FIN 221 Financial Markets and Institutions

Which of the following best describes a Direct Transfer in capital allocation?
A. A mutual fund investing savings on behalf of individuals
B. A company selling securities directly to investors
C. A bank underwriting securities before resale
D. A government issuing Treasury bills

B. A company selling securities directly to investors

Which advantage is most associated with an Indirect Transfer via an Investment Bank?
A. Avoids underwriting fees
B. Provides access to large pools of capital
C. Eliminates regulatory requirements
D. Guarantees higher stock prices

B. Provides access to large pools of capital

Which of the following is a disadvantage of relying on financial intermediaries?
A. Lack of diversification
B. Limited access to investors
C. Fees that erode returns
D. Increased disclosure obligations

C. Fees that erode returns

Which real-world example best fits the Direct Transfer channel?
A. Rivian raising $13.7 billion through an IPO
B. Warby Parker raising early funds from wealthy individuals
C. Vanguard pooling retirement contributions
D. JPMorgan issuing corporate loans

→ B. Warby Parker raising early funds from wealthy individuals

Which capital allocation path is best for early-stage

small private projects?
A. Direct Transfer
B. Indirect Transfer via Investment Bank
C. Through Financial Intermediaries
D. Secondary Market Transactions

Which capital allocation path is most likely to create regulatory scrutiny and disclosure
requirements?
A. Direct Transfer
B. Intermediary Transfer
C. Indirect Transfer via Investment Bank
D. Secondary Market

C. Indirect Transfer via Investment Bank

Which party is most likely to underwrite securities during an indirect transfer?
A. Insurance company
B. Investment bank
C. Credit union
D. Mutual fund

B. Investment bank

Which risk is highest in a Direct Transfer?
A. Lack of diversification
B. Market volatility
C. Dependence on a few wealthy backers
D. Overpricing of shares

C. Dependence on a few wealthy backers

Which investor is most likely to participate in a Direct Transfer arrangement?
A. Hedge fund manager
B. Wealthy individual
C. Credit union
D. Mutual fund

B. Wealthy individual

Which financial channel is most efficient for pooling retirement savings?
A. Direct Transfer
B. Investment Bank
C. Intermediary Institutions
D. Futures Market

C. Intermediary Institutions

Which allocation method is best for companies wanting to stay private?
A. Through an Investment Bank
B. Through Intermediaries
C. Direct Transfer
D. Secondary Market

C. Direct Transfer

Which capital allocation method provides the fastest path to large-scale visibility?
A. Direct Transfer
B. Intermediaries
C. IPO via Investment Bank
D. Futures Market

C. IPO via Investment Bank

Which path is most likely to result in hidden fees reducing investor returns?
A. Direct Transfer
B. Investment Bank
C. Intermediaries
D. Public Market

C. Intermediaries

Which capital allocation method was used when Rivian raised $13.7B in 2021?
A. Direct Transfer
B. Intermediary Pooling
C. Indirect via Investment Bank
D. Futures Market

C. Indirect via Investment Bank

Which risk do companies face when relying heavily on financial intermediaries?
A. Illiquidity
B. Market volatility
C. Loss of control over specific investment decisions
D. Excessive disclosure

C. Loss of control over specific investment decisions

Which allocation method is most suitable for a teacher investing through a 403(b)?
A. Direct Transfer
B. Investment Bank
C. Intermediary Pooling
D. Futures Market

C. Intermediary Pooling

Which pitfall is most associated with an IPO mispricing?
A. Underpricing or overpricing by investment banks
B. Limited investor access
C. Hidden intermediary fees
D. Illiquidity

A. Underpricing or overpricing by investment banks

Which capital allocation method offers the least control for individual investors?
A. Direct Transfer
B. Intermediary Transfer
C. Indirect Transfer via Investment Bank
D. Spot Market

B. Intermediary Transfer

Which of the following is a strength of intermediaries?
A. Simplicity
B. Diversification
C. Avoiding underwriting fees
D. Minimizing regulation

B. Diversification

Which is the biggest trade-off for companies using investment banks?
A. Lower access to capital
B. High underwriting fees
C. No investor diversification
D. Lack of credibility

B. High underwriting fees

Which market involves issuing new securities for the first time?
A. Secondary Market
B. Primary Market
C. Futures Market
D. Private Market

B. Primary Market

When Tesla stock trades daily on NASDAQ

which market is being used?
A. Primary Market
B. Secondary Market
C. Spot Market
D. Futures Market

Which market is most commonly used to hedge predictable needs like airline fuel costs?
A. Secondary Market
B. Primary Market
C. Futures Market
D. Spot Market

C. Futures Market

Buying gold for immediate delivery at today's price is an example of which market?
A. Spot Market
B. Futures Market
C. Secondary Market
D. Public Market

A. Spot Market

Which of the following is a common pitfall of the Private Market?
A. Volatility
B. Overpricing IPO shares
C. Illiquidity
D. Sentiment-driven prices

C. Illiquidity

Which market is best for raising new capital?
A. Primary Market
B. Secondary Market
C. Spot Market
D. Futures Market

A. Primary Market

Which market provides liquidity and price discovery but not new capital for firms?
A. Primary Market
B. Secondary Market
C. Spot Market
D. Private Market

B. Secondary Market

Which market often suffers from sentiment-driven price swings?
A. Public Market
B. Private Market
C. Futures Market
D. Spot Market

A. Public Market

Which market involves negotiated sales to select investors?
A. Public Market
B. Secondary Market
C. Private Market
D. Futures Market

C. Private Market

Which pitfall is most associated with the Primary Market?
A. Illiquidity
B. Overpricing new issues
C. Sentiment-driven trading
D. Lack of diversification

B. Overpricing new issues

Which market is most useful for investors seeking liquidity?
A. Primary Market
B. Secondary Market
C. Spot Market
D. Futures Market

B. Secondary Market

Which market is most accessible to retail investors?
A. Private Market
B. Public Market
C. Spot Market
D. Futures Market

B. Public Market

Which pitfall is most associated with the Futures Market?
A. Illiquidity
B. Volatility and leverage risk
C. Overpricing
D. Sentiment-driven pricing

B. Volatility and leverage risk

Which market was used when Airbnb launched its IPO in 2020?
A. Primary Market
B. Secondary Market
C. Spot Market
D. Private Market

A. Primary Market

Which pitfall is most associated with the Secondary Market?
A. Illiquidity
B. Hidden intermediary fees
C. High volatility distorting value
D. High underwriting costs

C. High volatility distorting value

Which market is most attractive to venture capital firms funding Stripe?
A. Futures Market
B. Primary Market
C. Public Market
D. Private Market

D. Private Market

Which market provides the fastest execution at current prices?
A. Spot Market
B. Futures Market
C. Secondary Market
D. Private Market

A. Spot Market

Which pitfall is most associated with the Public Market?
A. Illiquidity
B. Overreliance on investor sentiment
C. Lack of disclosure
D. Limited access

B. Overreliance on investor sentiment

Which market type would be most useful for an investor seeking to lock in prices for wheat 6 months from now?
A. Secondary Market
B. Spot Market
C. Futures Market
D. Private Market

C. Futures Market

Which market type provides confidentiality and flexibility but low liquidity?
A. Private Market
B. Public Market
C. Spot Market
D. Secondary Market

A. Private Market

Which institution is known for underwriting IPOs and advising on mergers?
A. Credit Union
B. Commercial Bank
C. Investment Bank
D. Pension Fund

C. Investment Bank

Which institution accepts deposits and extends loans

serving as the backbone of
traditional finance?
A. Insurance Company
B. Commercial Bank
C. Investment Bank
D. Mutual Fund

Which institution provides low-cost member-focused services like affordable auto
loans?
A. Investment Bank
B. Credit Union
C. Pension Fund
D. Hedge Fund

B. Credit Union

Which institution pools savings into diversified portfolios like the Vanguard S&P 500 ETF?
A. Mutual Fund/ETF
B. Credit Union
C. Commercial Bank
D. Insurance Company

A. Mutual Fund/ETF

Which intermediary collects retirement contributions and invests for employees?
A. Pension Fund
B. Insurance Company
C. Credit Union
D. Commercial Bank

A. Pension Fund

Which intermediary is most likely to invest reserves in safe

long-term assets like
government bonds?
A. Mutual Fund
B. Pension Fund
C. Insurance Company
D. Investment Bank

Which of the following is a common pitfall of commercial banks for firms needing rapid growth capital?
A. High volatility
B. Rigid lending standards
C. Overpricing securities
D. Excessive fees

B. Rigid lending standards

Which financial intermediary is best for long-term diversified savings?
A. Credit Union
B. Mutual Fund
C. Insurance Company
D. Direct Transfer

B. Mutual Fund

Which financial institution is most appropriate for large

complex corporate deals?
A. Pension Fund
B. Investment Bank
C. Mutual Fund
D. Credit Union

Which financial institution's size and conservatism give it stability but limit
responsiveness?
A. Insurance Company
B. Mutual Fund
C. Pension Fund
D. Commercial Bank

C. Pension Fund

Which financial intermediary offers community-based services but limited scope?
A. Credit Union
B. Commercial Bank
C. Investment Bank
D. Mutual Fund

A. Credit Union

Which institution provides the most diversification with minimal investor control?
A. Insurance Company
B. Pension Fund
C. Mutual Fund
D. Commercial Bank

C. Mutual Fund

Which institution is most risk-averse

investing primarily in government bonds?
A. Credit Union
B. Insurance Company
C. Pension Fund
D. Investment Bank

Which intermediary is best for individuals seeking low-cost loans?
A. Pension Fund
B. Mutual Fund
C. Credit Union
D. Investment Bank

C. Credit Union

Which institution primarily manages employer-based retirement plans like CalPERS?
A. Insurance Company
B. Pension Fund
C. Mutual Fund
D. Investment Bank

B. Pension Fund

Which is a common pitfall of using investment banks?
A. Conflicts of interest
B. Lack of diversification
C. Limited investor access
D. Rigid lending

A. Conflicts of interest

Which institution issues loans but is highly conservative?
A. Commercial Bank
B. Credit Union
C. Insurance Company
D. Pension Fund

A. Commercial Bank

Which intermediary has the greatest influence on corporate governance due to size?
A. Credit Union
B. Pension Fund
C. Mutual Fund
D. Insurance Company

B. Pension Fund

Which intermediary's fees are the largest drag on investor returns over time?
A. Mutual Fund
B. Commercial Bank
C. Insurance Company
D. Credit Union

A. Mutual Fund

Which financial institution is best for global IPO launches?
A. Pension Fund
B. Insurance Company
C. Investment Bank
D. Credit Union

C. Investment Bank

Which is the first step in the IPO process?
A. Conduct Roadshow
B. Set Price & Allocate Shares
C. Hire Underwriters
D. File Prospectus with SEC

C. Hire Underwriters

Which document must be filed with the SEC during an IPO?
A. Stock Certificate
B. Prospectus
C. Covenant Agreement
D. Roadshow Agenda

B. Prospectus

What is the purpose of the IPO roadshow?
A. To file financials with the SEC
B. To attract potential investors through presentations
C. To set the initial offering price
D. To allocate shares to underwriters

B. To attract potential investors through presentations

Which exchange is auction-based

prestigious

Which exchange is dealer-based and tech-heavy

hosting firms like Apple and Tesla?
A. NYSE
B. NASDAQ
C. Primary Market
D. Private Market

Which order executes immediately at the best available price?
A. Limit Order
B. Market Order
C. Stop Order
D. Future Order

B. Market Order

Which order guarantees a specific price but may not execute?
A. Market Order
B. Limit Order
C. Stop Order
D. Spot Order

B. Limit Order

Which order activates when a security reaches a set price

often used to protect against
losses?
A. Market Order
B. Limit Order
C. Stop Order
D. Futures Contract

Rivian's IPO priced at $78 but opened at $106 due to strong demand. Which risk does this
highlight?
A. Mispricing
B. Illiquidity
C. Overconfidence Bias
D. Restrictive Covenants

A. Mispricing

Which is a common pitfall when firms choose the wrong exchange for listing?
A. Higher underwriting fees
B. Mismatch with investor base
C. Excessive disclosure requirements
D. Limited liquidity

B. Mismatch with investor base

Which exchange is most associated with tech IPOs?
A. NYSE
B. NASDAQ
C. Futures Market
D. OTC Markets

B. NASDAQ

Which IPO step ensures investor demand is gauged before pricing?
A. Filing Prospectus
B. Hiring Underwriters
C. Roadshow
D. Allocating Shares

C. Roadshow

Which order type is least predictable in volatile markets?
A. Limit Order
B. Stop Order
C. Market Order
D. Futures Contract

C. Market Order

Which is a disadvantage of choosing NASDAQ over NYSE?
A. Limited prestige compared to NYSE
B. Limited investor base
C. Limited liquidity
D. Higher fees

A. Limited prestige compared to NYSE

Which IPO risk is associated with underpricing shares?
A. Leaving money on the table
B. Illiquidity
C. Rigid lending standards
D. Sentiment-driven prices

A. Leaving money on the table

Which IPO step is primarily designed to meet regulatory disclosure requirements? A. Hiring Underwriters B. Filing Prospectus C. Roadshow D. Allocating Shares

B. Filing Prospectus

Which order type offers discipline for investors by specifying price?
A. Market Order
B. Limit Order
C. Stop Order
D. Futures Order

B. Limit Order

Which market consequence occurs when IPOs are overpriced?
A. Poor aftermarket performance
B. Hidden fees
C. Investor sentiment
D. Rigid lending

A. Poor aftermarket performance

Which IPO document contains financials and risk disclosures?
A. Stock Certificate
B. Prospectus
C. Roadshow Presentation
D. Share Allocation

B. Prospectus

Which IPO step directly determines how many shares each investor receives?
A. Prospectus Filing
B. Roadshow
C. Pricing & Allocation
D. Exchange Listing

C. Pricing & Allocation

Which form of the EMH states that prices reflect all historical trading data?
A. Weak Form
B. Semi-Strong Form
C. Strong Form
D. Adaptive

A. Weak Form

Which form of the EMH assumes even insider information is priced in?
A. Weak Form
B. Semi-Strong Form
C. Strong Form
D. Informational Efficiency

C. Strong Form

Netflix's earnings announcements moving stock prices within minutes best illustrate
which form of efficiency?
A. Weak Form
B. Semi-Strong Form
C. Strong Form
D. Economic Efficiency

B. Semi-Strong Form

Which concept describes how quickly and accurately markets reflect new data?
A. Economic Efficiency
B. Informational Efficiency
C. Behavioral Finance
D. Adaptive Market Hypothesis

B. Informational Efficiency

Which concept is concerned with whether capital flows to its highest-value use?
A. Informational Efficiency
B. Behavioral Finance
C. Economic Efficiency
D. Market Liquidity

C. Economic Efficiency

Which behavioral bias causes investors to overtrade due to excessive faith in their
predictions?
A. Herd Behavior
B. Overconfidence Bias
C. Loss Aversion
D. Informational Inefficiency

B. Overconfidence Bias

Which behavioral bias occurs when investors hold losing stocks too long?
A. Overconfidence Bias
B. Herd Behavior
C. Loss Aversion
D. Adaptive Market Bias

C. Loss Aversion

Which behavioral bias is most linked to bubbles like GameStop in 2021?
A. Overconfidence Bias
B. Herd Behavior
C. Loss Aversion
D. Informational Efficiency

B. Herd Behavior

Which theory blends rational market efficiency with behavioral adaptation during stress?
A. Efficient Market Hypothesis
B. Adaptive Market Hypothesis
C. Behavioral Bias Theory
D. Semi-Strong Efficiency

B. Adaptive Market Hypothesis

During COVID-19

Pfizer stock rose on vaccine progress

Which bias best explains investors selling too late to avoid realizing a loss?
A. Overconfidence
B. Herd Behavior
C. Loss Aversion
D. Adaptive Market

C. Loss Aversion

Which efficiency measure is challenged when prices move before official
announcements?
A. Informational Efficiency
B. Economic Efficiency
C. Semi-Strong EMH
D. Strong EMH

A. Informational Efficiency

Which efficiency type is most relevant when evaluating venture capital funding?
A. Weak EMH
B. Informational Efficiency
C. Economic Efficiency
D. Adaptive Market

C. Economic Efficiency

Which bias could cause an investor to trade excessively in meme stocks?
A. Loss Aversion
B. Herd Behavior
C. Overconfidence
D. Informational Efficiency

C. Overconfidence

Which bias could cause investors to miss opportunities by being too cautious?
A. Overconfidence
B. Herd Behavior
C. Loss Aversion
D. Adaptive Market

C. Loss Aversion

Which hypothesis best explains why markets act efficient during stability but irrational
during crises?
A. Weak EMH
B. Strong EMH
C. Adaptive Market Hypothesis
D. Informational Efficiency

C. Adaptive Market Hypothesis

Which EMH form is most unrealistic in practice?
A. Weak
B. Semi-Strong
C. Strong
D. Adaptive

C. Strong

Which efficiency measure is most relevant when examining speed of price reaction?
A. Informational Efficiency
B. Economic Efficiency
C. Strong EMH
D. Behavioral Finance

A. Informational Efficiency

Which efficiency measure addresses whether capital is deployed to renewable energy instead of speculation?
A. Informational Efficiency
B. Economic Efficiency
C. Weak EMH
D. Behavioral Finance

B. Economic Efficiency

Which bias explains investors piling into stocks because "everyone else is doing it"?
A. Overconfidence
B. Herd Behavior
C. Loss Aversion
D. Economic Inefficiency

B. Herd Behavior