Finance 303 Chapter 2 HW

Savings provided by _____ small dollar amounts is the origin of much of the money that funds business loans in an economy.

households

the U.S.government

small businesses

none of the above

households

The primary function of a financial system is funneling funds from:

lender-savers to borrower-spenders.

borrower- spenders to lender-savers.

the government to wealthy individuals .

wealthy individuals to non-wealthy individuals .

lender-savers to borrower-spenders.

The major players in the direct financial markets are:

money center banks.

investment banks .

both investment banks and money center banks.

regional banks.

both investment banks and money center banks.

Which of the following Acts is responsible for rolling back many of the rules prohibiting commercial banks from engaging in investment banking activities?

The Financial Services Modernization Act of 1999

The Securities Act of 1933

The Securities Exchange Act of 1934

The Glass-Steagall Act of 1933

The Financial Services Modernization Act of 1999

Which of the following is a process by which investment bankers purchase new securities directly from the issuing company and resell them to the investors?

Underwriting

Private placement

Distribution

Agency marketing

Underwriting

One of the main services provided by investment banks to companies is:

helping companies sell new debt or equity issues in the financial markets .

making loans to companies .

taking deposits from companies.

all of these .

helping companies sell new debt or equity issues in the financial markets .

A highly liquid financial instrument with a maturity of 90 days would be traded in:

the money market.

the bond market .

the stock market.

none of the above.

the money market

If a firm needs to finance a new corporate headquarters building, then it would most likely seek the funds in the:

money market.

capital market

futures market.

all of these

capital market

Which of the following theories states that security prices reflect all public information, but not all private information?

Weak -form efficiency

Strong-form efficiency

Semistrong -form efficiency

Nominal -form efficiency

Semistrong -form efficiency

Which of the following can be a primary investment vehicle(s) for the funds in which life insurance companies must invest?

Long-term corporate bonds

Both equity securities and long-term corporate bonds

CDs

Equity securities

Both equity securities and long-term corporate bonds

Which of the following is least likely to be included in a pension fund's investment portfolio?

Commercial paper

Intermediate corporate bonds

Stocks

Long-term corporate bonds

Commercial paper

The critical role of the financial system in an economy is to

provide the President with information regarding the debt level in the country.

gather money from savers and channel it to borrowers

provide managers with incentives to increase capital spending

regulate the operations of the commercial banks.

gather money from savers and channel it to borrowers

An investment banker is responsible for

taking deposits from investors

preparing a security issue for sale

assisting the company in preparing the financial statements

making loans to needy businesses

preparing a security issue for sale

Which of the following is true of the New York Stock Exchange?

It is an organized exchange

It is an over-the-counter exchange

It has no central trading location

It can be used by all U.S. citizens

It is an organized exchange

You just purchased a share of IBM stock on the New York Stock Exchange. What kind of transaction was this?

Secondary market transaction

Futures market transaction

Primary market transaction

Private placement

Secondary market transaction

Imagine you borrow $510 from your roommate, agreeing to pay her back $510 plus 8 percent nominal interest in one year. Assume inflation over the life of the contract is expected to be 4.50 percent. What is the total dollar amount you will have to pay her back in a year? What percentage of the interest payment is the result of the real rate of interest?

Total dollar amount:

Approximate percentage of interest attributable to the real rate of interest:

$550.80

3.5%

If the nominal rate of interest is 4.19% and the expected rate of inflation is 1.78%, what is the real rate of interest?

2.3679