Deck 15: Securities Firms, Mutual Funds, and Financial Conglomerates

Question 1

The two main functions of securities firms are

A)investment banking, and the buying and selling of previously issued securities.
B)advising customers and selling their own securities.
C)regulating other financial firms and reporting their results to the appropriate government regulator.
D)buying securities in the secondary market and reselling them in the primary market.

Answer 1

A

Question 2

The two main functions of securities firms are

A)investment banking.
B)the buying and selling of previously issued securities.
C)regulating other financial firms and buying securities in the secondary market
D)Both a and b are correct.

Answer 2

A

Question 3

A financial institution that designs, markets, and underwrites new issuances of securities in the primary market is a(n)

A)full service bank.
B)investment bank.
C)initial public offering bank.
D)mutual fund.

Answer 3

B

Question 4

An Initial Public Offering (IPO) is an offering of

A)stocks or bonds to the public by a company that has not previously sold securities to the public.
B)stocks or bonds to the public by a company that is issuing new securities but that has previously sold securities to the public.
C)stocks or bonds to the public that has either issued or not issued securities to the public in the past.
D)the assets of a company that has declared bankruptcy to the creditors before the assets are sold to the public.

Question 5

The Securities and Exchange Commission (SEC) is a government agency created in 1934 to

A)regulate the foreign exchange market.
B)respond to financial crises in the stock market.
C)regulate the securities industry.
D)oversee other government regulatory agencies in the financial services industry.

Question 6

If one bank is reluctant to take full responsibility for a new issuance, the bank may form a __________________, which is a group of investment banks, each of which underwrites a portion of the new offering.

A)risk partnership
B)joint investment
C)syndicate
D)private placement

Question 7

If one bank is reluctant to take full responsibility for a new issuance, the bank may form a syndicate, which is a ___________, each of which underwrites a portion of the new offering.

A)risk partnership
B)joint investment
C)group of investment banks
D)private placement

Question 8

An individual who arranges trades between buyers and sellers of securities for a fee is a _________________, while an individual who arranges trade and stands ready to be a principle in a transaction is a ___________________.

A)trader, broker
B)dealer, broker
C)broker, trader
D)broker, dealer

Question 9

The price at which a dealer is willing to buy securities is the _______________, while the price at which a dealer is willing to sell securities is the _____________________.

A)bid price, asked price
B)bid price, sell price
C)asked price, bid price
D)asked price, sell price

Question 10

A margin loan is a loan to

A)investors where the proceeds are used to purchase securities.
B)investors where the proceeds are used to pay brokerage fees.
C)banks where the proceeds are used to meet reserve requirements.
D)investors where the proceeds are used to purchase junk bonds (marginal investments).

Question 11

Investment companies are

A)not financial intermediaries.
B)financial intermediaries that that raise funds from many small investors by selling shares in the company.
C)include open-end and closed-end mutual funds and money market mutual funds.
D)Both b and c are correct.

Question 12

A _________________ investment company is a mutual fund that continually sells new shares to the public or buy outstanding share from the public at a price equal to the net asset value, whereas a __________________ investment company sells a limited number of shares like other corporations but usually do not buy back outstanding shares.

A)market; bond
B)load; no-load
C)open-end; closed-end
D)surplus; deficit

Question 13

A load is a(n)

A)sales commission paid to a broker to purchase mutual funds.
B)stock given to a dealer for meeting her quota.
C)annual bonus equivalent to the percentage that was earned on mutual fund purchases.
D)All of the above are correct.

Question 14

A sales commission paid to a broker to purchase mutual funds is called a

A)load.
B)refund purchase.
C)secondary sell.
D)All of the above are correct.

Question 15

A ________________ mutual fund is purchased directly from the mutual fund company and not subject to a load.

A)commission
B)independent
C)no-load
D)free-trade

Question 16

When new securities are sold to a limited number of investors such as commercial banks, insurance companies, pension funds or mutual funds, this is

A)a closed-end fund.
B)a private placement.
C)illegal.
D)a hedge fund.

Question 17

A nontraditional type of mutual fund formed as a partnership of up to either 99 or 499 wealthy investors with large minimum investments is a

A)hedge fund.
B)wealthy-only fund.
C)fund of funds.
D)real estate investment trust.

Question 18

A new issuance of stocks and bonds by a company that has previously sold stocks and bonds to the public is called a(n)

A)initial public offering.
B)primary offering.
C)secondary offering.
D)seasoned issuance.

Question 19

The _____________________spells out the terms and provisions of the bond offering.

A)primary offering.
B)secondary offering.
C)bond indenture.
D)investment banker.

Question 20

The ________________________ is part of the registration statement, contains all of the disclosures and other pertinent information about the issuance, and must be given to potential investors before they purchase securities.

A)bond indenture
B)prospectus
C)primary offering
D)registration brochure

Question 21

Which of the following is false?

A)The best endorsement of the quality and price of a new securities offering is if the Securities and Exchange Commission (SEC) approves the new offering.
B)Investment banks design, market, and underwrite the issuance of new securities in the primary market.
C)Investment banks handle private placements that bypass the underwriting process and that are marketed to a limited number of qualified investors.
D)The Securities and Exchange Commission (SEC) was created in 1934 to regulate the securities industry.

Question 22

The __________________________ is found by subtracting the liabilities of the mutual fund from the market value of the securities that the fund owns and dividing the difference by the outstanding number of shares.

A)open-end value
B)closed-end value
C)net asset value
D)load value

Question 23

The net asset value is found by _______ the liabilities of the mutual fund from the market value of the securities that the fund owns and _______ the difference by the outstanding number of shares.

A)subtracting, dividing
B)adding, dividing
C)subtracting, multiplying
D)adding, multiplying

Question 24

Which of the following is a benefit of forming a financial conglomerate?

A)the ability to gain from economies of scale
B)the ability to gain from economies of scope
C)the ability to gain from the reduced dependence on one service
D)All of the above are correct.

Question 25

Which of the following is false?

A)A hedge fund is a type of mutual fund that has fewer than 99 or 499 wealthy investors.
B)Hedge funds are regulated by the Securities and Exchange Commission (SEC)..
C)A real estate investment trust (REIT) may invest in real property as well as financial instruments.
D)Shares of REITs are traded on organized exchanges.

Question 26

Consuelo expects the price of a stock to rise. Therefore, she should

A)put a market order in for the stock.
B)short sell the stock.
C)put a limit order in for the stock.
D)None of the above.

Question 27

Thanh expects the price of a stock to fall. Therefore, she should

A)put a market order in for the stock.
B)short sell the stock.
C)put a limit order in for the stock.
D)None of the above.

Question 28

Which of the following is true?

A)The Securities and Exchange Commission (SEC) set margin requirements for stock purchases.
B)The current margin requirement is 50 percent although brokerage firms often set higher margin requirements and vary them based on the stocks being traded and the trading behavior of individual customers.
C)The Securities and Exchange Commission (SEC) makes margin loans to customers in amounts above the margin requirement.
D)All brokerage firms currently charge the same brokerage fees for executing transactions.

Question 29

Which of the following is false?

A)Online trading is the trading of stocks, mutual funds, and money market shares on the computer.
B)Online trading usually refers to the individual's use of computers to trade stocks.
C)Online trading in general offers lower brokerage fees and given the public more control over trading.
D)Despite the growth of online trading, traditional full-service brokerage firms have greatly increased their commissions in recent years because they too have used online trading.

Question 30

The securities industry is self-regulated by which of the following?

A)The Securities and Exchange Commission (SEC).
B)The National Association of Securities Dealers (NASD).
C)The Fed.
D)The Securities Industry Protection Corporation (SIPC).

Question 31

Which of the following protects me if my brokerage firm become insolvent?

A)The Securities and Exchange Commission (SEC).
B)The National Association of Securities Dealers (NASD).
C)The Federal Deposit Insurance Corporation (FDIC).
D)The Securities Industry Protection Corporation (SIPC).

Question 32

Which of the following protects investors from losses because of decreases in security prices?

A)The Securities Industry Protection Corporation (SIPC
B)The National Association of Securities Dealers (NASD).
C)The Federal Deposit Insurance Corporation (FDIC).
D)All of the above are correct.
E)No agencies protect investors from losses due to a decrease in security prices.

Question 33

Margin loans are

A)illegal if over 25 percent of the initial stock purchase.
B)loans to investors where the proceeds are used to purchase securities.
C)instructions to brokers to borrow shares of stock and sell them today with the guarantee that the investor will replace the borrowed stock by a date in the future.
D)Both a and b are true.

Question 34

Which of the following is least regulated?

A)individual stocks
B)hedge funds
C)banks
D)savings and loans

Question 35

Which of the following is false?

A)Investment banks underwrite securities offering in both the primary and secondary markets.
B)Investment banks design, market, and underwrite new issues of securities.
C)A new issuance of stocks or bonds by a company that has not previously sold stocks or bonds is called an initial public offering (IPO).
D)An offering of new stocks or bonds by a company that has previously sold stocks or bonds is called a secondary offering.

Question 36

Which of the following is true?

A)The trustee monitors whether or not the corporation fulfills the terms of the bond indenture.
B)Investment bankers assist arranging new stock issuances that are traded only organized exchanges but not over-the-counter.
C)Investment bankers assist with initial public offerings (IPO) but not seasoned offerings.
D)The prospectus is part of the bond indenture.

Question 37

A mutual fund that invests in a market basket of stocks that replicates the basket included in a stock market index such as the S&P 500 is

A)a growth and income fund.
B)an index fund.
C)a global equity fund.
D)a aggressive growth fund.

Question 38

High-yield bond funds invest most of their portfolio in

A)junk bonds.
B)blue chip stocks.
C)socially conscious stocks.
D)municipal bonds.

Question 39

Which of the following is false?

A)For any given investment, investment companies offer greater safety and more diversification than investing in one or a few stocks.
B)Closed-end investment companies are called mutual funds.
C)The value of open-end funds greatly exceeds the value of closed-end funds.
D)The price of closed-end funds can differ from the net asset value.

Question 40

Which of the following is false?

A)Hedge funds are nontraditional investment funds designed to give high returns to wealthy investors.
B)Hedge funds are more highly regulated than traditional investment funds because they engage in high-risk activities.
C)Hedge funds attempt to earn high returns regardless of whether prices in broader financial markets are going up or down.
D)Some of the strategies employed by hedge funds include short selling, exploiting price differentials, trading options and other derivatives, and borrowing to invest.

Question 41

Which of the following is true?

A)Real Estate Investment Trusts (REITs) pool the funds of many small investors and use them to buy or build income property or to make or purchase mortgage loans.
B)Real Estate Investment Trusts (REITs) are pass-through enterprises in that rents from the income property or interest from the mortgages that the REIT owns are passed through to the shareholders.
C)Real Estate Investment Trusts (REITs) were authorized by Congress in 1960 to give small investors an opportunity to invest in commercial real estate.
D)All of the above are true.

Question 42

A government-sponsored enterprise (GSE) created by Congress in 1989 to dissolve or find buyers for the failed thrifts and to liquidate the properties that the failed thrifts owned was the

A)Resolution Trust Corporation (RTC).
B)Financing Corporation (FICO).
C)Farm Credit Financial Assistance Corporation (FCO).
D)Federal National Mortgage Association (Fannie Mae).

Question 43

Government-sponsored enterprises (GSEs) are

A)government held spending bonds.
B)publicly approved infrastructure plans.
C)corporations owned by shareholders but that are chartered by Congress.
D)none of the above.

Question 44

Government-sponsored enterprises (GSEs) are

A)owned 50% by the U.S government.
B)not regulated by any federal agencies.
C)corporations owned by shareholders but that are chartered by Congress.
D)All of the above are correct.

Question 45

A government-sponsored enterprise (GSE) that issues bonds and uses the proceeds to purchase mortgages or mortgage-backed securities of thrifts is the

A)Federal Home Loan Mortgage Corporation (Freddie Mac).
B)Government National Mortgage Association (Ginnie Mae).
C)Federal National Mortgage Association (Fannie Mae).
D)Federal Farm Credit Banks Funding Corporation.

Question 46

Which of the following is false?

A)Sallie Mae issues securities and uses the proceeds to purchase mortgages.
B)Fannie Mae and Freddie Mac were put into conservatorship in 2008
C)Fannie Mae and Freddie Mac have a $2.25 billion line of credit with the U.S. Treasury.
D)Sallie Mae issues securities and uses the proceeds to purchase student loans.

Question 47

Corporations that are chartered by Congress and whose securities are considered government agency securities are

A)investment companies.
B)government-sponsored enterprises.
C)Real Estate Investment Trusts (REITs)
D)syndicates.

Question 48

Hedge funds have all of the following characteristics except that hedge funds

A)are required to file for registration before engaging in trading strategies.
B)invest in different types of investment that can be risky.
C)are formed as partnership of wealthy investors.
D)attempt to make profits regardless of whether markets are going up or down.

Question 49

The Securities Acts Amendment of 1975 eliminated which of the following?

A)the sales tax on securities transactions
B)the quotas on foreign securities
C)the fixed brokerage fees that brokers are allowed to charge
D)the Securities and Exchange Commission (SEC)

Question 50

A fund that invests in several mutual funds is called a(n)

A)economies of scope fund.
B)fund of funds.
C)diversified mutual fund.
D)financial conglomerate.

Question 51

Economies of scope are advantages to

A)firms being able to offer customers several financial services under one roof.
B)firms from bigness as duplication of effort is reduced.
C)firms being able to eliminate costs through geographic expansion.
D)firms being able to reduce costs through specialization.

Question 52

Economies of scale are

A)gains from scaling down a business.
B)gains from bigness as management is streamlined and as duplication of effort is reduced.
C)gains from bigness as firms are able to offer several services under one roof.
D)None of the above is correct.

Question 53

The branching out of financial conglomerates into several product lines that reduces the dependence of the financial conglomerate on any single product line is known as

A)risk-reduction.
B)diversification.
C)economies of scope.
D)risk-abatement.

Question 54

A _________________ that contains information about the new offering, the company, and other disclosure information must be filled with the Securities and Exchange Commission (SEC) before a new securities offering can be issued.

A)registration statement
B)filing document
C)information form
D)prospectus

Question 55

All of the following are types of orders that may be place with brokerage firms, except

A)market orders.
B)short sells.
C)limit orders.
D)exchange sells.

Question 56

Which of the following are types of orders that may be place with brokerage firms?

A)market orders.
B)short sells.
C)limit orders.
D)All of the above are correct.

Question 57

The percentage of a stock purchase that can be borrowed is

A)the margin call.
B)100 percent.
C)the margin requirement.
D)the securities rate.

Question 58

Most investment companies are ___________________ and called ____________________.

A)load funds; mutual funds
B)open-end; mutual funds
C)market; money market mutual funds
D)closed-end; mutual funds

Question 59

Both load and no-load mutual funds

A)charge commissions on purchases.
B)do not charge commissions on purchases.
C)deduct a percentage from the net asset value each year to administer the funds.
D)reduce costs by purchasing as little as possible.

Question 60

A _________________ is a mutual fund that invests in a portfolio of other mutual funds rather than individual stocks and/or bonds.

A)diversified portfolio
B)portfolio funds
C)combination of funds
D)fund of funds

Question 61

Firms that own and operate several different types of financial intermediaries and financial institutions on a global basis are called

A)global syndicates.
B)international securities institutions.
C)financial conglomerates.
D)globalization institutions.

Question 62

The branching out of financial conglomerates into several product lines that reduces the dependence of the financial conglomerate on any single product line is known as

A)risk-reduction.
B)diversification.
C)economies of scope.
D)risk-abatement.

Question 63

Which of the following is false?

A)The load is a sales commission paid to a broker to purchase mutual funds and by law cannot exceed 8.5 percent.
B)An open-end mutual fund sells a limited number of shares like other corporations but usually does not buy back outstanding shares.
C)Money market mutual funds differ from other mutual funds in that money market mutual funds deal only in money market instruments.
D)The net asset value is the difference between the market value of the shares of stock that the mutual fund owns and the liabilities of the mutual fund divided by the number of outstanding shares.

Question 64

The _____________ is the price at which a dealer is willing to buy securities.

A)asked price
B)bid price
C)margin price
D)limit price

Question 65

The bid price is the price at which a dealer is willing to ____securities.

A)sell
B)buy
C)margin

Question 66

The ________________ is the price at which a dealer is willing to sell securities.

A)asked price
B)bid price
C)limit price
D)market price

Question 67

A group of investment banks that underwrites new securities offering is called a(n)

A)fund of funds.
B)indenture.
C)Syndicate.
D)prospectus.

Question 68

A group of investment banks that underwrites ____securities offerings is called a syndicate.

A)old
B)new
C)undervalued
D)both a and c

Question 69

_______________ invest in stocks of particular industries such as biotech, health care, or energy.

A)High-yield funds
B)Sector funds
C)Income-equity funds
D)Aggressive growth funds

Question 70

_______________________ can trade at a value different from the net asset value.

A)Open-end funds
B)Closed-end funds
C)All mutual funds except money market mutual funds
D)Mutual funds in general

Question 71

A special type of mutual fund that invests in financial instruments and real property is a

A)hedge fund.
B)real Estate Investment Trust (REIT).
C)government sponsored enterprise (GSE).
D)Fannie Mae.

Question 72

___________________________ are corporations that are chartered by Congress to assist in some lending that the federal government has deemed desirable.

A)Real Estate Investment Trusts (REITs)
B)Government-sponsored enterprises (GSEs)
C)Hedge funds
D)Socially conscious funds

Question 73

Which of the following is false?

A)When Fannie Mae and Freddie Mac were put into conservatorship in 2008, those that had purchased Fannie Mae and Freddie Mac securities lost everything.
B)The yield spread between government securities and securities of government-sponsored enterprises is due to differences in risk and liquidity.
C)The federal government has no legal obligation to guarantee the timely payment of interest and principal on government-sponsored enterprise (GSE) securities.
D)The major government-sponsored enterprises that deal with the housing market are Fannie Mae and Freddie Mac.

Question 74

_______________________ is the name of the government-sponsored enterprise (GSE) that deals with student loans.

A)Fannie Mae
B)Freddie Mac
C)Sallie Mae
D)Financing Corporation (FICO)

Question 75

Areas that government-sponsored enterprises (GSEs) have been created to support include all of the following except

A)student loans.
B)farm loans.
C)automobile loans.
D)housing loans.

Question 76

Which of the following is not shareholder owned and publicly traded?

A)Sallie Mae
B)Freddie Mac
C)Ginnie Mae
D)Fannie Mae

Question 77

Which of the following is true?

A)Domestic investors have a preference for foreign bonds over foreign stocks while foreign investors prefer U.S. stocks over U.S. government securities.
B)Financial conglomerates operate several different financial intermediaries and financial institutions that provide an array of financial services on a domestic and global basis.
C)Government-sponsored enterprises (GSEs) are government chartered and owned.
D)Bank holding companies can engage in a broader range of activities that financial holding companies.

Question 78

By law, what is the maximum load or sales commission a brokerage firm can charge?

A)10 percent
B)8.5 percent
C)20 percent
D)There is no maximum.

Question 79

An investor would place a ________________ order to purchase a security at a specific price.

A)short sell
B)market
C)margin
D)limit

Question 80

Juan, an investor, will engage in a short sell when he expects the stock price to _____________ in the future.

A)remain the same
B)rise
C)fall
D)fall then increase