Deck 3: Financial Indices, Market Information, and Economic Data

Question 1

Sound financial decisions require adequate and accurate financial information.

Answer 1

True

Question 2

Economic conditions exert a profound impact on the financial markets.

Answer 2

True

Question 3

A security which carries a set maturity date, name of the issuing company or governmental unit and coupon rate is a bond.

Answer 3

True

Question 4

Security dealers purchase securities at the asked price and sell at the bid price.

Question 5

Bond prices are quoted in the Wall Street Journal.

Question 6

Dealer prices appearing on a quote sheet or computer screen generally apply to odd-lot transactions.

Question 7

Yields on bonds shown in the Wall Street Journal are current yields.

Question 8

Most bond trades on the major securities exchanges are round-lot transactions.

Question 9

GNP or GDP is a component of the Flow of Funds Accounts.

Question 10

The NIA accounting system contains data on the nation's production of goods and services, income flows, investment spending, consumption and total savings.

Question 11

In the Flow of Funds Accounts, economic units (transactors) with similar balance sheets are divided into several broad groups called sectors.

Question 12

In a sources-and-uses-of-funds statement as constructed in the Flow of Funds Accounts, total uses of funds are equal to the change in financial assets plus the change in liabilities for a given sector.

Question 13

In the Flow of Funds Accounts net current savings for a sector of the economy equals net real investment.

Question 14

In the Flow of Funds Accounts net financial investment for a sector equals net borrowing plus net current savings minus net real investment on a sources-and-uses-of-funds statement.

Question 15

In the Flow of Funds Accounts, a negative amount recorded under a liability item indicates that, for the time period represented, borrowing exceeded debt repayments.

Question 16

Balance sheets must always "balance" for a given sector of the economy; however, sources-and-uses-of-funds statements do not necessarily balance except at the level of the whole economy.

Question 17

According to the Flow of Funds Accounts, the annual volume of debt instruments in U.S. financial markets is normally less than the annual volume of new stock issues (including both preferred and common equity shares).

Question 18

According to the Flow of Funds Accounts, the most important asset held by households is corporate equity.

Question 19

If I as an individual purchased securities from your business firm, this transaction would not be recorded in the Flow of Funds Accounts because of the particular accounting system used by the Federal Reserve System to prepare these accounts.

Question 20

The Flow of Funds Accounts subdivide foreign suppliers and demanders of credit active in the U.S. financial markets into geographic regions; these include a Western European sector, an Eastern bloc sector and an Asian sector.

Question 21

Items reported on a financial balance sheet in the Flow of Funds Accounts represent changes over time of items selected from a sources-and-uses-of-funds statement prepared for the same sector.

Question 22

In the Sources and Uses Statement, when purchases of an asset exceed sales of that asset, the resulting number is carried as a positive increase in that asset.

Question 23

In 19X1 the household sector purchased $50 billion in U.S. Government securities and sold $30 billion worth of U.S. Government securities; the accounting system of the Flow of Funds Accounts would show that the household sector's holdings of the U.S. Government securities had changed by $80 billion.

Question 24

Households held $1.5 trillion in common stock at year-end 19X1. Assuming stock prices doubled during 19X2 and no additional household purchases of stock were made during that year, household savings would rise by at least $1.5 trillion during 19X2.

Question 25

Notes, by convention, carry shorter maturities than bonds.

Question 26

Both bonds and notes pay fixed rates of return to the investor.

Question 27

Both bonds and notes generally carry a set maturity date.

Question 28

Bid prices on notes and bonds normally are higher than asked prices.

Question 29

Dealers in bonds and notes usually compute and quote yields to their customers based on their bid prices.

Question 30

When a note or bond is selling at a premium over its par value and carries various possible maturity dates, the yield on the note or bond is generally figured to the nearest maturity date.

Question 31

The strong form of the efficient market hypothesis states that all investors, including those with inside information, will earn only a normal profit.

Question 32

Information asymmetries can be eliminated by government regulation of markets.

Question 33

Trading based on informational asymmetries is always illegal.

Question 34

The adverse selection problem exists when an institution charges a price that encourages more high-cost customers to come in than low-cost customers.

Question 35

The lemons problem applies equally well to used cars and borrowers.

Question 36

A sources-and-uses-of-funds statement in the Flow of Funds Accounts shows changes in net worth as well as changes in holdings of financial assets and liabilities taken from each sector's balance sheet at the beginning and end of a calendar quarter or year.

Question 37

In an efficient market asset trades that generate consistent excess returns are certainly possible.

Question 38

According to the efficient markets hypothesis (EMH) an asset's current price is the best estimate of that asset's expected fundamental value.

Question 39

The current price of a financial asset equals its fundamental value given all possible states of the world according to the efficient markets hypothesis (EMH).

Question 40

The optimal forecast of next period's market value (price) of an asset, given this period's set of information is the asset's current price according to the efficient market's hypothesis.

Question 41

The weak form of the efficient markets hypothesis (EMH) argues that the price history and the past volume of trading of an asset can be used by an investor to generate persistent excess returns.

Question 42

While the Beta measurements of individual securities can vary widely, the Beta of the whole market's portfolio of securities is always equal to 1.0.

Question 43

Systematic risk is the kind of risk the whole asset market faces that cannot be eliminated by simple diversification.

Question 44

Insider trading, by definition, applies only to employees working inside a firm.

Question 45

Fiduciary duty relates to "lemons and plums" in used-car sales.

Question 46

If bank deposits are insured, moral hazard problems are generally eliminated.

Question 47

Moral hazard is an information asymmetry problem that arises after contracts are signed.

Question 48

According to the concept of random walk, successive changes in asset prices often appear as unpredictable as a sequence of random numbers.

Question 49

People harmed by insider trading may file civil suits for recovery of their losses.

Question 50

Because of electronic surveillance systems by corporations, major stock exchanges and security trading firms, it is easier today to get away with insider trading.

Question 51

When some individuals and institutions have access to information concerning the true value and risk of financial assets, which others do not, it is referred to as the efficient market hypothesis.

Question 52

Before the Great Depression of the 1930s, the public was often victimized by misinformation about the true condition and intent of companies coming to market with new stock and bond issues.

Question 53

To improve the flow of information about securities offered for public sale and prohibit misinformation and securities fraud, the United States Congress passed the Securities Act of 2003.

Question 54

The Sarbanes Oxley Accounting Practices Act (SARBOX) was signed in the law in 2002 in response to the trouble with Enron and other widely publicized corporate scandals.

Question 55

Wal-Mart, McDonald's, bowling, Citigroup and Exxon Mobil are all part of the Dow Jones transportation Index.

Question 56

The Dow Jones industrial average is over 100 years old.

Question 57

The best measure currently available for US wealth is the Wilshire 5000.

Question 58

The additional stocks in the S&P 500 are the shares at 40 utility, 20 transportation and 40 financial company stocks not included in the S&P 400.

Question 59

The S&P 600 Index consists of small Businesses.

Question 60

The S&P 400 Index consists of midsize companies.

Question 61

The New York Stock Exchange composite index is considered to be a broader price index then Standard & Poor's composite index.

Question 62

The Wilshire 5000 actually includes more than 6300 stocks, most of them are publicly traded US corporations.

Question 63

Two of the most respected sources of information on major security issues and issuers are Standard & Poor's Corp. and the Federal Reserve.

Question 64

Moody's and Standard & Poor's are considered competitors.

Question 65

Dun & Bradstreet credit ratings are a useful source of data on individual firms.

Question 66

Of the $14.4 trillion US gross domestic product in 2008, approximately $10 trillion was personal consumption expenditures.

Question 67

Of the $14.4 trillion US gross domestic product in 2008, the federal, state and local governments used approximately $2.9 trillion.

Question 68

In 2008 the United States imported approximately $700 Trillion more than it exported.

Question 69

Combining the financial and real assets of US households total is around $15 trillion.

Question 70

The total liabilities of US households is approximately $14.5 trillion.

Question 71

The total liabilities of US households is approximately $54 trillion.

Question 72

The combined net worth of US households is approximately $56 trillion.

Question 73

Information asymmetries cannot be eliminated by government regulation of markets.

Question 74

In 2008, the US gross domestic product was $54 trillion.

Question 75

When a note or bond is selling at a discount under its par value and carries various possible maturity dates, the yield on the note or bond is generally figured to the nearest maturity date.

Question 76

The additional stocks in the S&P 500 are the shares at 40 utility, 40 transportation and 40 financial company stocks not included in the S&P 400.

Question 77

According to your text, the sources of information relied upon by financial decision-makers may be divided into five broad groups. Four of these five information groups are (1) bond prices and yields; (2) stock prices and dividend yields; (3) financial condition of security issuers; and (4) general economic and financial conditions. The fifth source-of-information group not listed above is:

A) Bond yield indicators
B) Dealer quote sheets
C) Social accounting
D) Credit bureaus
E) Stock market reports

Question 78

Periodic reports by security dealers showing market prices, yields and amounts held of various securities are known as:

A) Registration statements
B) Quote sheets
C) Daily market diaries
D) Spread sheets
E) Security information reports

Question 79

Yields and prices on individual bond issues may be found in all of the following published sources but one. Which one does not contain such information?

A) Daily Bond Buyer
B) Wall Street Journal
C) Commercial and Financial Chronicle
D) U.S. Financial Data
E) All of the above are sources of yields and prices on individual bond issues

Question 80

Price quotations on individual stocks may be found in all but one of the following published sources. Which source shown below does not contain individual stock price quotations?

A) Wall Street Journal
B) Survey of Current Business
C) Value Line Investment Survey
D) S&P Daily Stock Price Record
E) All of the above are sources of price quotations on individual stocks