Deck 16: The Financial System

Question 1

Municipal bonds are issued by _________________________.

A) local government
B) provincial government
C) federal governments
D) any level of government

Answer 1

A

Question 2

What is the key difference between NASDAQ and the New York Stock Exchange (NYSE)?

A) NASDAQ is completely electronic; the NYSE still has a trading floor.
B) Tech companies such as Microsoft and Intel are required to trade on NASDAQ.
C) There are more companies listed on the NYSE than on NASDAQ.
D) Corporate bonds make up most of the trading on the NYSE; bonds make up less of the volume on the NASDAQ.

Answer 2

A

Question 3

What is it called when a company offers a stock for sale to the general public for the first time?

A) primary market
B) initial public offering
C) durability
D) preferred stock

Answer 3

B

Question 4

To be labelled as a junk bond, a bond must have a Standard & Poor's rating at or below ________.

A) 3B
B) BB
C) B
D) A

Question 5

A ________ is an unsecured bond backed by the financial reputation of the issuing corporation.

A) general obligation bond
B) debenture
C) pass-through security
D) note

Question 6

Net worth is determined by what you own in comparison to what you owe.

Question 7

Subprime mortgages that were packaged into pass-through securities should have been rated as which of the following?

A) investment grade bonds
B) risk-adjusted bonds
C) callable bonds
D) speculative bonds

Question 8

The majority of money in the financial system passes through financial _______.

A) currency and debt systems
B) institutions and markets
C) deposits and loans
D) bonds and certificates

Question 9

Virtually all securities are issued by either of the following:

A) individuals and government
B) businesses and individuals
C) businesses and government
D) non-profits and businesses

Question 10

Common stockholders _____________________________________.

A) usually benefit when a company is growing
B) have the greatest security of any investor
C) have a senior claim to the firm's assets during bankruptcy
D) are guaranteed dividends based on the firm's annual profits

Question 11

Which of the following is not a securities category?

A) shares
B) bonds
C) money market instruments
D) all of the above

Question 12

Bondholders are ________ of a corporation.

A) creditors
B) customers
C) liabilities
D) assets

Question 13

Securities are __________________________.

A) stocks and savings accounts
B) risk-free or speculative ownership stakes in publicly traded corporations
C) obligations on the part of the borrower to provide returns on funds invested or loaned
D) bonds and debentures

Question 14

When a company offers stock for the first time ___________________________.

A) the rating is usually speculative
B) securities are offered through commercial banks
C) it is called an initial public offering (IPO)
D) it is entering the secondary market

Question 15

What is the world's largest stock market in terms of the total value of stock traded?

A) London Stock Exchange
B) NASDAQ
C) Hong Kong Stock Exchange
D) New York Stock Exchange

Question 16

The NYSE is sometimes referred to as the _______________.

A) Big Board
B) Ticker Haven
C) District Diamond
D) NASDAQ

Question 17

The financial system is the process by which ____________________________.

A) firms make money
B) funds are transferred from savers to borrowers
C) securities are sold
D) the Federal Reserve manages monetary policy

Question 18

An IPO is a(n) __________.

A) high-yield bond
B) primary market offering
C) independent price occurrence
D) secondary market investment

Question 19

Treasury bills are sold with a maturity of 30, 90, 180, or _____ days and have a minimum denomination of $1,000.

A) 45
B) 150
C) 210
D) 360

Question 20

Generally, in Canada, households are net users and businesses are net savers.

Question 21

Canada's largest bank is TD Bank.

Question 22

____________ of the 50 largest worldwide banks (measured by total assets) are Canadian institutions.

A) 4
B) 5
C) 9
D) 13

Question 23

If the Bank of Canada pushes interest rates up, the growth rate in the money supply and inflationary pressures increase.

Question 24

CDIC was instituted to avoid runs on banks.

Question 25

________ are the largest and probably the most important financial institutions in Canada.

A) Credit rating agencies
B) Private banks
C) Credit unions
D) Commercial banks

Question 26

What is the primary responsibility of the Ontario Securities Commission (OSC) or the Manitoba Securities Commission?

A) regulating banks and other financial institutions
B) providing liquidity to the financial market
C) administering securities laws and protecting investors
D) underwriting the issue of new securities

Question 27

Banks make money primarily because the interest rate they pay depositors is greater than the interest rate they charge borrowers.

Question 28

The Bank of Canada manages the money supply by _______________________.

A) allowing the economy to expand and inflation to remain in check
B) reducing lending during a recession
C) increasing the federal deficit
D) controlling the direction of the Prime Minister

Question 29

Securities sold by corporations are __________________________.

A) treasury bills
B) commercial paper
C) certificates of deposit
D) common stock

Question 30

Life insurance companies are nondepository financial institutions.

Question 31

Virtually all nations have a central bank similar to the Bank of Canada.

Question 32

When the Bank of Canada pushes for lower interest rates, central banks in other nations tend to push for higher rates in their systems.

Question 33

The lowering of interest rates by the Federal Reserve in the U.S. can have rippling effects on global finances.

Question 34

Marco works in the Treasury department of a major corporation. His boss has asked him to analyze a takeover offer from a competitor. The offer has not yet been made public.

A) Marco should call his stockbroker and sell shares of his company's stock if the offer looks promising.
B) Marco cannot invest in his own name but he can ask his mother to buy stock on his behalf.
C) Marco is only a lower level employee so he isn't covered by insider trading laws.
D) Because the information is not yet public, Marco must not act on it.

Question 35

How do commercial banks differ from credit unions?

A) Commercial banks serve business and personal customers; credit unions are designed to serve consumers, not businesses.
B) Commercial banks are typically owned by investors; credit unions are controlled by a founding corporation.
C) Commercial banks provide long-term loans; credit unions offer chequing accounts.
D) Deposits at a commercial bank are insured by the FDIC; credit union accounts are uninsured.