Deck 36: Regulation of Financial Markets

Question 1

Two of the best-known exchanges are the New York Stock Exchange (NYSE) and the Chicago Mercantile Exchange (CME).

Answer 1

True

Question 2

A financial market is a poorly-regulated institution in which people and firms trade securities, commodities, currencies, and other things of value at prices that reflect supply and demand as well as publicly and privately available information.

Answer 2

False

Question 3

In the secondary market, investors sell to anyone who can purchase with the goal of making a profit or preventing a loss.

Answer 3

False

Question 4

Capital markets consist of primary markets and secondary markets.

Question 5

Both primary and secondary capital markets function through the interaction of three parties: investors, issuers, and intermediaries.

Question 6

A large firm that is highly interconnected with others can be a source of systemic risk, which is the possibility that an event at the firm could trigger severe instability in financial markets or the collapse of an entire industry or economy.

Question 7

Unlike a systemic risk, the effects of a market risk are isolated to the entities dealing in that specific item.

Question 8

In response to the 2008 financial crisis and the problem of systemic risk, Congress enacted, and President Obama signed into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Question 9

The SEC has limited discretion to base the amount of the whistleblower award on the significance of the information provided, the level of assistance provided by the whistleblower, and the government's interest in deterring securities fraud.

Question 10

The term "market" is often used to refer to __________ which are organizations that facilitate trade in securities or commodities.

A) primaries
B) exchanges
C) preferences
D) commons

Question 11

What organization below is not a market/exchange to facilitate trade in securities or commodities?

A) Chicago Mercantile Exchange
B) New York Stock Exchange
C) NASDAQ
D) Nashville Exchange

Question 12

A financial market is a highly regulated institution in which people and firms trade:

A) securities
B) commodities
C) currencies
D) All of the choices are correct.

Question 13

Commodity markets are designed to facilitate the trading of such physical commodities as:

A) foreign currencies
B) precious metals
C) short-term debt financing
D) None of the choices are correct.

Question 14

__________ are designed to provide short-term debt financing and investment.

A) Commodity markets
B) Money markets
C) Derivative markets
D) Foreign exchange markets

Question 15

Capital markets consist of:

A) primary markets
B) secondary markets
C) All of the choices are correct.
D) None of the choices are correct.

Question 16

Issuing securities to the public for the first time is known as a/an:

A) prior issuance offering
B) business offering
C) notice offering
D) initial public offering

Question 17

As part of the IPO process, a firm prepares a __________ registration statement that discloses important facts about the offering to potential investors.

A) quasi-contractual
B) minimal
C) mandatory
D) All of the choices are correct.

Question 18

In the secondary market, investors sell to __________ with the goal of making a profit or preventing a loss.

A) proxies
B) other investors
C) conduits
D) None of the choices are correct.

Question 19

Both primary and secondary capital markets function through the interaction of __________ parties.

A) two
B) three
C) four
D) six

Question 20

__________ seek a return from their investment based on the perceived value of the securities in which they invest.

A) ongoing proxies
B) perpetual proxies
C) investors
D) None of the choices are correct.

Question 21

__________ are those institutions and entities that sell securities to investors.

A) Proxies
B) Issuers
C) Intermediaries
D) Investors

Question 22

__________ are financial institutions that provide services for investors and issuers related to securities transactions.

A) Proxies
B) Issuers
C) Intermediaries
D) Investors

Question 23

Intermediaries may include:

A) commercial banks
B) mutual funds
C) investment banks
D) All of the choices are correct.

Question 24

A large firm that is highly interconnected with others can be a source of __________, which is the possibility that an event at the firm could trigger severe instability in financial markets or the collapse of an entire industry or economy.

A) systemic offerings
B) systemic means
C) tippor risk
D) systemic risk

Question 25

An example of a systemic risk is:

A) troubled banks who owe money
B) market risk
C) tippees who are not imprisoned
D) None of the choices are correct.

Question 26

Unlike a systemic risk, the effects of a market risk are isolated to the entities dealing in:

A) privately-held corporations
B) that specific item
C) publicly-held corporations
D) All of the choices are correct.

Question 27

Systemic risk was a major contributor to the financial crisis of __________ and led to the passage of Dodd-Frank Act.

A) 2008
B) 2009
C) 2010
D) 2011

Question 28

The Dodd-Frank Wall Street Reform and Consumer Protection Act, named after its principal sponsors in Congress,

A) Representative Chris Dodd and Senator Barney Frank.
B) Senator Jimmy Dodd and Representative Barney Frank.
C) Senator Chris Dodd and Representative Barney Frank.
D) Senator Chris Dodd and Representative Frederick Frank.

Question 29

The Securities and Exchange Commission (SEC) is an independent agency consisting of __________ commissioners appointed by the president.

A) three
B) four
C) five
D) seven

Question 30

The Securities and Exchange Commission (SEC) has the power to enforce:

A) federal securities laws
B) all aspects of U.S. capital markets
C) the issuance and trading of securities
D) All of the choices are correct.

Question 31

Companies that issue __________ traded shares must submit quarterly and annual reports to the SEC.

A) outsider
B) insider
C) publicly
D) None of the choices are correct.

Question 32

The main objective(s) of requiring mandatory disclosures for companies that issue publicly traded shares is/are to:

A) create confidence in financial markets
B) maintaining the integrity and stability of financial markets
C) securing the appropriate degree of protection for investors
D) All of the choices are correct.

Question 33

The Dodd-Frank Act expanded the SEC's jurisdiction and provided it with a powerful set of new tools which include:

A) secret investigations
B) fiduciary duty of broker-dealers
C) hedge funds registration
D) All of the choices are correct.

Question 34

The Financial Stability Oversight Council is chaired by the Secretary of the Treasury and consists of __________ voting members who are the heads of various agencies involved in the financial system.

A) five
B) seven
C) nine
D) ten

Question 35

The Financial Stability Oversight Council's voting members do not include:

A) Director of the Consumer Financial Protection Bureau
B) Secretary of Labor
C) Chairman of the Federal Reserve
D) Chair of the Federal Deposit Insurance Corporation

Question 36

The Financial Stability Oversight Council's also has __________ nonvoting members, representing the FSOC's research arm and state-level financial and insurance regulators.

A) 3
B) 5
C) 6
D) 7

Question 37

In State National Bank of Big Spring v. Secretary of the Treasury, 795 F.3d 48 (D.C. Cir. 2015), the court of appeals:

A) affirmed the decision of the lower court
B) reversed the decision of the lower court
C) stayed the decision of the lower court
D) remanded the decision of the lower court

Question 38

The Dodd-Frank Act also created a new federal administrative agency called the __________ in order "to provide a single point of accountability for enforcing federal consumer finance laws and protecting consumers in the financial marketplace."

A) Consumer Financial Accountability Bureau
B) Customer Financial Protection Bureau
C) Consumer Fiscal Protection Bureau
D) None of the choices are correct.

Question 39

What is not a core function of the Consumer Financial Protection Bureau?

A) taking consumer complaints
B) enhancing financial education
C) encouraging financial fraud
D) enforcing laws that outlaw discrimination in consumer finance

Question 40

The SEC has broad discretion to base the amount of the whistleblower award on the significance of the information provided, the level of assistance provided by the whistleblower, and the government's interest in deterring securities fraud.

A) limited
B) broad
C) mandatory
D) minimal

Question 41

In the event an employee is terminated for whistleblowing, the Dodd-Frank anti-retaliation provision allows the whistleblower to collect __________ his/her back pay as well as litigation costs, expert witness fees, and attorneys' fees.

A) double
B) triple
C) quadruple
D) as determined by the court

Question 42

Brianna calls her stockbroker at Makememoney Brokers and finds out that Profitz, Inc. is raising capital by selling its stock to the public. She believes the stock is priced low and she will make a profit in the future, so she orders her broker to purchase 2,000 shares of Profitz Inc. stock. Which party is the investor, which is the issuer, and which is the intermediary? Explain the role each party plays in this transaction.

Question 43

Explain the problem of systemic risk and provide an example of systemic risk.

Question 44

Explain the role of The Securities and Exchange Commission (SEC) and the mandatory disclosures that are required.

Question 45

Describe in detail the Whistleblower Process under the Dodd-Frank Act.