to redeem the bond before its maturity at a specified price is called the call provision. This provision gives the issuer the option to call back the bond from the investors before its maturity at a pre-determined price. This is usually done when interest rates decline, and the issuer can issue new bonds at a lower interest rate, saving money on interest payments.

Question 11

When a company needs capital to purchase inventory, expand a plant, make major investments, acquire another firm, or pursue other business goals, it may sell a bond or stock issue to the investing public. This is done in which market?

Accepted Answer

The primary market is where companies sell new securities to the public for the first time. This is done through an initial public offering (IPO) or a bond offering. The purpose of the primary market is to raise capital for the issuing company. In contrast, in the secondary market, existing securities are bought and sold between investors.

Question 12

Other things being equal, the higher the interest rate, the ______ the price of a bond.

Accepted Answer

The answer of Other things being equal, the higher the...

Question 13

Which of the following is a depository financial institution?

Accepted Answer

A credit union is a depository financial institution that is member-owned and offers savings and checking accounts and loans to its members. Life insurance companies, pension funds, and mutual funds are not depository financial institutions.

Question 14

The two largest stock markets in the world are the ______ and the ______.

Accepted Answer

The New York Stock Exchange (NYSE) and the NASDAQ stock market are the two largest stock exchanges in the world by market capitalization.

Question 15

______ are the basic form of corporate ownership.

Accepted Answer

Common shares are the most basic form of corporate ownership. They represent a unit of ownership in a company and give the owner voting rights and the potential for dividends. Treasury bills, bonds, and debentures are types of debt securities, not ownership securities.

Question 16

In ______, buyers and sellers meet in a virtual stock market and trade directly with one another.

Accepted Answer

Electronic communications networks (ECNs) allow buyers and sellers to directly trade securities without the need for intermediaries like brokers or investment banks. They are essentially virtual stock markets where participants can submit buy and sell orders and receive real-time pricing information. Examples of ECNs include Instinet, Island and BATS.

Question 17

The ______ is perhaps the most international of all stock markets.

Accepted Answer

The London Stock Exchange is in one of the world's leading financial centers, and as a result, it welcomes companies from all over the world, making it the most international of all stock markets.

Question 18

Which of the following are examples of municipal bonds?

Accepted Answer

Municipal bonds are bonds issued by local governments, such as cities, towns, or counties. Therefore, provincial government bonds issued in Ontario are an example of municipal bonds. Government bonds, secured bonds, and unsecured bonds are not necessarily municipal bonds.

Question 19

An owner of which form of stock would receive dividend payments first?

Accepted Answer

Preferred stockholders have priority over common stockholders in terms of receiving dividend payments.

Question 20

Facebook had its ______ when it sold stocks to the public for the first time.

Accepted Answer

An initial public offering (IPO) is when a company offers its stocks to the public for the first time. Therefore, option D is the correct answer. Option A is incorrect because a tombstone is a notice or advertisement placed in a financial publication announcing a completed transaction. Option B is too broad and doesn't specifically refer to selling stocks to the public. Option C is also incorrect as underwriting refers to the process in which an investment bank guarantees the sale of a company's securities.

Quiz 16: The Financial System