Chapter 16 The Financial System Test Bank - Contemporary Business 18e | Test Bank by Louis E. Boone by Louis E. Boone. DOCX document preview.
Package Title: Chapter 16, Testbank
Course Title: Boone, 18e
Chapter Number: 16
Question type: Multiple Choice
1) The ______ is sometimes referred to as the Big Board, the most famous and one of the oldest stock markets in the world, having been founded in 1792.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k)Internet-only banks
l)limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
2) In the United States, most households are _____ because they conserve more funds than they use.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k)Internet-only banks
l)limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
3) When bond rates start to decline, issuers usually use the _____ to redeem the bond before its maturity at a specified price.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k)Internet-only banks
l)limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
4) _____ are backed only by the financial reputation of the issuing corporation.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
5) By selling ____, a firm obtains long-term debt capital.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
6) ______ represent obligations on the part of issuers to provide purchasers with expected or stated returns on the funds invested or loaned.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
7) The process by which money flows from savers to users is called the _____.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
8) _____ is a global electronic marketplace where securities are bought and sold.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
9) ______ are cooperative financial institutions that are owned by their depositors, all of whom are members.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
10) The financial market where corporations and governments issue securities and sell them initially to the general public is called the ______.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
11) In a(n) ______, if the stock purchase cannot be executed when it is placed, it is left with the exchange’s market maker.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
12) Ally Bank is an example of _____.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
13) _____ are the largest and probably most important financial institutions in the United States and in most other countries as well.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
14) The _____ sets most policies concerning monetary policy and interest rates.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
15) The use of material nonpublic information about a company to make an investment profit is known as _____.
a) bonds
b) Commercial banks
c) NASDAQ
d) Credit unions
e) financial system
f) call provision
g) insider trading
h) Federal Open Market Committee (FOMC)
i) Securities
j) New York Stock Exchange
k) Internet-only banks
l) limit order
m) debentures
n) primary market
o) net savers
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
Question type: Essay
16) Explain how the financial system operates.
Solution: Households, businesses, government, financial institutions, and financial markets together form what is known as the financial system. Savers are those with excess funds. Users are the opposite of savers; their spending needs exceed their current income, so they have a deficit. They need to obtain additional funds to make up the difference. Savings are provided by some households, businesses, and the government; but other households, businesses, and the government are also borrowers. Funds can be transferred between savers and users in two ways: directly and indirectly.
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
17) Describe the two ways that funds can be transferred between savers and users.
Solution: Funds can be transferred between savers and users in two ways: directly and indirectly. A direct transfer means that the user raises the needed funds directly from savers. While direct transfers occur, the vast majority of funds flow through either financial markets or financial institutions. For example, assume a local school district needs to build a new high school. The district doesn’t have enough cash on hand to pay for the school construction costs, so it sells bonds to investors (savers) in the financial market. The district uses the proceeds from the sale to pay for the new school and in return pays bond investors interest each year for the use of their money.
The other way in which funds can be transferred indirectly is through financial institutions. The bank pools customer deposits and uses the funds to make loans to businesses and households. These borrowers pay the bank interest, and it, in turn, pays depositors interest for the use of their money.
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
18) What are the differences among the various types of money market instruments?
Solution: Money market instruments are short-term debt securities issued by governments, financial institutions, and corporations. All money market instruments mature within one year from the date of issue. Examples of money market instruments include U.S. Treasury bills, commercial paper, and bank certificates of deposit.
Treasury bills are short-term securities issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government. Treasury bills are sold with a maturity of 30, 90, 180, or 360 days and have a minimum denomination of $1,000. They are considered virtually risk free and easy to resell. Commercial paper is securities sold by corporations, such as Raytheon, that mature in from 1 to 270 days from the date of issue. Although slightly riskier than Treasury bills, commercial paper is still generally considered a very low-risk security.
A certificate of deposit (CD) is a time deposit at a financial institution, such as a commercial bank, savings bank, or credit union. The sizes and maturity dates of CDs vary considerably and can often be tailored to meet the needs of purchasers. CDs in denominations of $250,000 or less per depositor are federally insured. CDs in larger denominations are not federally insured but can be sold more easily before they mature.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
19) Identify and explain the advantages and disadvantages of issuing shares of common stock.
Solution: The basic form of corporate ownership is embodied in common stock. Purchasers of common stock represent the owners of a corporation. Companies issue shares of common stock, also called equity financing, to raise capital. The advantage of this strategy is that no re-payment is required for money raised. Companies that are incorporated and without a track record can sell stock as an alternative to borrowing money. A rising stock value can increase a company’s credit rating and make it easier to borrow in the future. Companies that sell shares of stock attract investors on the basis of potential for growth and profits. The disadvantages of issuing shares of stock include the increased scrutiny and the constant need to explain and justify actions to shareholders—considered owners. In addition, the requirement to reveal information about assets, expenses, and results on an ongoing basis, along with granting voting rights on issues impacting a company, can be complex. Agreeing to pay dividends and being under pressure to maintain or increase share price can have its own price.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
20) Explain the process of underwriting.
Solution: Securities are sold to the investing public in two ways: in open auctions and through investment bankers. Virtually all securities sold through open auctions consist of U.S. Treasury securities. A week before an upcoming auction, the Department of the Treasury announces the type and number of securities it will be auctioning. Sales of most corporate and municipal securities are made via financial institutions such as Morgan Stanley. These institutions purchase the issue from the corporation or government and then resell the issue to investors. This process is known as underwriting.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
21) Describe the role of investment bankers in financial markets.
Solution: Investment bankers are typically involved in helping corporations and governments raise capital. In the case of issuing securities, investment banks create the documentation (a process called underwriting) for the Securities and Exchange Commission (SEC) to enable a company to go public. They also assist corporations considering acquisitions, mergers, reorganizations, spinoffs, or a sale. Typically, they work in the division of a large bank involved in these activities or at an investment bank such as Goldman Sachs, Morgan Stanley, or JPMorgan Chase. Corporations and governments are willing to pay for the services provided by financial institutions and investment banks because of their expertise in financial markets. In addition to locating buyers for a public offering of stock, they typically advise the issuer on such details as the pricing of the stock and the timing of the offering. It is common for several financial institutions or investment banks to participate in the underwriting process.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
22) Differentiate between market orders and limit orders.
Solution: The most common type of order is called a market order. It instructs the broker to obtain the best possible price—the highest price when selling and the lowest price when buying. If the stock market is open, market orders are filled within seconds. Another popular type of order is called a limit order. It sets a price ceiling when buying or a price floor when selling. If the order cannot be executed when it is placed, the order is left with the exchange’s market maker. It may be filed later if the price limits are met.
Difficulty: Medium
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
23) Describe the concept of financial institutions.
Solution: One of the most important components of the financial system is financial institutions. They are an intermediary between savers and borrowers, collecting funds from savers and then lending the funds to individuals, businesses, and governments. Financial institutions greatly increase the efficiency and effectiveness of the transfer of funds from savers to users. For many, traditional financial institutions provide safety, convenience, security, and the opportunity to obtain a loan or financing for a business, new car, or home. Traditionally, financial institutions have been classified into depository institutions—institutions that accept deposits that customers can withdraw on demand—and nondepository institutions.
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
24) Explain what a credit union is and give an example of one.
Solution: Credit unions are cooperative financial institutions that are owned by their depositors, all of whom are members. Credit unions are designed to serve consumers, not businesses. Credit unions raise funds by offering members a number of demand and saving deposits—checking accounts at credit unions are referred to as share draft accounts—and then, in turn, lend these funds to members. Because credit unions are not-for-profit institutions, they often pay savers higher rates of interest, charge lower rates of interest on loans, and have fewer fees than other financial institutions. Credit unions can have either state or federal charters, and deposits are insured by a federal agency, the National Credit Union Administration (NCUA), which functions essentially the same way that the FDIC does.
By law, credit union members must share similar occupations, employers, or membership in certain organizations. This law effectively caps the size of credit unions. The State Employees’ Credit Union of North Carolina is an example of a credit union.
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
25) Explain the Federal Reserve's most important function? How does this function affect the nation’s rate of inflation and employment?
Solution: The Fed's most important function is controlling the supply of money and credit, known as monetary policy. The Fed's job is to make sure that the money supply grows at an appropriate rate, allowing the economy to expand while inflation remains in check. If the money supply grows too slowly, economic growth will slow, unemployment will increase, and the risk of a recession will increase. If the money supply grows too rapidly, inflationary pressures will build. The Fed uses its policy tools to push interest rates up or down. If the Fed pushes interest rates up, the growth rate in the money supply will slow, economic growth will slow, and inflationary pressures will ease. If the Fed pushes interest rates down, the growth rate in the money supply will increase, economic growth will pick up, and unemployment will fall.
Difficulty: Hard
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
26) Explain the Federal Reserve’s three major policy tools.
Solution: The Fed has three major policy tools for controlling the growth in the supply of money and credit: reserve requirements, the discount rate, and open market operations.
The Fed requires banks to maintain reserves—defined as cash in their vaults plus deposits at district Federal Reserve banks or other banks—equal to a certain percentage of what the banks hold in deposits. The higher the reserve requirement, the less the banks can lend out to consumers and businesses. The lower the reserve requirement, the more banks can lend out. Because any change in the reserve requirement can have a sudden and dramatic impact on the money supply, the Fed rarely uses this tool.
Another policy tool is the so-called discount rate, the interest rate at which Federal Reserve banks make short-term loans to member banks. A bank might need a short-term loan if transactions leave it short of reserves. If the Fed wants to slow the growth rate in the money supply, it increases the discount rate. This increase makes it more expensive for banks to borrow funds. Banks, in turn, raise the interest rates they charge on loans to consumers and businesses. The end result is a slowdown in economic activity. Lowering the discount rate has the opposite effect.
The third policy tool, the one used most often, is open market operations, the technique of controlling the money supply growth rate by buying or selling U.S. Treasury securities. If the Fed buys Treasury securities, the money it pays enters circulation, increasing the money supply and lowering interest rates. When the Fed sells Treasury securities, money is taken out of circulation and interest rates rise. When the Fed uses open market operations it employs the so-called federal funds rate —the rate at which banks lend money to each other overnight—as its benchmark.
Difficulty: Hard
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
27) Briefly describe the government regulation of the financial markets and the role of the SEC.
Solution: Regulation of U.S. financial markets is primarily a function of the federal government, although states also regulate them. Federal regulation grew out of various trading abuses during the 1920s. To restore confidence and stability in the financial markets after the 1929 stock market crash, Congress passed a series of landmark legislative acts that have formed the basis of federal securities regulation ever since.
The U.S. Securities and Exchange Commission (SEC), created in 1934, is the principal federal regulatory overseer of the securities markets. The SEC’s mission is to administer securities laws and protect investors in public securities transactions. The SEC has broad enforcement power. It can pursue civil actions against individuals and corporations.
Difficulty: Hard
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
28) Illustrate how financial institutions have become a global industry.
Solution: Financial institutions have become a global industry by expanding services to different parts of the world. Major U.S. banks—such as JPMorgan Chase and Bank of America—have extensive international operations. They have offices, lend money, and accept deposits from customers throughout the world. Although most Americans recognize large U.S. banks such as Citibank among the global financial giants, only 4 of the world’s 20 largest banks (measured by total assets) are U.S. institutions. The world’s largest bank is Industrial & Commercial Bank of China Limited, with $3.3 trillion in assets. These international banks operate worldwide, including locations in the United States. Shares of U.S. companies trade in other countries, and shares of international companies trade in the United States. In fact, investors in China and Japan own more U.S. Treasury securities than do domestic investors.
Difficulty: Medium
Learning Objective 1: 16.8
Section Reference 1: Discuss the global perspective of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
Question type: Multiple Choice
29) Which of the following is a net saver in the U.S. financial system?
a) Household
b) Business
c) The government
d) Financial institution
Difficulty: Easy
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
30) The process by which money flows from savers to users is called the
a) net worth
b) gross worth
c) financial system
d) debt factor
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
31) One of the most important variables that determine how much a person saves is
a) what country he or she is from
b) the person’s gender
c) the person’s race
d) the person’s age
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
32) The difference between the value of what you own and what you currently owe is called
a) net worth
b) gross worth
c) net value
d) debt factor
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
33) Funds can be transferred between savers and users in two ways:
a) individually and collectively
b) in person and electronically
c) directly and indirectly
d) free and with user charges
Difficulty: Easy
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
34) The Roxy Bank of Englewood pools customer deposits and uses the funds to make loans to businesses and households. These businesses and households, now known as the borrowers, pay the bank interest, and the bank, in turn, pays depositors interest for the use of their money. Which of the following would best describe the process used by the bank?
a) Foreign exchange
b) Direct transfer
c) Indirect transfer
d) Barter system
Difficulty: Medium
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Application
35) If an individual owns 10% of the assets in a particular company, he or she becomes a(n)
a) auditor
b) lender
c) borrower
d) shareholder
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
36) _______, also called financial instruments, represent obligations on the part of the issuers—businesses and governments—to provide the purchasers with expected or stated returns on the funds invested or loaned.
a) FDIC
b) Exchanges
c) The Fed
d) Securities
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
37) Which of these are units of ownership held by shareholders in corporations?
a) Money market instruments
b) Stock
c) Bonds
d) Cash
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
38) All of the following are types of securities EXCEPT
a) money market instruments
b) stock
c) bonds
d) cash
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
39) _____ are short-term debt securities issued by governments, financial institutions, and corporations.
a) Stock
b) Bonds
c) Checks
d) Money market instruments
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
40) Amanda buys a money market instrument. It will mature within, at most,
a) 10 years
b) 2 years
c) 1 year
d) 6 months
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Application
41) Which of these are short-term securities issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government?
a) Treasury bills
b) CDs
c) Commercial paper
d) Bonds
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
42) Treasury bills have a minimum denomination of
a) $100,000
b) $10,000
c) $1,000
d) $100
Difficulty: Hard
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
43) Which of the following is a form of short-term financing sold by corporations, such as Raytheon, that mature from 1 to 270 days from the date of issue?
a) Bonds
b) CDs
c) Treasury bills
d) Commercial paper
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
44) A ______ is a time deposit at a financial institution, such as a commercial bank, savings bank, or credit union.
a) commercial paper
b) treasury bill
c) certificate of deposit
d) bond
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
45) Which of these are creditors (an entity to whom a debt is owed) of a corporation or government body?
a) Commercial paper holders
b) Bondholders
c) Treasury bills holders
d) Certificate of deposit holders
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
46) The U.S. Department of Treasury sells what type of bonds?
a) Corporate bonds
b) Government bonds
c) Certificate of deposits bonds
d) Municipal bonds
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
47) Two types of municipal bonds exist. What are they?
a) Government bonds and mortgage pass-through security bonds
b) Corporate bonds and general obligation bonds
c) Revenue bonds and government bonds
d) Revenue bonds and general obligation bonds
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
48) A ______ bond is a bond issue whose proceeds will be used to pay for a project that will produce income.
a) government bond
b) corporate bond
c) revenue bond
d) general obligation bonds
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
49) A ______ bond is a bond whose proceeds are to be used to pay for a project that will not produce any income.
a) government bond
b) corporate bond
c) revenue bond
d) general obligation bonds
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
50) Corporate bonds are a diverse group and often vary based on the _____ that backs it.
a) market
b) value
c) collateral
d) company
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
51) Veronica just bought a bond from United Pet Group. This bond is only backed by the financial reputation of the company. What type of bond did Veronica buy?
a) Debenture
b) Secured bond
c) Certificate of deposit
d) Commercial paper
Difficulty: Hard
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
52) Which securities are backed by a pool of mortgage loans purchased from lenders, such as savings banks?
a) Mortgage pass-through
b) Mortgage bond
c) Commercial paper
d) Corporate bond
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
53) ______ are loans made to borrowers with poor credit ratings.
a) Low value mortgages
b) Prime mortgages
c) Corporate mortgages
d) Subprime mortgages
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
54) Two factors determine the price of a bond: _____ and _____.
a) risk; interest rate
b) market; risk
c) interest rate; call provision
d) price of other bonds; the company selling the bond
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
55) For which type of bonds, interest is exempt from state income taxes?
a) Corporate bonds
b) U.S. Treasury bonds
c) Junk bonds
d) Financial institution bonds
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
56) Bonds with ratings of BBB and above are classified as
a) speculative bonds
b) investment-grade bonds
c) junk bonds
d) convertible bonds
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
57) Other things being equal, as interest rate rises, the price of a bond
a) stays the same
b) will also rise
c) cannot be determined
d) decreases
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
58) What provision allows the issuer to redeem the bond before its maturity at a specified price?
a) Bond provision
b) Convertible provision
c) Call provision
d) Redeem provision
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
59) The basic form of corporate ownership is embodied in
a) preferred stock
b) standard stock
c) convertible securities
d) common stock
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
60) Which of the following is a depository financial institution?
a) Life insurance companies
b) Credit unions
c) Pension funds
d) Mutual funds
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
61) Which form of stock owner would receive dividend payments first?
a) Convertible securities
b) Common stock
c) Preferred stock
d) Standard stock
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
62) What feature gives the bondholder or preferred stockholder the right to exchange the bond or preferred stock for a fixed number of shares of common stock?
a) Bond rating
b) Convertible securities
c) Pass-through securities
d) Standard stock
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
63) When a company needs capital to purchase inventory, expand a plant, make major investments, acquire another firm, or pursue other business goals, it may sell a bond or stock issue to the investing public. This is done in the ______ market.
a) primary
b) secondary
c) government
d) labor
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
64) Which of these is a collection of financial markets in which previously issued securities are traded among investors?
a) The primary market
b) The secondary market
c) The government market
d) The super market
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
65) Which are the two largest stock markets in the world?
a) New York Stock Exchange; SP 500
b) Tokyo Stock Exchange; New York Stock Exchange
c) Tokyo Stock Exchange; London Stock Exchange
d) New York Stock Exchange; NASDAQ stock market
Difficulty: Medium
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
66) Daily trading on the AMEX market is _____ shares.
a) over 10 billion
b) over 2 billion
c) about 500 million
d) less than 100 million
Difficulty: Medium
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
67) The _____ involves the direct trading of exchange-listed stocks off the floor of the exchange (in the case of NYSE-listed stocks) or outside the network (in the case of NASDAQ-listed stocks).
a) American Stock Exchange
b) fourth market
c) secondary market
d) primary market
Difficulty: Hard
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
68) Which of these connect major brokerages and individual traders virtually using the Internet, so that trades can be made directly without going through an intermediary?
a) Open market operations
b) Electronic communications networks
c) Nondepository financial institutions
d) Traditional brick-and-mortar online transactions
Difficulty: Hard
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
69) The ______ order instructs the broker to obtain the best possible price—the highest price when selling and the lowest price when buying.
a) fast
b) stock
c) market
d) limit
Difficulty: Easy
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
70) Which of the following statements is incorrect?
a) The number of commercial banks is declining each year.
b) Commercial banks are the most important financial institution.
c) Commercial banks are prohibited from selling securities or insurance.
d) Banks offer the widest range of services of any financial institution.
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
71) A ______ is a nondepository financial institution that has the ability to provide higher returns, albeit with greater risk.
a) yearling
b) blue chip
c) hedge fund
d) mutual fund
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
72) Francisco made a purchase at his local Walmart. Instead of writing a check, Francisco used a card issued by his bank with a Visa logo on the front. He entered his PIN and the purchase was automatically deducted from his checking account. Francisco used his __________ card.
a) credit
b) debit
c) mortgage
d) point-of-sale
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Application
73) Deposit insurance shifts most of the financial risk of bank failures from the depositors to
a) the bank's creditors
b) the bank's stockholders
c) the borrowers
d) the federal agency.
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
74) _____ is organized as a not-for-profit cooperative.
a) Commercial bank
b) Credit union
c) Life insurance company
d) Savings bank
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
75) A(n) _____ helps underwrite equity and debt (bond) offerings and helps devise and implement financial strategies.
a) investment banker
b) public accountant
c) auditor
d) management accountant
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
76) Savings banks were originally established to make __________ loans.
a) home mortgage
b) business
c) agricultural
d) automobile
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
77) _______ is a nondepository financial institution.
a) Insurance company
b) Savings bank
c) Commercial bank
d) Credit union
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
78) The process used by an insurance company to determine whom to insure and how much to charge is called
a) a premium
b) underwriting
c) an insuring agreement
d) indemnity
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
79) _________ would invest the greatest percentage of its assets in common stocks and other long-term investments.
a) Commercial bank
b) Pension fund
c) Credit union
d) Property and liability insurance company
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
80) What type of financial institution raises money from investors by selling shares?
a) Credit union
b) Property and liability insurance company
c) Mutual fund
d) Pension fund
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
81) There are __________ Federal Reserve districts.
a) 5
b) 8
c) 12
d) 15
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
82) Which of the following statements concerning the Fed is incorrect?
a) The Fed is the nation's central bank.
b) The Fed acts as the banker's bank.
c) Credit unions and savings banks must belong to the Fed.
d) Virtually, all large commercial banks are Fed members.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
83) All of the following are included in M1 EXCEPT
a) money market mutual funds
b) total value of coins
c) checking accounts
d) currency in circulation
Difficulty: Easy
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
84) M2 includes __________ M1.
a) all of
b) none of
c) some of
d) half of
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
85) Which of the following is not one of the four major policy tools the Fed has for controlling the growth in the supply of money and credit?
a) Reserve requirements
b) Check clearing
c) The discount rate
d) Open market operations
Difficulty: Hard
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
86) The rate the Fed charges member banks for short-term loans is called the
a) discount rate
b) margin rate
c) federal funds rate
d) reserve requirement
Difficulty: Easy
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
87) Which of the following interest rates does the Federal Reserve actually set?
a) Federal funds rate
b) Discount rate
c) Government bond rate
d) Commercial paper rate
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
88) If the Fed reduced reserve requirements,
a) banks would have less money to lend businesses and consumers
b) economic growth would decline
c) inflation would decline
d) banks would have more money to lend out
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
89) Which of the following actions would have the effect of increasing the supply of money and credit and lowering interest rates?
a) The Fed buys government securities.
b) The Fed raises the margin requirement.
c) The Fed raises the reserve requirement.
d) The Fed raises the discount rate.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
90) When the Fed sells government securities, banks have __________ money to lend and economic growth
a) less; will slow
b) less; will accelerate
c) more; will slow
d) more; will accelerate
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
91) Which of the following policy tools does the Fed use most frequently?
a) Open market operations
b) Reserve requirement
c) Margin requirements
d) The discount rate
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
92) The chairman of the Federal Reserve Board can accelerate economic activity by lowering interest rates. What primary method does the Federal Reserve use to accomplish this?
a) Selling margin requirements
b) Increasing the discount rate
c) Increasing reserve requirements
d) Buying Treasury securities
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
93) ______ regulates both state and federally chartered commercial banks.
a) The Federal Reserve
b) Federal comptroller
c) State banking agencies
d) The FDIC
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
94) The Securities and Exchange Commission requires virtually all new public issues of corporate securities to be registered. As part of the registration process for a new security issue, the issuer must prepare a(n)
a) essay
b) prospectus
c) application
d) financial report
Difficulty: Easy
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
95) Which of the following is defined as the use of material nonpublic information about a company to make investment profits?
a) Underwriting
b) Insider trading
c) Thrift supervision
d) Self-regulation
Difficulty: Easy
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
96) The ___ establishes and updates rules to ensure that member brokers perform their basic functions honestly and fairly.
a) NASD
b) NASDAQ
c) NYSE
d) FDIC
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
97) All market participants must keep detailed records of every aspect of every trade. What is this called?
a) Paper trail
b) Audit trail
c) Trade record
d) Prospectus
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
98) Which of the following U.S. institutions is among the world’s 20 largest banks?
a) Citizens Financial Group
b) HSBC North America Holdings
c) JPMorgan Chase
d) Ally Financial
Difficulty: Medium
Learning Objective 1: 16.8
Section Reference 1: Discuss the global perspective of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
99) A local government in Montana issued bonds to the general public to build a community park in the locality. The primary objective of the proposed community park is to enhance the green cover in the locality. Which of the following best describes the bonds issued in this scenario?
a) General obligation bond
b) Secured bond
c) Revenue bond
d) Pass-through bond
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Application
100) A local government agency of Minnesota issued municipal securities for the purpose of building a community hospital. Austin Hunter Corp) a financial services company, decides to purchase these securities from the government and resell them to the investing public. Which of the following describes the process undertaken by Austin Hunter Corp.?
a) Tombstone
b) Underwriting
c) Limit order
d) Check clearing
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Application
101) Operating under severe recessionary conditions, the Federal Reserve System decides to reduce its reserve requirements from the current level of 9% to 7.5%. Which of the following is likely to happen following the Fed’s move?
a) The rate of unemployment will double.
b) The rate of growth in the economy will fall drastically.
c) It increases the availability of credit with the commercial banks.
d) Businesses will find it difficult to borrow at cheaper rates of interest.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Bloomcode: Application
102) Federico works as a senior accountant at Martinez Inc., a multinational technology giant. As a senior accountant at the company, Federico had exclusive access to some of the sensitive financial information of Martinez. It was later found that Federico had sold some of the sensitive information to a rival company for an undisclosed amount. Which of the following describes Federico’s activity?
a) Underwriting
b) Insider trading
c) Limit order
d) Check clearing
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Application
103) Remote Inc., an automobile company, decides to expand its operation abroad by setting up three new manufacturing plants. Since enough funds were not available for this expansion process, Remote decides to list its company on its national stock exchange and issue securities for raising additional capital. The market for Remote’s securities can be described as a(n) ______ market.
a) secondary
b) insider
c) primary
d) limit order
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Application
Question type: True/False
104) Households are net users of funds, while businesses are net savers.
Difficulty: Easy
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
105) The financial system describes the process by which funds flow from savers to users.
Difficulty: Easy
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
106) Households, businesses, government, financial institutions, and financial markets together form what is known as the financial system.
Difficulty: Easy
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
107) Securities represent obligations on the part of issuers—businesses and governments—to provide purchasers with expected or stated returns on the funds invested or loaned.
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
108) The vast majority of funds flow through direct transfers.
Difficulty: Easy
Learning Objective 1: 16.1
Section Reference 1: Understand the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
109) Money market instruments are purchased by investors when they are in need of a quick resell and are generally high-risk securities.
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
110) Money market instruments are short-term debt securities issued by individuals who are savers.
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
111) A general obligation bond is a bond issue whose proceeds will be used to pay for a project that will produce revenue, such as a toll road or bridge.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
112) Treasury bills have a minimum denomination of $1,000.
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
113) Interest is always exempt from state income taxes in any type of bonds.
Difficulty: Easy
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
114) Generally, commercial paper is considered a very high-risk security.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
115) Commercial paper is securities sold by corporations, such as Raytheon, that mature from 1 to 270 months from the date of issue.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
116) Bonds are issued in various denominations—face values—usually between $100 and $2,500.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
117) CDs per depositor with denominations of $1,000,000 or less are federally insured.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
118) Bondholders are creditors, and therefore they have a claim on the firm’s assets that must be satisfied before any claims of stockholders in the event of the firm’s bankruptcy, reorganization, or liquidation.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
119) Morgan wants to purchase a low-risk bond. Therefore, he should buy a government bond.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
120) The Treasury sells bonds that mature in 2, 5, 10, and 30 years from the date of issue.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
121) Municipal bonds are exempt from interest payments of federal income tax.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
122) The federal government generally issues the municipal bonds.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
123) A town is considering putting in a toll road that will produce revenue for the town. To provide funding, the town will sell revenue bonds.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Application
124) Secured bonds are backed by a specific pledge of company assets.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
125) Mortgage pass-through securities are relatively safe, even when loans are made to borrowers with poor credit ratings.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
126) Partly because of subprime mortgages, the credit crisis came about.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
127) Speculative or junk bonds are bonds with ratings of BB and below.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
128) Bonds with the highest level of risk are rated AAA.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
129) The price of a bond is affected by its interest rate.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
130) The market interest rate does not have any effect on bond prices.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
131) As market interest rates rise, bond prices rises.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
132) Issuers tend to call bonds when market interest rates are declining.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
133) Owners of common stock expect returns on their investment in the form of cash dividend payments, expected price appreciation, or both.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
134) The market value of a stock is the price at which the stock was originally offered during its initial public offering.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
135) Preferred stockholders receive fixed dividends.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
136) In the long run, stock prices tend to follow a company’s profits.
Difficulty: Medium
Learning Objective 1: 16.2
Section Reference 1: List the various types of securities.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
137) Sales of most corporate and municipal securities are made via auctions.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Application
138) When a company offers stock for sale to the general public for the first time, it is called an initial public offering.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
139) To the investing public, securities are sold in two ways: in open auctions and through investment bankers.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
140) Fortunately, any firm can be listed on the New York Stock Exchange.
Difficulty: Easy
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
141) The New York Stock Exchange (NYSE) is a secondary market.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
142) In the secondary market, firms and governments issue securities and sell them initially to the public.
Difficulty: Medium
Learning Objective 1: 16.3
Section Reference 1: Discuss financial markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
143) Most investors are members of the NYSE, or other stock markets, and therefore they do not need to use the services of a brokerage firm to buy or sell stocks.
Difficulty: Easy
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
144) Many developing countries and virtually all developed countries have stock exchanges.
Difficulty: Easy
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
145) The NASDAQ is a computerized communications network that links member investment firms and is the world’s largest intranet.
Difficulty: Easy
Learning Objective 1: 16.4
Section Reference 1: Understand the stock markets.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
146) Savings banks have greatly expanded their business lending activities in recent years while cutting back on their home mortgage lending activity.
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
147) Deposit insurance means that, in the event the bank fails, depositors are paid in full by the FDIC, up to $250,000.
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
148) Banks consider the borrower's ability and willingness to repay the loan when evaluating loan applications.
Difficulty: Medium
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
149) In order to join a credit union, you have to share something in common with other credit union members.
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
150) Life insurance companies tend to invest excess funds in short-term securities, while pension funds tend to invest excess funds in long-term securities.
Difficulty: Medium .
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
151) Underwriting is the process used by insurance companies to determine whom to insure and what to charge.
Difficulty: Easy
Learning Objective 1: 16.5
Section Reference 1: Describe financial institutions and the growth of financial technology (FinTech).
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
152) To help facilitate the clearing of checks is one of the Federal Reserve's most important tasks.
Difficulty: Easy
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
153) The Federal Open Markets Committee sets policies regarding bank mergers and lending standards.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
154) All federally insured commercial banks must belong to the Federal Reserve System.
Difficulty: Easy
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
155) Raising the reserve requirement tends to increase the supply of money, thereby lowering interest rates.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Application
156) Inflationary pressures will begin to build if the money supply grows too rapidly.
Difficulty: Easy
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
157) M1 consists of currency in circulation and balances in bank checking accounts.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
158) The discount rate is the rate banks charge one another for short-term loans.
Difficulty: Easy
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
159) The reserve requirement tool is rarely used by the Fed.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
160) Regulation of U.S. financial markets is primarily a function of the federal government; states do not regulate them in any way.
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
161) When the Fed buys government securities, it adds to the supply of money and credit, which causes a reduction in interest rates.
Difficulty: Medium
Learning Objective 1: 16.6
Section Reference 1: Explain the role of the Federal Reserve System.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
162) The National Association of Securities Dealers (NASD) purpose is to ensure that brokers perform their basic functions honestly and fairly, under constant supervision.
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
163) Any time an investor accumulates more than 5% of a company’s outstanding stock, the SEC requires reports.
Difficulty: Medium
Learning Objective 1: 16.7
Section Reference 1: Describe the regulation of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
164) Banks in other nations often respond to changes in the U.S. financial system by making similar changes in their own systems.
Difficulty: Medium
Learning Objective 1: 16.8
Section Reference 1: Discuss the global perspective of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
165) Unfortunately, most nations do not have a central bank similar to the U.S. Federal Reserve.
Difficulty: Medium
Learning Objective 1: 16.8
Section Reference 1: Discuss the global perspective of the financial system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
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Contemporary Business 18e | Test Bank by Louis E. Boone
By Louis E. Boone