Question 1

An industrialized economy is comprised of which of the following sectors?

Accepted Answer

An industrialized economy encompasses all sectors including government (which oversees and regulates the economy), production (the manufacturing and creation of goods), and consumption (the purchase and use of goods and services by individuals and businesses).

Question 2

When consumers spend money on food and apparel, it is included in the production sector of the economy.

Accepted Answer

Consumer spending on food and apparel is included in the consumption sector of the economy, not the production sector. The production sector refers to the part of the economy involved in producing goods and services, while consumer spending is part of the demand or consumption side.

Question 3

Dark pools are broker-dealer organizations that help traders buy and sell securities.

Accepted Answer

Dark pools are private, off-exchange trading platforms that allow institutional investors to trade large blocks of securities without revealing their intentions to the wider market. They are typically operated by broker-dealer organizations.

Question 4

Roughly 40% of today's trading is conducted "off exchange."

Accepted Answer

According to data from the SEC, around 40% of today's trading is conducted off-exchange through dark pools, electronic communication networks (ECNs), and other alternative trading venues.

Question 5

Liquidity Risk Premium is a:

Accepted Answer

Liquidity risk premium is the extra return demanded by investors or lenders to compensate for the risk of not being able to buy or sell a security quickly enough to prevent a loss. This is because some securities may not be easily converted into cash. The premium is charged to compensate for the uncertainty that surrounds the price of the security in the future. Options A, C, and D deal with other types of premiums that are charged for other types of risks.

Question 6

Match between columns
                        Premises: Risk-free rate

Accepted Answer

The Answer of Short-term investments present less risk than long-term is...

Question 7

Debt securities issued by the federal government do not compensate investors for liquidity risk.

Accepted Answer

Debt securities issued by the federal government, such as Treasury bonds and notes, are considered to be among the safest investments because they are backed by the full faith and credit of the United States government. As a result, they typically offer lower yields compared to riskier investments. However, they do not compensate investors for liquidity risk, which is the risk that an investor may not be able to sell their investment quickly enough or without significant loss due to market conditions. Investors who prioritize liquidity may therefore need to consider other types of investments, such as money market funds, that offer higher liquidity but may come with their own risks.

Question 8

A stock exchange:

Accepted Answer

All of the options are true statements about a stock exchange. It is transparent, making prices and volumes visible to all participants, and is fair in ensuring that no one gets preferential treatment. Additionally, it facilitates quick trading of securities based on supply and demand.

Question 9

Dark pools act like exchanges by bringing buyer and sellers together and are heavily regulated similar to a formal exchange.

Accepted Answer

Dark pools are private exchanges for trading securities that are not accessible by the public and are less regulated than public stock exchanges.

Question 10

Match between columns
                        Premises: Maturity risk

Accepted Answer

The Answer of A sustained increase in the general level is...

Question 11

Match between columns
                        Premises: Inflation

Accepted Answer

The Answer of The earning power of money and Short-term is...

Question 12

You just borrowed $15,000 from a finance company to start a business. If you are required to repay $16,800 interest and principal in one year, and inflation is 4.0%, what is the expected real rate of interest?

Accepted Answer

The answer of You just borrowed $15,000 from a finance...

Question 13

Consumers invest in securities, which generate returns in the form of interest on bonds and both dividends and price appreciation on stock.

Accepted Answer

This statement is true. When consumers invest in securities such as bonds, they receive interest payments. When they invest in stocks, they can earn returns through both dividends (regular payments from the company to shareholders) and price appreciation (increases in the stock's value over time).

Question 14

You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available. k_PR = 2% MR = 0.1% for a 1 year loan increasing by 0.1% for each additional year LR = 0.05% for a 1 year loan increasing by 0.05% for each additional year DR = 0 for a 1 year loan, 0.2% for a 2-year loan, increasing 0.1% for each additional year Expected Inflation Rates Year 1 = 7% Year 2 = 5% Year 3 and thereafter = 3% a. Calculate the inflation adjustment (INFL)for a 5-year loan. b. Calculate the appropriate interest rate for a 5-year loan.

Accepted Answer

The answer of You have been assigned to estimate the...

Question 15

There are just two stock exchanges in the United States.

Accepted Answer

There are actually several stock exchanges in the United States, including the New York Stock Exchange (NYSE) and the Nasdaq.

Question 16

Match between columns
                        Premises: Pure interest rate

Accepted Answer

The Answer of Short-term investments present less risk than long-term is...

Question 17

All of the following are true regarding disclosure except for:

Accepted Answer

Disclosure does not require companies to offer their securities for sale at a specific price, but rather to provide accurate and complete information about their operations and executives to potential investors. The fair and reasonable price of securities is determined by the market.

Question 18

Murphy Bin Ltd. granted stock options to its executive employees. Each executive received options on 10,000 shares of stock 2 years ago at an exercise price of $12 per share. The options can be exercised today at the current market price of $34.14.   How much will an executive's income be this year if his salary is $1,050,000 and he exercises all of his options today?

Accepted Answer

The answer of Murphy Bin Ltd. granted stock options to...

Quiz 5: The Financial System Corporate Governance and Interest

An industrialized economy is comprised of which of the following sectors?

When consumers spend money on food and apparel, it is included in the production sector of the economy.

Dark pools are broker-dealer organizations that help traders buy and sell securities.

Roughly 40% of today's trading is conducted "off exchange."

Liquidity Risk Premium is a:

Match the following:

Debt securities issued by the federal government do not compensate investors for liquidity risk.

A stock exchange:

Dark pools act like exchanges by bringing buyer and sellers together and are heavily regulated similar to a formal exchange.

Match the following:

Match the following:

You just borrowed $15,000 from a finance company to start a business. If you are required to repay $16,800 interest and principal in one year, and inflation is 4.0%, what is the expected real rate of interest?

Consumers invest in securities, which generate returns in the form of interest on bonds and both dividends and price appreciation on stock.

There are just two stock exchanges in the United States.

Match the following:

All of the following are true regarding disclosure except for: