Chapter 2 The Financial Market Environment

7) An efficient market is a market that establishes correct prices for the securities that firms sell and allocates funds to their most productive use as a result of the intense competition among investors.

8) Money markets involve the trading of securities with maturities of one year or less.

9) Eurocurrency deposits arise when a corporation or individual makes a deposit in a bank in a currency other than the local currency of the country where the bank is located.

10) The Eurocurrency market is a market for short-term bank deposits denominated in U.S. dollars or other easily convertible currencies.

11) The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long-term funds to make transactions.

12) The over-the-counter (OTC) market is ________.

A) a highly liquid market as compared to NASDAQ

B) a market in which low risk-high return securities are traded

C) an organized market in which all financial derivatives are traded

D) a market where smaller, unlisted securities are traded

13) Which of the following is true of a primary market?

A) It is an organized market in which all financial derivatives are traded.

B) It is regulated by The Sarbanes-Oxley Act.

C) It is a market where smaller, unlisted securities are traded.

D) It is the only market in which the issuer is directly involved in the transaction.

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.