Deck 2: Firms and the Financial Market

Question 1

The difference between managed funds and ETFs is that ETFs are traded on exchanges and managed funds are not.

Answer 1

True

Question 2

Private equity firms are financial intermediaries that are not traded on public capital markets.

Answer 2

True

Question 3

Banks that are financial intermediaries generate earnings when they facilitate the transfer of money from savers to borrowers by paying savers a smaller return than they demand from borrowers.

Answer 3

True

Question 4

All of the following are classified as non-bank financial intermediaries EXCEPT

A)share brokerages.
B)money market corporations.
C)insurance companies.
D)hedge funds.

Question 5

Capital markets are markets for short-term debt instruments maturing in less than one year,and money markets are markets for long-term debt instruments maturing in more than one year.

Question 6

In financial markets,borrowers pay savers by giving them a return on investment.

Question 7

Individuals are often savers because they wish to save for things such as a down payment on a home or graduate school.

Question 8

All of the following operate as financial intermediaries EXCEPT

A)commercial banks.
B)managed funds.
C)insurance companies.
D)public universities.

Question 9

Which of the following is true concerning money market corporations?

A)They tend to operate in wholesale markets.
B)They predominantly provide mortgage financing to homeowners.
C)They have a larger share of financial assets than superannuation funds.
D)They are not generally known as Registered Financial Corporations

Question 10

The principal participants in the financial markets are

A)businesses,banks,government.
B)borrowers,savers,financial institutions.
C)mutual funds,hedge funds,investment bankers.
D)dealers,brokers,regulators.

Question 11

Venture capital funds play an important role in the initial financing of new businesses.

Question 12

All financial intermediaries are banks.

Question 13

Managed Funds and ETFs provide the investor a chance to diversify without having to buy shares in numerous corporations.

Question 14

Financial intermediaries help bring savers and borrowers together.

Question 15

Insurance companies have a great deal of money to invest because

A)their profit margins are so high.
B)they are reluctant to cover insurable losses.
C)they must hold large reserves to pay potential claims.
D)they do not actually have large sums to invest.

Question 16

In financial markets,borrowers and lenders most both be located in the same country.

Question 17

Each of the following is true of managed funds EXCEPT

A)funds are open or closed.
B)open managed fund shares are bought from or sold to the fund.
C)an index fund is the fund with the highest expenses payable by investors.
D)the net asset value is the total value of the fund divided by the number of outstanding units.

Question 18

The purpose of financial markets is to bring borrowers and savers together.

Question 19

All of the following are true about insurance companies EXCEPT

A)They invest their reserves.
B)They may guarantee to reimburse lenders should lenders' loans go into default.
C)They participate in equipment leasing.
D)They may only invest their reserves in interest paying bank accounts under Federal law.

Question 20

The principal savers in the financial markets are

A)businesses.
B)banks.
C)individuals.
D)governments.

Question 21

Describe the costs and benefits to investors of owning managed funds.

Question 22

Money market corporations are similar to commercial banks except they invest deposits in shares and bonds and do not make loans.

Question 23

A security is a written instrument that represents a financial claim.

Question 24

Which of the following is true about preference shares?

A)Preference shares always have voting rights.
B)If the company does not have the funds to pay the preference dividend,the right of the preference shareholders to collect that dividend lapses.
C)Preference share dividends are not tax deductible to the corporation.
D)Preference shares always have a maturity date,at which time the issue price must be repaid to shareholders.

Question 25

Which of the following financial instruments entails the most risk and potentially the highest returns for investors?

A)Debt with a maturity of less than one year
B)Bonds
C)Ordinary shares
D)Preference shares

Question 26

Each year,shareholders always receive a dividend equal to the firm's net earnings divided by the number of ordinary shares outstanding.

Question 27

Characteristics of typical bonds include all of the following except

A)the par value.
B)the dividend rate.
C)the coupon rate
D)the maturity date.

Question 28

ABC Corporation issued and sold 10 shares to Irene Investor,a private individual.This represents a secondary market transaction.

Question 29

The market for short-term debt is known as

A)the bond market.
B)the notes market.
C)the capital market.
D)the money market.

Question 30

A bond matures in less than 10 years.

Question 31

The prices of preference shares are solely dependent on investors' expectations of future cash flows to the corporation.

Question 32

Investors in securities markets do not use a financial intermediary.

Question 33

Primary markets are always larger than secondary markets.

Question 34

A share's market value is dependent on investors' expectations of future cash flows to the firm.

Question 35

Colin,a private individual,sold one thousand shares in DEF Corporation to Colleen,also a private individual.This represents a secondary market transaction.

Question 36

Which of the following financial instruments is not traded in the capital markets?

A)Debt with a maturity of less than one year
B)Bonds
C)Ordinary shares
D)Preference shares

Question 37

Bonds are less risky than are shares because their return is more predictable.

Question 38

Investors in ordinary shares increase their wealth when the

A)the market value of the share goes up.
B)when the share pays a dividend.
C)when the share pays interest on the original investment.
D)both A and B.

Question 39

Which of the following is true about bonds?

A)They are obligations from the investor to the corporation.
B)Their interest rate always varies with inflation.
C)They have a fixed maturity and they pay an amount equal to the maturity value.
D)The investor receives the market price of the bond at maturity.

Question 40

Owners of ordinary shares are part owners of the firm.

Question 41

The primary markets sell only shares and bonds issued by major corporations while the secondary markets sell securities issued by newer and smaller companies.

Question 42

Explain how securities markets provide a link between the corporation and investors.

Question 43

A company has the option to pay bond interest or not.

Question 44

Established firms in need of additional capital can raise it in the secondary market.

Question 45

Describe the tax benefits to a corporation of issuing debt rather than issuing shares.

Question 46

Organised security exchanges do not physically occupy space.

Question 47

Many U.S.technology stocks are listed on the National Association of Securities Dealers Automated Quotations (NASDAQ)rather than on the New York Stock Exchange (NYSE).