Question 1

New issues are sold in the secondary market.

Accepted Answer

New issues are sold in the primary market, while the secondary market deals with the buying and selling of existing securities.

Question 2

High-quality initial public offerings are usually sold in a primary market, such as the New York Stock Exchange. However, low-quality stocks must usually be sold in secondary markets, such as NASDAQ.

Accepted Answer

This statement is false. Both high-quality and low-quality stocks can be sold in both primary and secondary markets. The choice of market depends on a variety of factors, including the company's size, financial condition, and industry.

Question 3

Financial management requires both short-term activities as well as long-term planning such as raising funds.

Accepted Answer

Financial management involves managing day-to-day financial activities as well as planning for the future, including raising funds for the long-term.

Question 4

Capital markets refer to those markets dealing with short-term securities that have a life of one year or less.

Accepted Answer

Capital markets refer to those markets dealing with long-term securities that have a life of more than one year. Short-term securities are traded in money markets.

Question 5

Social responsibility and profit maximization are synonymous.

Accepted Answer

Social responsibility and profit maximization are not synonymous as social responsibility is the duty of an organization to act in the best interest of society, while profit maximization is focused solely on maximizing financial earnings. Organizations can prioritize social responsibility even if it means sacrificing some profits, showing that the two concepts are not the same.

Question 6

Higher return always induces stockholders to invest in a company.

Accepted Answer

The answer of Higher return always induces stockholders to invest...

Question 7

If a company has a written code of ethics, they will generally avoid ethical problems.

Accepted Answer

The answer of If a company has a written code...

Question 8

Risk management will be an important factor over the next decade.

Accepted Answer

With the increasing complexity and uncertainty in the business environment, effective risk management will become more crucial in maintaining organizational resilience and sustainability.

Question 9

Social responsibility is an expense and thus should be avoided by financial managers because it will lead to loss of income.

Accepted Answer

Social responsibility is not just a moral obligation, but it also has financial benefits. It helps in building a positive image, goodwill, and long-term sustainability, which ultimately leads to increased income and profitability. Therefore, financial managers should not avoid social responsibility but facilitate it as it can have a positive impact on the company's financial performance in the long run.

Question 10

The secondary market characteristically has had stable prices over the past 20 years.

Accepted Answer

The statement is false. The secondary market has experienced fluctuations and volatility in prices over the past 20 years.

Question 11

One of the primary disadvantages of maximizing shareholder value is that it only provides a short-term perspective.

Accepted Answer

The answer of One of the primary disadvantages of maximizing...

Question 12

Insider trading involves the use of information not available to the general public to make profits from trading in a company's stock.

Accepted Answer

Insider trading involves using insider information to gain an advantage in buying or selling a company's stocks. This information is not available to the general public and is considered illegal.

Question 13

Money markets refer to markets where excess corporate cash is exchanged for foreign currencies that can earn a higher return than domestic money.

Accepted Answer

Money markets actually refer to short-term borrowing and lending of funds, usually with maturities of one year or less. This includes instruments such as treasury bills, commercial paper, and certificates of deposit. The goal is to provide liquidity to institutions and corporations while earning a low-risk return on their excess funds. Currency exchange for higher return is typically done in the foreign exchange market, not the money market.

Question 14

In the United States, stocks sold on either the New York Stock Exchange or NASDAQ are considered sold in the primary market.

Accepted Answer

Stocks sold on the New York Stock Exchange or NASDAQ are traded in the secondary market, where existing shares are bought and sold among investors. The primary market refers to the issuance of new shares directly from companies to investors.

Question 15

Financial markets exist as a vast global network of individuals and financial institutions that may be lenders, borrowers, or owners of public companies worldwide.

Accepted Answer

Financial markets do in fact exist as a network of individuals and institutions that participate in various financial transactions like lending, borrowing, and trading securities of public companies across the globe.

Question 16

Many companies have cross-listed their stock on multiple international stock exchanges and more than several hundred foreign companies have listed their shares on the New York Stock Exchange.

Accepted Answer

Many companies have indeed cross-listed their stock on multiple international stock exchanges and several hundred foreign companies have listed their shares on the New York Stock Exchange. This is a common practice in today's globalized economy.

Question 17

Although NASDAQ is a secondary market, some of the firms traded there, such as Microsoft, are large enough to move to the primary market if they so desire.

Accepted Answer

The primary market is where securities are created (i.e., a company issues new shares to the public for the first time through an IPO), while the secondary market, such as NASDAQ, is where investors buy and sell securities they already own. The size of a company like Microsoft does not determine its ability to "move" between these markets, as they serve different purposes.

Question 18

The primary market includes the sale of securities by way of initial public offerings.

Accepted Answer

The primary market is where new securities are issued and sold for the first time, typically through initial public offerings (IPOs).

Question 19

Existing securities are traded in the secondary market.

Accepted Answer

Existing securities such as stocks, bonds, and mutual funds are traded in the secondary market. This market allows investors to buy and sell securities after they have been issued by the company or institution.

Question 20

Money markets refer to those markets dealing with short-term securities having a life of one year or less.

Accepted Answer

Money markets deal with short-term securities such as treasury bills, commercial paper, and certificates of deposit, with a life of one year or less.

Quiz 1: The Goals and Activities of Financial Management