Chapter 2, End of Chapter, Self-Test Questions and Problems, Exercise ST-1
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Define each of the following terms:

 

a.  Spot markets; futures markets

b.  Money markets; capital markets

c.  Primary markets; secondary markets

d.  Private markets; public markets

e.  Derivatives

f.  Investment banks (IBs); commercial banks; financial services corporations

g.  Mutual funds; money market funds h. Exchange traded funds; hedge funds; private equity companies

i.  Physical location exchanges; over-the-counter (OTC) market; dealer market

j.  Closely held corporation; publicly owned corporation

k.  Going public; initial public offering (IPO) market

l.  Efficient markets hypothesis (EMH); arbitrage

m.  Behavioral finance

Here is a tip:

Congress felt there was a need for additional investor protections against inaccurate information from companies. 

Explanation

In 2002, Congress passed this act to protect shareholders, employees and the public from accounting errors and fraudulent financial practices. There were 3 key provisions:

  1. Overhauling incentives and independence in the audit process.
  2. Providing harsher penalties for providing false information.
  3. Requiring companies to validate their internal financial control processes.

Verified Answer

The Sarbanes-Oxley act, passed by Congress in 2002, is intended to improve the accuracy of information which is made public by both board members and shareholders of public companies.

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