Financial Investment Exam 1 Practical Questions. Pt2

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

call option

Financial intermediaries exist because small investors cannot efficiently __________.

All of the choices are correct

Ownership of a call option entitles the owner to the __________ to __________ a specific stock, on or before a specific date, at a specific price.

right; buy

In a market economy, capital resources are primarily allocated by __________.

financial markets

The __________ price is the price at which a dealer is willing to purchase a security.

bid

Advantages of investment companies to investors include all but which one of the following?

Guaranteed rates of return

Market signals will help to allocate capital efficiently only if investors are acting _______.

on accurate information

The top Morningstar mutual fund performance rating is __________.

5 stars

Methods of encouraging managers to act in shareholders' best interest include:
1. Threat of takeover.
2. Proxy fights for control of the board of directors.
3. Tying managers' compensation to stock price performance.

1, 2, and 3

The 2002 law designed to improve corporate governance is titled the _________.

Sarbanes-Oxley Act

A dollar-denominated deposit at a London bank is called __________.

eurodollars

The __________ price is the price at which a dealer is willing to sell a security.

ask

Mutual fund returns may be granted pass-through status if __________.

All of these options combined

Real assets in the economy include all but which one of the following?

Common stock

__________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund.

A load

The primary measurement unit used for assessing the value of one's stake in an investment company is __________.

net asset value

Money market securities are sometimes referred to as cash equivalents because they are __________.

safe, marketable, and offer low return

The bid-ask spread exists because of __________.

the need for dealers to cover expenses and make a profit

By June 2023, financial contracts in the U.S. replaced __________ with __________ for short-term interest rates.

LIBOR; SOFR

An example of a derivative security is __________.

a call option on Intel stock

Which of the following is a false statement regarding open-end mutual funds?

They offer investors a guaranteed rate of return.

Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called __________.

commercial paper

Which of the following result in a taxable event for investors in mutual funds?
1. Short-term capital gain distributions from the fund
2. Dividend distributions from the fund
3. Long-term capital gain distributions from the fund

1, 2, and 3 only

__________ funds stand ready to redeem or issue shares at their net asset value.

Open-end

Money market securities are characterized by:
1. Maturity less than 1 year
2. Safety of the principal investment
3. Low rates of return

1, 2 , and 3

Which of the following is not a money market instrument?

Preferred stock

An intermediary that pools and manages funds for many investors is called __________.

an Investment company

Transactions that do not involve the original issue of securities take place in __________.

Secondary markets

In a perfectly efficient market the best investment strategy is probably __________.

a passive strategy

A bond that has no collateral is called a __________.

debenture

Which of the following is an example of an agency problem?

All of the options are examples of agency problems.

__________ is not a money market instrument.

A Treasury bond

The NAV of which funds is fixed at $1 per share?

Money market funds

The __________ is the most important dealer market in the United States, and the __________ is the most important auction market.

Nasdaq; NYSE

Which of the following is not a nickname for an agency associated with the mortgage markets?

Sallie Mae

Treasury notes have initial maturities between __________ years.

1 and 10

__________ is (are) real assets.

Production equipment

Investors who want to liquidate their holdings in a unit investment trust may sell their shares __________.

back to the trustee at net asset value

Purchases of new issues of stock take place __________.

in the primary market

Asset allocation refers to __________.

the allocation of the investment portfolio across broad asset classes