Question 1

Although there was a financial crisis in 2007-2010, some firms were able to weather the crisis. These firms had all of the following characteristics that were directly responsible for their ability to survive the crisis EXCEPT ____.

Accepted Answer

The other options (A, B, and D) are all directly related to a firm's financial stability and ability to weather a crisis. Option C suggests a business model that encourages risk taking, which is not necessarily a characteristic that leads to surviving a crisis. In fact, it may be the opposite. Successful firms typically have a balance of risk-taking and cautious decision making.

Question 2

____ finance seeks to identify why some investors react irrationally when confronted with unexpected ups and downs in the market.

Accepted Answer

Behavioral finance focuses on the psychological and emotional factors that influence investor behavior, including irrational reactions to market fluctuations. It seeks to understand these behaviors and develop strategies to mitigate their impact on investment decisions.

Question 3

Each of the following has tax implications as it concerns financial management decisions EXCEPT ____.

Accepted Answer

Inventory control may affect financial management decisions related to cash inflows and outflows, but it does not have direct tax implications. On the other hand, capital structure policy, capital budgeting, and leasing all involve tax implications that must be considered when making financial management decisions.

Question 4

Foreign currency options reflect ____ forward and future contracts.

Accepted Answer

Foreign currency options provide an alternative to forward and future contracts as they give the holder the right, but not the obligation, to buy or sell a currency at a specific exchange rate at a future date.

Question 5

Each of the following markets, at some time in the past, has experienced a bubble that impacted the financial market EXCEPT ____.

Accepted Answer

Blue chip refers to large, stable and established companies, which are typically not subject to bubbles. Therefore, blue chip market has not experienced a bubble that impacted the financial market. On the other hand, real estate, stock market, and gold have all experienced bubbles in the past that had a significant impact on the financial market.

Question 6

An example of a financial middleman is a(n) ____.

Accepted Answer

The answer of An example of a financial middleman is...

Question 7

Each of the following contributed to the start of the financial crisis in 2007 EXCEPT ____.

Accepted Answer

The Gulf War did not contribute to the start of the financial crisis in 2007. The creation of complex mortgage-backed securities, very low interest rates, and the use of high leverage by individuals and corporations were all factors that contributed to the crisis.

Question 8

Trading on the NYSE is conducted by members of the exchange. The members that execute orders and act as agents on behalf of their clients are ____.

Accepted Answer

Floor brokers are members of the NYSE who execute orders and act as agents on behalf of their clients. Exchange runners are employees of floor brokers and designated market makers are members of the NYSE who manage the trading of specific stocks. SEC agents are not involved in the day-to-day trading on the NYSE.

Question 9

The difference between the bid price and the ask price on a security is the ____.

Accepted Answer

The spread is the difference between the bid price (the highest price a buyer is willing to pay for a security) and the ask price (the lowest price a seller is willing to accept for that security). A and only A is the correct answer.

Question 10

There are many reasons for the financial crisis in 2007. The most significant event closely associated with this crisis is ____.

Accepted Answer

The U.S. real estate bubble refers to the housing market boom during the early 2000s, in which many Americans took out large mortgages to purchase homes. These mortgages were often given to individuals who could not afford them, and were offered with adjustable interest rates which later caused many borrowers to default on their loans. This led to a collapse of the housing market, which then rippled through the financial industry and caused widespread economic damage. While all of the options listed may have played a role in the financial crisis, the U.S. real estate bubble is seen as the most significant contributor.

Question 11

In the financial crisis of 2007, there was cheap money coming from emerging markets. Examples of emerging markets are all of the following EXCEPT ____.

Accepted Answer

Australia is not considered an emerging market, as it is a developed country with a high-income economy. The other choices (South Korea, India, and China) are considered emerging markets due to their developing economies and growing industries.

Question 12

Which of the following statements is (are) correct about financial intermediaries? 
I. Financial intermediaries primarily operate within the secondary market.
II. Examples of financial intermediaries are: commercial banks, thrift Institutions and the Internal Revenue Service.

Accepted Answer

Financial intermediaries primarily operate in the primary market, facilitating the flow of funds from savers to borrowers, not in the secondary market. The Internal Revenue Service (IRS) is not a financial intermediary; it is a government agency responsible for tax collection and tax law enforcement.

Question 13

Financial intermediaries are compensated for their services by ____.

Accepted Answer

Financial intermediaries make money by charging a higher interest rate on loans to borrowers than the interest rate they pay to depositors. This is known as the interest rate spread, and it is the primary source of compensation for financial intermediaries. They do not typically receive salary, stock options, or preferred stock certificates as compensation.

Question 14

An example of a listed security exchange within the secondary market is ____.

Accepted Answer

The answer of An example of a listed security exchange...

Question 15

Most U.S. Treasury bonds are traded in ____.

Accepted Answer

Most U.S. Treasury bonds are traded in over-the-counter markets, which is a decentralized market where participants trade securities directly between two parties without a central exchange or broker.

Question 16

An investor decides to sell his stock based on information he received about some internal audit revealing that the company has severe financial problems. Trading on this information is called ____.

Accepted Answer

Trading on insider information, or information that is not available to the public, is known as insider trading. The investor in this scenario received information about the company's financial problems that was not yet known to the public.

Question 17

Foreign currency forward and future options provide a means for firms to control ____.

Accepted Answer

Foreign currency forward and future options provide a means for firms to control foreign exchange risk, which is the risk that arises from changes in exchange rates between two currencies. The other options (A, B, D) are unrelated to the use of foreign currency options.

Question 18

As a group, net savers are ____.

Accepted Answer

Net savers refers to those who save more than they borrow or spend. Businesses and partnerships may be borrowers or net borrowers, and governments may be either borrowers or lenders depending on their fiscal policies. The term "net savers" is commonly associated with households who tend to save a portion of their income for future use or investment.

Question 19

The difference between a put option and a call option is that ____.

Accepted Answer

A call option is the option to buy, while a put option is the option to sell.

Question 20

There are three degrees of market efficiency. All of the following statements are correct EXCEPT ____.

Accepted Answer

This statement is incorrect, as market efficiency has not been verified in all real-world situations. In fact, there is ongoing debate regarding the extent of market efficiency in different types of markets and under different conditions.

Quiz 2: The Domestic and International Financial Marketplace