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Unformatted text preview: e of a derivative security _______.
depends on the value of the related primitive security
can only cause increased risk.
is unrelated to the value of the related primitive security
has been enhanced due the recent misuse and negative publicity regarding these instruments
is worthless today Answer: A Difficulty: Easy
Rationale: Of the factors cited above, only A affects the value of the derivative and/or is a true statement.
E) 15 In terms of total value, the most significant liability of U. S. nonfinancial businesses in 2005 was _______.
bonds and mortgages
marketable securities. Answer: B Difficulty: Easy
Rationale: See T able 1.4. A)
E) 16 Money market funds were a financial innovation partly inspired to circumvent _______.
Regulation B, which is still in existence
Regulation Q, which is no longer in existence Answer: E Difficulty: Easy
Rationale: Regulation Q limited the amount of interest that banks could pay to depositors; money market funds were not covered by Regulation Q and thus could pay a higher rate of interest. Although Regulation Q no longer exists, money market funds continue to be popular. See page 18. A)
E) 17 __________ are a way U. S. investor can invest in foreign companies.
Krugerrands Answer: A Difficulty: Easy
Rationale: Only ADRs represent an indirect investment in a foreign company.
E) 18 _______ are examples of financial intermediaries.
All of the above Answer: E Difficulty: Easy
Rationale: All are institutions that bring borrowers and lenders together. A)
E) 19 Financial intermediaries exist because small investors cannot efficiently ________.
diversify their portfolios
gather all relevant information
assess credit risk of borrowers
advertise for needed investments
all of the above. Answer: E Difficulty: Easy
Rationale: T he individual investor cannot efficiently and effectively perform any of the tasks above without more time and knowledge than that available to most individual investors. A)
E) 20 Firms that specialize in helping companies raise capital by selling securities are called ________.
all of the above. Answer: B Difficulty: Easy
Rationale: An important role of investment banks is to act as middlemen in helping firms place new issues in the market.
E) 21 Financial assets ______.
directly contribute to the country's productive capacity
indirectly contribute to the country's productive capacity
contribute to the country's productive capacity both directly and indirectly
do not contribute to the country's productive capacity either directly or indirectly
are of no value to anyone Answer: B Difficulty: Easy
Rationale: Financial assets indirectly contribute to the country's productive capacity because these assets permit individuals to invest in firms and governments. T his in turn allows firms and governments to increase productive capacity. A)
E) 22 T he sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________.
none of the above Answer: B Difficulty: Easy
Rationale: T he financial asset is secured by the mortgages backing the instrument. A)
E) 23 Corporate shareholders are best protected from incompetent management decisions by
the ability to engage in proxy fights.
management's control of pecuniary rewards.
the ability to call shareholder meetings.
the threat of takeover by other firms.
one-share / one-vote election rules. Answer: D Difficulty: Moderate
Rationale: Proxy fight...
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This document was uploaded on 02/06/2014.
- Spring '14