2: Overview of the Financial System

1. A variable or event that directly affects expectations about the future income stream from a security is a known as a: (a) market fundamental. (b) cash payments. (c) present value. (d) bubble. 2. Short run contractions and expansions in economic activity are called (a). recessions. (b) expansions. (c) deficits. (d) business cycles. !. "he principal ultimate lenders#savers in financial markets are: (a) business firms. (b) the $overnment. (c) households. (d) forei$n investors. %. "he most important of the followin$ factors for determinin$ the economic $rowth of a country would be the: (a). country&s level of resources. (b) independence of the country&s central bank. (c) country&s rates of savin$ and investment. (d) level of sophistication of a country&s financial markets. '. (oo$le allowed individual financial investors to bid when it used a second bid strate$y to auction billions of dollars worth of new stock in its initial public offerin$. (oo$le)s issue of these securities was an example of the use of: (a) indirect financin$ in an *+, market. (b) underwritin$ by independent brokers. (c) direct financin$ throu$h a primary market. (d) a secondary e-uities market. (e) an over the counter .,"/0 market. (f) a securities exchan$e. 1. "he markets in which the $eneral public are least likely to learn about activities are: (a) primary markets. (b) secondary markets. (c) money market markets. (d) residential real estate markets. 2. /apital accumulation by firms in the form of new plants and e-uipment is most directly facilitated by: (a) predictable and stable expansion of the money supply. (b) low national savin$ rates. (c) bi$$er federal deficits at full employment. (d) financial investments in primary markets. (e) hi$h interest rates. 3. An individual or or$ani4ation that simultaneously buys low and sells hi$h in different markets is a#an: (a) an$el duster. (b) escalator. (c) arbitra$eur. (d) fina$ler. (e) optimi4er. (f) elevator. ($) speculator. (h) analyst. (i) operator. (5) optioni4er. (k) corporate raider. 6. An arbitra$eur is an individual or or$ani4ation that will: (a) simultaneously buy low and sell hi$h in different market. (b) create disparities between prices in different markets. (c) resolve disputes between consumers and sellers. (d) buy low and sell hi$h at different time periods. (e) probably suffer losses in the lon$ run. 17. "he volatility across time of commodity prices and asset prices tends to be dampened by the actions of successful: (a) labor unions. (b) corporate /8,s who overstate revenues and understate costs in annual reports. (c) myopic financial investors. (d) speculators. (e) stock brokera$e firms. (f) random selection.

9alph :yrns

Test Bank for Corporate Finance and Financial Markets

11. /orporations may obtain internal financin$ by: (a) borrowin$ from stockholders. (b) reinvestin$ corporate income instead of $ivin$ it out as dividends to stockholders. (c) sellin$ more preferred stock. (d) borrowin$ from banks instead of sellin$ stock. (e) All of the above. 12. "he least likely of the followin$ to be claimants to a firm&s income stream would be the firm)s: (a) shareholders. (b) mana$ers. (c) $overnment. (d) suppliers. (e) customers. 1!. /han$es in people)s wealth are likely to occur most rapidly if they: (a) buy a "reasury bond. (b) deposit funds into a savin$s account. (c) invest in the stock market. (d) open a money market account. 1%. :uyin$ low in one market and simultaneously sellin$ hi$h in another market is known as: (a) speculation. (b) $amblin$. (c) arbitra$e. (d) hed$in$. (e) optionin$. 1'. 9elative to private savers or non financial business borrowers; financial intermediaries are able to substantially lower transaction costs by exploitin$: (a) economies of scale. (b) political connections. (c) $ood reputation. (d) prominent locations. 11. *f a financial con$lomerate reduces its avera$e costs when it absorbs another similar financial institution; then the mer$er mi$ht be 5ustified as efficiently exploitin$ economies of: (a) scope. (b) scale. (c) structure. (d) information. (e) transaction costs. 12. A retail company offerin$ multiple lines of clothes in the same store is attemptin$ to exploit economies of: (a) scope. (b) scale. (c) structure. (d) information. (e) transaction costs. 13. 9elative to most other countries; the true rate of savin$ in the <nited States may be substantially understated because: (a) the <.S. under$round economy is proportionally lar$er than in most other countries. (b) Americans tend to spend proportionally more on education than most forei$ners do; and (=+ accountants treat education as consumption. (c) federal bud$et deficits are misleadin$ly considered to be dissavin$. (d) the <nited States is the world)s lar$est creditor nation> other countries owe American entities substantial sums. 16. "he ?8AS" li-uid of the followin$ assets is: (a) a corporation&s capital. (b) savin$s accounts. (c) cash. (d) <.S. savin$s bonds. (e) checkin$ accounts. 27. A family&s wealth is the difference between its: (a) income and obli$ations. (b) assets and liabilities. (c) resources and needs. (d) bud$et and outflows. 21. "he wealth of a family if most closely paralleled by the: (a) net worth of a corporation. (b) $ross domestic product of a country. (c) surplus or deficit of a $overnment. (d) profit of an entrepreneur.

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8conomicsInteractive.com

22. *f on !7 Aune 2771; you were on the board of a union pension fund that invested B' million each in the followin$ assets; in which set of assets would union members have $ained mostC (a) DAS=AE composite index and 8uro denominated accounts payin$ 2F annual interest. (b) Standard G +oor '77 index and =ow Aones *ndustrial *ndex. (c) newly issued 17 year <.S. "reasury bonds and 8uro denominated accounts payin$ 2F annual interest. (d) 8nron; Horldcom; "yco; and (lobal /rossin$. (e) DAS=AE composite index and SG+ '77 index. 2!. Iinancial institutions that ac-uire funds by issuin$ liabilities and then use those funds to ac-uire assets by purchasin$ securities or makin$ loans do D," include: (a) commercial banks. (b) savin$s and loan associations. (c) mutual savin$s banks. (d) the Iederal 9eserve System and other central banks. (e) insurance companies. 2%. Jultiplyin$ the price of stock by the amount of corporate stock owned by stockholders yields a measure known as: (a) the corporate par value. (b) the financial levera$e ratio. (c) the li-uidation value. (d) market capitali4ation. (e) book value.

9alph :yrns

Test Bank for Corporate Finance and Financial Markets