Chapter 2 The Financial Market Environment

14) Which of the following is true of a secondary market?

A) It is a market for an unlisted company to raise equity capital.

B) It is a market where securities are issued through private placement

C) It is a market in which short-term money market instruments such as Treasury bills are traded.

D) It is a market in which preowned securities are traded.

15) Which of the following is true of preferred stock?

A) It has features of bonds and a common stock.

B) It has a claim on assets prior to creditors in the event of liquidation.

C) Its dividends can be paid only after paying dividends to the common stockholders.

D) It usually has a maturity of thirty years.

16) The key securities traded in the capital markets are ________.

A) commercial papers and Treasury bills

B) Treasury bills and certificates of deposit

C) stocks and bonds

D) bills of exchange and commercial papers

17) Which of the following is true of international equity markets?

A) In the international equity market, corporations cannot raise capital through IPOs, instead they can raise capital by trading in the secondary market.

B) In the international equity market, corporations can easily manipulate the price of the shares since it is not regulated by any regulatory bodies.

C) In the international equity market, corporations can only sell blocks of shares to institutional investors from European Union.

D) In the international equity market, corporations can sell blocks of shares to investors in a number of different countries simultaneously.

18) Which of the following is true of a dealer market?

A) Buyers and sellers are never brought together directly.

B) Brokers execute the buy or sell orders in a dealer market.

C) It has centralized trading floors.

D) It is a part of the broker market.

19) Which of the following is true of a securities exchange?

A) It serves as an intermediary by channeling the savings of individuals, businesses, and governments into loans or investments.

B) It borrows funds directly from the financial institutions.

C) It is an association of banks who meet to buy and sell stocks and bonds.

D) It provides a marketplace in which firms can raise funds through the sale of new securities and purchasers can resell securities.

20) A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n) ________.

A) future market

B) forex market

C) efficient market

D) weak-form market

21) The ________ is created by a financial relationship between suppliers and demanders of short-term funds.

A) stock market

B) capital market

C) forex market

D) money market

22) By definition, the money market involves the buying and selling of ________.

A) stocks and bonds

B) short-term securities

C) all financial instruments except derivatives

D) secured premium notes

23) Most money market transactions are made in ________.

A) common stock

B) marketable securities

C) commodities market

24) The ________ is created by a number of institutions and arrangements that allow the suppliers and demanders of long-term funds to make transactions.

A) forex market

B) capital market

C) money market

D) commodities market

25) Long-term debt instruments used by both government and business are known as ________.

A) preferred stocks

B) T-bills

C) bonds

D) equities

26) Which of the following is an example of marketable securities?

A) U.S.Treasury bills

B) treasury stock

C) mortgage backed securities

D) loans

27) In a ________ market, the buyer and seller are brought together to trade securities in an organization called ________.

A) dealer; securities market

B) broker; over-the -counter market

C) broker; securities market

D) dealer; over-the-counter market

28) In a ________ market, the buyer and seller are not brought together to trade securities directly but instead have their orders executed on the ________.

A) dealer; securities market

B) broker; over-the -counter market

C) broker; securities market

D) dealer; over-the-counter market

29) An efficient market is one where ________.

A) prices of stocks move up and down widely without apparent reason

B) prices of stocks remain low for long periods of time

C) prices of stocks are unaffected by market news

D) the price of a security is an unbiased estimate of its true value

30) The money market is a market ________.

A) that enables suppliers and demanders of long-term funds to make transactions

B) which brings together suppliers and demanders of short-term funds

C) where smaller, unlisted securities are traded

D) where all derivatives are traded

31) Apex Inc. issues a bond of $1,000 which pays interest semiannually at a coupon interest rate of 8%. The maturity of the bond is 15 years. Where should this bond be traded?

A) forex market

B) money market

C) capital market

D) commodities market