Question 1

The Securities and Exchange Commission requires virtually all new public issues of corporate securities to be registered.As part of the registration process for a new security issue,the issuer must prepare a(n)_____.

Accepted Answer

The issuer must prepare a prospectus as part of the registration process for a new security issue. This document provides potential investors with all relevant information about the issuer and the securities being offered, including a description of the company, its financial condition, and the risks associated with investing in the securities.

Question 2

Which of the following interest rates does the Federal Reserve actually set?

Accepted Answer

The answer of Which of the following interest rates does...

Question 3

Which of the following U.S.institutions is among the world's 20 largest banks?

Accepted Answer

JPMorgan Chase is one of the world's largest banks and consistently ranks among the top 20 banks in terms of total assets. Citizens Financial Group, HSBC North America Holdings, and Ally Financial do not have assets on the same scale as JPMorgan Chase.

Question 4

Which of the following actions would have the effect of increasing the supply of money and credit and lowering interest rates?

Accepted Answer

When the Fed buys government securities, it increases the reserves of banks, which in turn leads to an increase in the money and credit supply. This increase in supply causes interest rates to fall.

Question 5

Operating under severe recessionary conditions,the Federal Reserve System decides to reduce its reserve requirements from the current level of 9% to 7.5%.Which of the following is likely to happen following the Fed's move?

Accepted Answer

By reducing the reserve requirements, the Fed is increasing the amount of funds available for commercial banks to lend out. This means that there will be more credit available, which could lower interest rates for businesses and individuals looking to borrow. It is unlikely that the other options will occur as a direct result of this move by the Fed.

Question 6

If the Fed reduced reserve requirements,______.

Accepted Answer

When the Fed reduces reserve requirements, it means that banks are required to hold less money in reserves and thus have more funds available to lend out. This is done to stimulate economic growth by increasing the flow of credit and money into the economy. Therefore, banks would have more money to lend out.

Question 7

All market participants must keep detailed records of every aspect of every trade.What is this called?

Accepted Answer

Keeping detailed records of every aspect of every trade is called an audit trail. It is a system used to track and record trading activity in order to ensure compliance with regulations, detect fraud or errors, and provide transparency to market participants. An audit trail documents the entire lifecycle of a trade from initiation to settlement, including details such as the time and date of the trade, the parties involved, the price, and the quantity traded.

Question 8

A local government agency of Nebraska issued municipal securities for the purpose of building a community hospital.Austin Hunter Corp. ,a financial services company,decides to purchase these securities from the government and resell them to the investing public.Which of the following describes the process undertaken by Austin Hunter Corp.?

Accepted Answer

Austin Hunter Corp. is acting as an underwriter in this scenario, as they are purchasing the municipal securities from the government and reselling them to the investing public. Underwriting involves assuming the risk of selling securities at a profit or loss by purchasing them from the issuer and then reselling them to investors. Tombstone is a type of advertisement used to announce a new securities issue, limit order refers to an instruction to buy or sell securities at a specified price, and check clearing is the process of transferring funds from one bank account to another.

Question 9

Jaxon works as a senior accountant at Martinez Inc. ,a multinational technology giant.As a senior accountant at the company,Jaxon had exclusive access to some of the sensitive financial information of Martinez.It was later found that Jaxon had sold some of the sensitive information to a rival company for an undisclosed amount.Which of the following describes Jaxon's activity?

Accepted Answer

Jaxon's activity is best described as insider trading, which involves using non-public information for personal gain in financial markets. The fact that he sold sensitive financial information to a rival company suggests he gained an unfair advantage and violated his duty of confidentiality and integrity as a senior accountant. Underwriting is a process of issuing new securities to the public, limit order is a type of order placed in the stock market, and check clearing is a process of transferring funds from one account to another. None of these terms accurately describe Jaxon's illicit activity.

Question 10

Which of the following agencies regulates both state and federally chartered commercial banks?

Accepted Answer

The answer of Which of the following agencies regulates both...

Question 11

Businesses are net savers,while households are net users of funds.

Accepted Answer

Businesses are typically net users of funds as they often need to borrow for investment and expansion, while households are generally net savers, accumulating savings for future needs.

Question 12

Which of the following policy tools does the Fed use most frequently?

Accepted Answer

Open market operations are the most frequently used policy tool by the Fed. This involves buying or selling securities to influence the money supply and interest rates. Reserve requirements, margin requirements, and the discount rate are used less frequently.

Question 13

The financial system describes the process by which funds flow from savers to users.

Accepted Answer

The financial system is indeed the process by which funds flow from savers (those who have surplus funds) to users (those who require funds). This process is facilitated by financial intermediaries such as banks, capital markets, and other financial institutions.

Question 14

When the Fed sells government securities,banks have __________ money to lend and economic growth __________.

Accepted Answer

When the Fed sells government securities, banks have less money to lend because they have to pay for the securities they purchased from the Fed. This reduces the money supply in the economy, which causes interest rates to increase and borrowing and spending to decrease. As a result, economic growth will slow down.

Question 15

Madelyn Inc. ,an automobile company,decides to expand its operation abroad by setting up three new manufacturing plants.Since enough funds were not available for this expansion process,Madelyn decides to list its company on its national stock exchange and issue securities for raising additional capital.The market for Madelyn's securities can be described as a ______ market.

Accepted Answer

A primary market is where securities are issued by the company for the first time to raise capital, which is the case with Madelyn Inc. establishing itself in the stock exchange and issuing securities to raise capital for expansion. A secondary market involves the sale and purchase of already issued securities between investors, which does not apply in this scenario. Insider markets refer to a situation where certain individuals have prior knowledge about the company's affairs and trade securities accordingly, which is not the case here. A limit order is a type of order placed by an investor to buy or sell securities at a specific price or better, which is not relevant in this context.

Question 16

______ is defined as the use of material nonpublic information about a company to make investment profits.

Accepted Answer

Insider trading is the use of material nonpublic information, which is not available to the general public, for personal gain by buying or selling a security. This practice is illegal and considered unethical as it gives an unfair advantage to those who have access to the information. Underwriting refers to the process of raising capital by issuing securities, thrift supervision is the regulatory oversight of savings and loan associations, and self-regulation refers to a system of industry regulation where companies regulate themselves rather than being regulated by external authorities.

Question 17

The ___ establishes and updates rules to ensure that member brokers perform their basic functions honestly and fairly.

Accepted Answer

The NASD (National Association of Securities Dealers) is responsible for establishing and updating rules to ensure that member brokers perform their basic functions honestly and fairly. The NASD is now known as FINRA (Financial Industry Regulatory Authority). The NASDAQ and NYSE are stock exchanges, and the FDIC is responsible for insuring deposits at banks.

Question 18

A local government in Iowa issued bonds to the general public to build a community park in the locality.The primary objective of the proposed community park is to enhance the green cover in the locality.Which of the following best describes the bonds issued in this scenario?

Accepted Answer

General obligation bonds are issued by local governments and are backed by the credit and taxing power of the issuing jurisdiction, typically used for projects that benefit the public, such as parks.

Question 19

The chairman of the Federal Reserve Board can accelerate economic activity by lowering interest rates.What primary method does the Federal Reserve use to accomplish this?

Accepted Answer

The Federal Reserve can lower interest rates by buying Treasury securities, which increases the demand for these securities and therefore drives down yields (interest rates). This, in turn, can lead to lower mortgage rates, cheaper borrowing costs for businesses, and increased consumer spending, ultimately stimulating economic activity. Options A, B, and C all involve tightening or restricting access to credit, which would have the opposite effect on economic activity.

Question 20

Securities represent obligations on the part of issuers-businesses and governments-to provide purchasers with expected or stated returns on the funds invested or loaned.

Accepted Answer

Securities indeed represent obligations on the part of issuers to provide expected or stated returns on the funds invested or loaned.

Quiz 16: The Financial System

The Securities and Exchange Commission requires virtually all new public issues of corporate securities to be registered.As part of the registration process for a new security issue,the issuer must prepare a(n) _____.