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| 1 | |
Mary purchases a U.S. Treasury bond; the bond is: |
| | A) | An asset of the U.S. government as well as an asset for Mary. |
| | B) | A liability of the U.S. government and an asset for Mary. |
| | C) | An asset for Mary but not a liability of the U.S. Government. |
| | D) | An asset for the government but a liability for Mary. |
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| 2 | |
More detailed financial instruments tend to be: |
| | A) | Less costly because all possible contingencies are covered. |
| | B) | More costly because they will cost more to create. |
| | C) | More desirable than less detailed ones, no matter what the price. |
| | D) | Less costly because they can be standardized more easily. |
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| 3 | |
Asymmetric information in financial markets is a potential problem usually resulting from: |
| | A) | Borrowers having more information than the lenders, and not disclosing this information. |
| | B) | Lenders having more information than borrowers and not disclosing this information. |
| | C) | The fact that people are basically dishonest. |
| | D) | The uncertainty about Federal Reserve monetary policy. |
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| 4 | |
Securities backed by _____ played an important role in the financial crisis of 2007-2009. |
| | A) | asset backed securities |
| | B) | bonds |
| | C) | subprime mortgages |
| | D) | small business loans |
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| 5 | |
Which of the following statements is NOT true? |
| | A) | Leverage is the use of borrowing to finance part of an investment. |
| | B) | During the financial crisis of 2007-2009, some important financial firms were leveraged more than 30 times their net worth. |
| | C) | Leveraging did not play a role in the financial crisis of 2007-2009 because financial firms do not use this tool. |
| | D) | Highly leveraged firms are very vulnerable to even a minor decline in the value of their assets. |
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| 6 | |
Considering the value of a financial instrument, the sooner the promised payment is made: |
| | A) | The less valuable is the promise to make it since time is valuable. |
| | B) | The greater the risk, therefore the promise has greater value. |
| | C) | The more valuable is the promise to make it. |
| | D) | The less relevant is the likelihood that the payment will be made. |
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| 7 | |
Benefits of the merger between the NYSE and Paris-based Euronext, a pan-European stock exchange, include: |
| | A) | lower costs and speedier transactions for international financial markets. |
| | B) | foreign ownership of domestic assets. |
| | C) | international consolidation of financial services. |
| | D) | greater the uncertainty. |
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| 8 | |
Which of the following financial instruments is used mainly to transfer risk? |
| | A) | Asset-backed securities. |
| | B) | Bonds. |
| | C) | Options. |
| | D) | Stocks. |
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| 9 | |
The most prominent asset-backed securities are: |
| | A) | Shares of stock in corporations since stockholders own the assets. |
| | B) | Securities backed by home mortgages. |
| | C) | U.S. Treasury bonds since they are backed by all public assets. |
| | D) | Movie box-office receipts. |
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| 10 | |
A primary financial market is: |
| | A) | A market just for corporate stocks. |
| | B) | A market only for AAA rated Securities. |
| | C) | The New York Stock Exchange. |
| | D) | One in which newly issued securities are sold. |
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| 11 | |
Interbank lending: |
| | A) | Typically involves very long time periods. |
| | B) | Allows banks to satisfy temporary, localized excess demand for funding liquidity. |
| | C) | Typically involves small volumes of money. |
| | D) | Is done by the Federal Reserve. |
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| 12 | |
One benefit of centralized exchanges compared to over-the-counter (OTC) market's is that: |
| | A) | OTC market's require specialists, whereas centralized exchanges do not. |
| | B) | Mistakes in placing orders are more likely in OTC market's. |
| | C) | Centralized exchanges do not require physical access, whereas OTC market's do. |
| | D) | Centralized exchanges make use of electronic communications networks (ECNs), whereas OTC market's do not. |
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| 13 | |
Equity markets: |
| | A) | Are markets of U.S. Treasury bonds. |
| | B) | Are markets for AAA rated bonds. |
| | C) | Are markets for stocks. |
| | D) | Are markets for either stocks or bonds. |
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| 14 | |
Debt instruments that have maturities less than one year are traded in: |
| | A) | The primary market exclusively. |
| | B) | The bond market exclusively. |
| | C) | The bond market if they are already in existence. |
| | D) | The money market. |
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| 15 | |
Derivative markets exist to allow for: |
| | A) | Reduced risk from volatile prices. |
| | B) | Direct transfers of common stocks for bonds. |
| | C) | Cash receipts from the sale of bonds. |
| | D) | Reduced information asymmetry. |
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