Answer Choices:
a. Foreign currencies.
b. Consumer automobile loans.
c. Common stocks.
Answer: a. Foreign currencies.
Question: The annual rate of return on any given stock can be found as the stock’s dividend for the year plus the change in the stock’s price during the year, divided by its beginning-of-year price. If you obtain such data on a large portfolio of stocks, like those in the S&P 500, find the rate of return on each stock, and then average those returns, this would give you an idea of stock market returns for the year in question.
Answer Choices:
a. True
b. False
Answer: a. True
Question: A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.
Answer Choices:
a. True
b. False
Answer: a. True
Question: Private markets are those like the NYSE, where transactions are handled by members of the organization, while public markets are those like the NASDAQ, where anyone can make transactions.
Answer Choices:
a. True
b. False
Answer: b. False
Question: If you decide to buy 100 shares of Google, you would probably do so by calling your broker and asking him or her to execute the trade for you. This would be defined as a secondary market transaction, not a primary market transaction.
Answer Choices:
a. True
b. False
Answer: a. True
Question: When a corporation’s shares are owned by a few individuals who are associated with the firm’s management, we say that the stock is closely held.
Answer Choices:
a. True
b. False
Answer: a. True
Question: Which of the following statements is CORRECT?
Answer Choices:
a. The most important difference between spot markets versus futures markets is the maturity of the instruments that are traded. Spot market transactions involve securities that have maturities of less than one year whereas futures markets transactions involve securities with maturities greater than one year.
b. Capital market transactions involve only preferred stock or common stock.
c. If General Electric were to issue new stock this year, this would be considered a secondary market transaction since the company already has stock outstanding.
d. Both NASDAQ dealers and “specialists” on the NYSE hold inventories of stocks.
e. Money market transactions do not involve securities denominated in currencies other than the U.S. dollar.
Answer: d. Both NASDAQ dealers and “specialists” on the NYSE hold inventories of stocks.
Question: Which of the following statements is CORRECT?
Answer Choices:
a. The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically.
b. An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift.
c. Capital market instruments include both long-term debt and common stocks.
d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.
e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.
Answer: c. Capital market instruments include both long-term debt and common stocks.
Question: If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones Industrial Index, the S&P 500 Index, or the NASDAQ Index.
Answer Choices:
a. True
b. False
Answer: a. True
Question: Which of the following statements is NOT CORRECT?
Answer Choices:
a. When a corporation’s shares are owned by a few individuals, we say that the firm is “closely, or privately, held.”
b. “Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.
c. The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC.
d. When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public, or an IPO,” and the market for such stock is called the new issue or IPO market.
e. It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.
Answer: b. “Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.
Question: A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors.
Answer Choices:
a. True
b. False
Answer: a. True