Question 1

Financial information on individual security issuers may be obtained from:

Accepted Answer

All of the listed sources, Moody's Investors Service, Dun & Bradstreet, the Securities and Exchange Commission, and Standard & Poor's, provide financial information on individual security issuers. Moody's and Standard & Poor's specialize in credit ratings, Dun & Bradstreet provides commercial data and analytics, and the SEC requires public companies to file financial statements and other disclosures.

Question 2

Important sources of detailed information on general economic and financial conditions are contained in all but one of the following sources. Which source listed below does not contain such information?

Accepted Answer

The SEC's 10-K Report is a comprehensive summary of a company's financial performance and does not provide general economic and financial conditions.

Question 3

Data from the Flow of Funds Accounts are reported in the:

Accepted Answer

The Federal Reserve Bulletin is the publication that reports data from the Flow of Funds Accounts, providing comprehensive information on the financial activities of sectors like households, businesses, and governments within the U.S. economy.

Question 4

Please complete the following statement: Net Investment in Plant and Equipment = Net Increase in Liabilities + ___ - ____. The items which correctly complete the above statement in proper order are:

Accepted Answer

Net Investment in Plant and Equipment is calculated as Net Increase in Liabilities plus Net Current Saving minus Net Acquisitions of Financial Assets.

Question 5

In the Flow of Funds Accounts all but one of the following statements is necessarily true for a single sector in the economy (such as the household sector). Which statement below is not necessarily true for a single sector of the economy?

Accepted Answer

E) Net borrowing equals net current saving is not necessarily true for a single sector of the economy. Net borrowing and net current saving are distinct concepts; net borrowing refers to the amount a sector borrows, while net current saving is the excess of current income over current expenditures. These two do not have to equal each other as a sector can save without borrowing and can borrow for purposes other than financing current saving.

Question 6

All of the following items but one are limitations of the Flow of Funds Accounts mentioned in the text. Which limitation was not mentioned in the text?

Accepted Answer

The answer of All of the following items but one...

Question 7

One of the most complete listings of daily price and yield quotations on securities appears in:

Accepted Answer

The Wall Street Journal is well-known for providing comprehensive daily price and yield quotations on securities, making it a primary source for investors and financial professionals seeking up-to-date market information.

Question 8

The banks of the Federal Reserve System publish financial information in weekly, monthly and quarterly releases. Federal Reserve publications include:

Accepted Answer

The Federal Reserve System publishes a variety of financial and economic data, including U.S. Financial Data, Monetary Trends, and National Economic Trends, among others. These publications are part of their efforts to maintain transparency and provide insights into the U.S. economy and financial system.

Question 9

The contributions made by the Federal Reserve's Flow of Funds (FOF) Accounts to our understanding of and participation in the nation's financial system include which of the following items?

Accepted Answer

The Federal Reserve's Flow of Funds Accounts offer a comprehensive view of the financial system by illustrating how different sectors of the economy interact with the financial system, reflecting trends in financial instruments, and providing valuable data for policy-making and forecasting.

Question 10

Several types of financial statements are presented in the Flow of Funds Accounts. Which item below is not a financial statement presented in the Federal Reserve's Flow of Funds Accounts?

Accepted Answer

The answer of Several types of financial statements are presented...

Question 11

Please complete the following equations based on your knowledge of the Federal Reserve's Flow of Funds Accounts: Current Surplus + Net Increase in-Plant and Equipment = ____ for a sector Liabilities for Expenditures for a sector
 The item which belongs on the right hand side of the equals sign is:

Accepted Answer

The equation represents a sector's sources and uses of funds. The current surplus plus net increase in plant and equipment equals the net acquisition of financial assets, which reflects the funds available for financial investments after accounting for physical investments.

Question 12

The Federal Reserve's Flow of Funds Accounts (FOF) have several limitations or deficiencies. Among the limitations or deficiencies discussed in the text were:

Accepted Answer

The Federal Reserve's Flow of Funds Accounts have several limitations, including omitting intrasector transactions, reflecting only net purchases or sales of financial instruments, and including capital gains as well as real savings.

Question 13

If a household sells stock to another household, this transaction will:

Accepted Answer

When a household sells stock to another household, it is a transaction between private entities that does not create new financial assets but merely changes their ownership. Therefore, it is not recorded in the Flow of Funds Accounts, which track the creation and exchange of financial assets and liabilities across sectors of the economy.

Question 14

Suppose the business sector in the Flow of Funds Accounts issues $80 billion in new stock early in the year and then retires $50 billion in outstanding stock later, followed by selling another $40 billion in new stock just before year-end. The business sector would record what volume of new stock issues in the Flow of Funds Accounts?

Accepted Answer

The answer of Suppose the business sector in the Flow...

Question 15

The Flow of Funds Matrix reminds us that, for all sectors of the economy combined into one, the amount of saving must equal:

Accepted Answer

The Flow of Funds Matrix indicates that, for the entire economy, the amount of saving must equal the total amount of real investment. This is because savings provide the funds necessary for investment in physical assets like buildings and machinery, reflecting a fundamental economic identity where savings finance real investment.

Question 16

In the Flow of Funds Accounts if total uses of funds equals total sources of funds then:

Accepted Answer

In the Flow of Funds Accounts, the equality of total uses of funds and total sources of funds does not necessarily imply any of the specific equalities listed in options A, B, C, or D. These options refer to specific economic concepts that do not directly equate to the overall balance between uses and sources of funds in these accounts. The Flow of Funds Accounts is a financial account that tracks the flow of money among various sectors of the economy, but the specific equalities mentioned involve more detailed aspects of economic analysis that are not directly tied to the fundamental principle of total uses equaling total sources in these accounts.

Question 17

The statement "Investors who trade using publicly available information should expect to earn normal profits" best reflects the:

Accepted Answer

The statement reflects the semi-strong form of the efficient market hypothesis, which posits that all publicly available information is already reflected in stock prices, meaning that investors cannot consistently achieve higher returns through trading on this information.

Question 18

When information asymmetries exist:

Accepted Answer

Information asymmetries, where one party has more or better information than the other, can lead to situations where those with specialized training or knowledge can leverage their informational advantage to earn excess profits. This is because they can make more informed decisions compared to those with less information.

Question 19

The statement "Investors who use insider information may earn excess profits" best reflects the:

Accepted Answer

The statement reflects the Strong form of the efficient market hypothesis, which posits that all information, both public and private (or insider information), is already reflected in stock prices. Therefore, no one can consistently achieve higher returns. The scenario described suggests that if investors are using insider information to earn excess profits, it contradicts the strong form efficiency, implying that not all information is reflected in the market prices.

Question 20

To counter the lemons and adverse selection problems in its lending activity, a bank can:

Accepted Answer

All of the options listed are strategies banks can use to mitigate the risks associated with adverse selection and the lemons problem in lending. Raising interest rates compensates for assumed risk, investing in credit reports helps assess borrower risk more accurately, requiring collateral reduces the potential loss on loans, and charging different interest rates to different borrowers allows banks to price loans according to the risk level of the borrower.

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