Question 1

Regional exchanges are primarily engaged in dual trading activities, although some local stocks are listed on regional exchanges only.

Accepted Answer

Regional exchanges typically allow dual trading activities, meaning brokers can trade both on their own account and on behalf of their clients. Additionally, some local stocks may only be listed and traded on regional exchanges.

Question 2

The NASDAQ market is the primary market for international securities.

Accepted Answer

The NASDAQ market is a US-based stock exchange primarily for technology companies. It is not the primary market for international securities, but international companies can choose to list their securities on the NASDAQ as a secondary market. The primary market for international securities would be the stock exchange in the country where the company is based or listed.

Question 3

NASD regulates stockbrokers and brokerage firms.

Accepted Answer

The National Association of Securities Dealers (NASD) does regulate stockbrokers and brokerage firms.

Question 4

The major suppliers of funds to the U.S. credit markets are foreign suppliers, mutual funds, and federal, state, and local governments.
In this case, the governments are not direct suppliers of funds into the U.S. credit markets.

Accepted Answer

The statement is false. The governments are indeed direct suppliers of funds into the U.S. credit markets.

Question 5

Households and the government are mainly considered to be suppliers of funds, while corporations are generally considered users of funds.

Accepted Answer

As the "flow of funds" in Figure 14-3 illustrates, the flow of funds can occur between these three entities in either direction.

Question 6

Financial intermediaries channel funds into the capital markets from the household sector.

Accepted Answer

Financial intermediaries such as banks, mutual funds, insurance companies, and pension funds gather funds from the household sector and lend or invest them in the capital markets.

Question 7

The highest suppliers of funds to the U.S. credit markets are foreign investors.

Accepted Answer

As illustrated in Figure 14-4, the largest supplier is currently from mutual funds and exchange-traded funds.

Question 8

Retained earnings account for the majority of internally generated corporate funds.
On average, less than half of U.S. corporations' funding come from retained earnings, rather than the issuance of new securities.

Accepted Answer

The statement is false. Retained earnings account for the majority of internally generated corporate funds, and on average, more than half of U.S. corporations' funding come from retained earnings rather than the issuance of new securities.

Question 9

As corporate bonds mature and become due for payment, it's common for the borrowing corporation to replace this debt with the issuance of new bonds.

Accepted Answer

This is a common practice known as "rolling over" the debt. It allows corporations to continue borrowing at current market rates without having to use their own funds to repay the initial bond.

Question 10

When an investor buys stock in the stock market, he is purchasing shares from a company.
Investors purchase shares from the company only in the initial offering.

Accepted Answer

Investors can continue to purchase and sell shares from the company even after the initial offering in the secondary market, where the stock is traded on the stock exchange.

Question 11

The main reason for the small amount of financing with preferred stock is that dividends on preferred stock are not tax deductible, as is the interest paid on bonds.

Accepted Answer

Dividends on preferred stock are not tax deductible, while interest paid on bonds is tax deductible. This makes bonds a more attractive financing option for companies, resulting in a smaller amount of financing through preferred stock.

Question 12

Financial intermediaries help eliminate inefficiencies such as indirect investment by households.
While intermediaries do reduce inefficiencies, indirect investment by households is not an inefficiency.

Accepted Answer

Indirect investment by households can be a legitimate and efficient way for households to invest their money. Financial intermediaries do provide benefits such as diversification, professional management, and liquidity, but they may also charge fees and commissions that can reduce returns. Therefore, both direct and indirect investment can have their advantages and disadvantages.

Question 13

Internal funds generated by corporations include retained earnings and non-cash expenses such as depreciation.

Accepted Answer

Internal funds generated by corporations include retained earnings which are profits kept within the company after dividends are paid out. Non-cash expenses such as depreciation are also added to internal funds as they represent a decrease in asset value but do not involve any actual cash flow.

Question 14

The NASDAQ Small-Cap Market is composed of smaller regionally based companies that often remain controlled by their founders so that fewer shares are available to the public.

Accepted Answer

The statement accurately describes the NASDAQ Small-Cap Market.

Question 15

The NASDAQ Market is composed of large nationwide companies that are traded in the over-the-counter market.

Accepted Answer

The answer of The NASDAQ Market is composed of large...

Question 16

Brokers on the organized stock exchange act as an agent for the person buying or selling securities.

Accepted Answer

Brokers act as intermediaries between buyers and sellers of securities, executing the purchase or sale on behalf of their clients.

Question 17

Securities issued by states and municipalities are referred to as statutory bonds and municipal bonds, respectively.
Both are referred to collectively as "municipal securities" in general, or in this case, "municipal bonds."

Accepted Answer

Securities issued by states and municipalities are collectively referred to as "municipal securities" or "municipal bonds," not "statutory bonds."

Question 18

The NYSE purchased Archipelago (an ECN) in order to expand its floor-trading capabilities.
The acquisition was actually to bring electronic trading capabilities and expertise as a complement to the NYSE's established floor-trading skills.

Accepted Answer

The NYSE acquired Archipelago to enhance its electronic trading capabilities, not to expand floor-trading.

Question 19

A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities.
The most efficient market is for U.S. securities, particularly the short-term U.S. Treasury Bill.

Accepted Answer

The answer of A key variable of market efficiency is...

Question 20

Brokers actually own the securities they buy and sell on the floor of the exchange.
While "brokers" in general act as agents for buyers and sellers, those who actually take title to and maintain inventories of shares are referred to as "specialists," "dealers," or more recently, "designated market-makers."

Accepted Answer

Brokers do not actually own the securities they buy and sell on the floor of the exchange. They act as agents for buyers and sellers of securities. Specialists, dealers, or designated market-makers are the ones who take title to and maintain inventories of shares.

Quiz 14: Capital Markets

Regional exchanges are primarily engaged in dual trading activities, although some local stocks are listed on regional exchanges only.

The NASDAQ market is the primary market for international securities.

NASD regulates stockbrokers and brokerage firms.

The major suppliers of funds to the U.S. credit markets are foreign suppliers, mutual funds, and federal, state, and local governments. In this case, the governments are not direct suppliers of funds into the U.S. credit markets.

Households and the government are mainly considered to be suppliers of funds, while corporations are generally considered users of funds.

Financial intermediaries channel funds into the capital markets from the household sector.

The highest suppliers of funds to the U.S. credit markets are foreign investors.

Retained earnings account for the majority of internally generated corporate funds. On average, less than half of U.S. corporations' funding come from retained earnings, rather than the issuance of new securities.

As corporate bonds mature and become due for payment, it's common for the borrowing corporation to replace this debt with the issuance of new bonds.

When an investor buys stock in the stock market, he is purchasing shares from a company. Investors purchase shares from the company only in the initial offering.

The main reason for the small amount of financing with preferred stock is that dividends on preferred stock are not tax deductible, as is the interest paid on bonds.

Financial intermediaries help eliminate inefficiencies such as indirect investment by households. While intermediaries do reduce inefficiencies, indirect investment by households is not an inefficiency.

Internal funds generated by corporations include retained earnings and non-cash expenses such as depreciation.

The NASDAQ Small-Cap Market is composed of smaller regionally based companies that often remain controlled by their founders so that fewer shares are available to the public.

The NASDAQ Market is composed of large nationwide companies that are traded in the over-the-counter market.

Brokers on the organized stock exchange act as an agent for the person buying or selling securities.

Securities issued by states and municipalities are referred to as statutory bonds and municipal bonds, respectively. Both are referred to collectively as "municipal securities" in general, or in this case, "municipal bonds."

The NYSE purchased Archipelago (an ECN) in order to expand its floor-trading capabilities. The acquisition was actually to bring electronic trading capabilities and expertise as a complement to the NYSE's established floor-trading skills.

A key variable of market efficiency is the certainty of the income stream. The most efficient market is for corporate securities. The most efficient market is for U.S. securities, particularly the short-term U.S. Treasury Bill.