Financial Markets and Institutions
Mock Exam
Course Introduction
This course explores the structure, functions, and roles of financial markets and institutions within the global economy. Students will examine the different types of financial markets such as capital markets, money markets, and derivatives markets and the wide variety of institutions that operate within them, including banks, insurance companies, mutual funds, and investment firms. The course covers fundamental concepts such as interest rate determination, risk management, regulatory frameworks, and the impact of monetary policy on financial systems. Through case studies and real-world examples, students will gain insights into the interconnectedness of financial institutions and markets, as well as their influence on economic growth, stability, and development.
Recommended Textbook
Investments An Introduction 9th Edition by Herbert B. Mayo
Available Study Resources on Quizplus
24 Chapters
1159 Verified Questions
1159 Flashcards
Source URL: https://quizplus.com/study-set/3252 Page 2
Chapter 1: An Introduction to Investments
Available Study Resources on Quizplus for this Chatper
29 Verified Questions
29 Flashcards
Source URL: https://quizplus.com/quiz/64579
Sample Questions
Q1) The negative relationship between interest rates and securities prices is the source of interest rate risk.
A)True
B)False
Answer: True
Q2) Exchange rate risk refers to fluctuations in the prices of foreign moneys (i.e.,foreign exchange).
A)True
B)False
Answer: True
Q3) Sources of risk include
1)fluctuating exchange rates
2)a firm's financing decisions
3)higher interest rates
4)loss of purchasing power
A) 1 and 2
B) 2 and 3
C) 2 and 4
D) all four
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Creation of Financial Assets
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/64580
Sample Questions
Q1) Money market mutual funds invest in
1)commercial paper
2)repurchase agreements
3)corporate bonds
A)1 and 2
B)1 and 3
C)2 and 3
D)all of these choices
Answer: A
Q2) If the price of an initial public offering of stock rises,the windfall gain goes to the underwriter.
A)True
B)False
Answer: False
Q3) A shelf-registration involves the selling of new securities without having them registered with the SEC.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Securities Markets
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/64581
Sample Questions
Q1) If the quote on stock is reduced,that implies
1)supply exceeded demand
2)demand exceeded supply
3)the price was too high
4)the price was too low
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Answer: A
Q2) The spread is the
A) difference between the bid and ask prices
B) commission charged by the broker
C) difference between the purchase and sale prices
D) difference between the commissions charged by full service and discount brokers
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/64582
Sample Questions
Q1) The larger the rate of interest,the smaller is the future value of a dollar.
A)True
B)False
Q2) A state's lottery winner is promised $200,000 a year for twenty years (starting at the end of the first year).How much must the state invest now to guarantee the prize if the state can earn annually 7 percent on its funds? How much must the state invest if the annual payments were made at the beginning of the year?
Q3) If the first payment made by an annuity is today,that is an ordinary annuity and not an annuity due.
A)True
B)False
Q4) If a bank pays 5 percent compounded daily,the true rate of interest is greater than 5 percent.
A)True
B)False
Q5) An investment offers $10,000 at the end of each year for ten years.(a)If you can earn 10 percent annually,what is this investment worth today? (b)If you do not spend the annual payment but invest it at 10 percent,how much will you have after the ten years have lapsed?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: The Tax Environment
Available Study Resources on Quizplus for this Chatper
37 Verified Questions
37 Flashcards
Source URL: https://quizplus.com/quiz/64583
Sample Questions
Q1) Securities must be sold before capital gains taxation applies.
A)True
B)False
Q2) A tax shelter is not synonymous with tax evasion.
A)True
B)False
Q3) Estate taxes are levied against the value of one's assets as of the day of death.
A)True
B)False
Q4) Bill
sold Stock A for a short-term capital gain of $3,500
sold Stock B for a short-term capital loss of $3,100
Q5) A Keogh plan is a pension plan for an individual not covered by a pension plan at place of employment.
A)True
B)False
Q6) Pension plans permit investors to defer income tax.
A)True
B)False
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Risk and Portfolio Management
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/64584
Sample Questions
Q1) If a stock has a beta of 1.0,it is risk-free stock.
A)True
B)False
Q2) The efficient frontier in portfolio theory
A) indicates the highest return for a given risk
B) illustrates the optimal tradeoff between long- and short-term capital gains
C) quantifies systematic and unsystematic risk
D) identifies the optimal portfolio for the investor
Q3) The "efficient frontier" relates all the combinations of risk and return that represent the same level of satisfaction.
A)True
B)False
Q4) The security market line relates the return on a stock to interest rates and the market risk associated with the stock.
A)True
B)False
Q5) A portfolio's beta coefficient tends to be stable over time.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Investment Companies: Mutual Funds
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/64585
Sample Questions
Q1) If the individual seeks to reduce risk,that investor should not acquire which of the following types of funds?
A) money market mutual fund
B) sector fund
C) balanced fund
D) index fund
Q2) High portfolio turnover is associated with high tax efficiency.
A)True
B)False
Q3) If a mutual fund specializes in the securities of one sector of the economy,unsystematic risk may not be reduced.
A)True
B)False
Q4) Acquiring shares in no load funds is one means to avoid 12b-1 fees.
A)True
B)False
Q5) An index fund seeks to duplicate the composition of an index such as the S&P 500.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Closed-End Investment Companies
Available Study Resources on Quizplus for this Chatper
35 Verified Questions
35 Flashcards
Source URL: https://quizplus.com/quiz/64586
Sample Questions
Q1) The net asset value of shares in a closed-end investment company is $36.An investor buys the shares for $34 in the secondary market.The company distributes $1,and after one year,the net asset rises to $42.The investor sells the shares for $44 in the secondary market.
a.What is the discount?
b.What is the percentage return on the investment?
Q2) The first exchange-traded funds were a type of index fund.
A)True
B)False
Q3) A closed-end investment company is not a "mutual fund."
A)True
B)False
Q4) The shares of a closed-end investment company often sell for discount.
A)True
B)False
Q5) As a result of arbitrage,ETFs tend to sell for their net asset value.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: The Valuation of Common Stock
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/64587
Sample Questions
Q1) The strong form of the efficient market hypothesis suggests
1)inside information will not lead to superior investment results
2)inside information will lead to superior investment results
3)studying financial statements will not lead to superior investment results
4)studying financial statements will lead to superior investment results
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Q2) Cumulative voting permits a stockholder to
A) collect extra dividends
B) vote all the shares for one individual
C) cast the total number of votes for one individual
D) vote by proxy
Q3) Most stockholders of publicly held stock have pre-emptive rights.
A)True
B)False
Q4) If a firm retains earnings,total equity increases.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Investment Returns and Aggregate Measures
of Stock Markets
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/64588
Sample Questions
Q1) Dollar-cost averaging is
A) periodically buying a round lot of stock
B) periodically investing a specified dollar amount in a stock
C) a means to increase the average cost basis
D) a means to insure a positive return
Q2) Holding period returns for greater than a year do not give an accurate measure of the true rate of return.
A)True
B)False
Q3) Studies of rates of return on large stocks suggest
A) the average return is about 7.4 percent annually
B) over a period of years, the rate is approximately 10 percent
C) equity investors rarely sustain losses
D) dividends account for over half the return
Q4) The rate of return on a stock considers the price change but not dividend income. A)True B)False
Q5) You bought a stock for $20 and sold it for $59.72 after six years.What was the annual rate of return?
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Dividends: Past, present, and Future
Available Study Resources on Quizplus for this Chatper
39 Verified Questions
39 Flashcards
Source URL: https://quizplus.com/quiz/64589
Sample Questions
Q1) The liquidation of a corporation is not subject to federal capital gains taxation.
A)True
B)False
Q2) Cash dividends are subject to federal income taxes.
A)True
B)False
Q3) Stock dividends increase
A) the number of shares outstanding
B) the firm's assets
C) the firm's equity
D) the stock's price
Q4) Dividend policy depends on
1)the firm's earnings
2)investment opportunities available to the firm
3)corporate income taxes
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: The Macroeconomic Environment for Investment Decisions
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/64590
Sample Questions
Q1) Gross domestic product (GDP)is the sum of spending on consumer goods,government spending,and investing in stocks and bonds.
A)True
B)False
Q2) Which of the following is not a leading indicator?
A) initial claims for unemployment insurance
B) building permits for new home construction
C) changes in manufacturers' unfilled orders for durable goods
D) the level of unemployment
Q3) When the Federal Reserve seeks to expand the money supply,it
A) sells securities
B) buys securities
C) runs a deficit
D) runs a surplus
Q4) The anticipation of inflation suggests that the investor should
A) buy bonds
B) anticipate higher interest rates
C) avoid real estate investments
D) sell stocks of gold companies
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Analysis of Financial Statements
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/64591
Sample Questions
Q1) Inventory turnover may increase if
A) the firm increases its accounts payable
B) the firm uses less debt financing
C) the firm increases its inventory
D) the firm lowers the prices of its goods
Q2) Creditors would prefer
1)a quick ratio of 1.2 to a quick ratio of 0.8
2)a quick ratio of 0.8 to a quick ratio of 1.2
3)an average collection period of 46 to an average collection period of 35
4)an average collection period of 35 to an average collection period of 46
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Q3) The return on equity measures earnings before interest and taxes.
A)True
B)False
Q4) When a firm makes a profitable sale,its total assets increase.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Behavioral Finance and Technical Analysis
Available Study Resources on Quizplus for this Chatper
31 Verified Questions
31 Flashcards
Source URL: https://quizplus.com/quiz/64592
Sample Questions
Q1) Behavioral finance suggests that
A) investors are not informed
B) individuals make rational investment decisions
C) investors may be subject to bias which leads to excessive buying or selling of stocks
D) emotion plays only a minor role in security selection
Q2) Technical analysts use financial statements as the basis for making investment decisions.
A)True
B)False
Q3) Behavioral finance asserts that emotional investing produces higher returns.
A)True
B)False
Q4) Empirical evidence
A) does not support efficient markets
B) does not support the use of technical analysis
C) cannot be applied to technical analysis
D) only supports head-and-figure charts
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: The Bond Market
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/64593
Sample Questions
Q1) A bond with a balloon payment cannot not have a sinking fund.
A)True
B)False
Q2) An investor concerned with safety of principal may purchase preferred stock instead of bonds issued by the same company.
A)True
B)False
Q3) Default means the failure to meet any of the terms of a bond's indenture.
A)True
B)False
Q4) Under current law,American corporations may not issue bearer bonds with coupons attached.
A)True
B)False
Q5) Since bonds are legal obligations,their prices are determined when issued and do not change.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: The Valuation of Fixed-Income Securities
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/64594
Sample Questions
Q1) A call penalty is a payment made to the firm to encourage early retirement of the bond.
A)True
B)False
Q2) If a bond sells for a discount,the yield to maturity exceeds the current yield.
A)True
B)False
Q3) Bonds that are callable often have a call penalty.
A)True
B)False
Q4) The current yield exceeds the yield to maturity if interest rates fall.
A)True
B)False
Q5) From the viewpoint of the investor,preferred stock is riskier than bonds issued by the same firm.
A)True
B)False
Q6) If bond prices were to decline,the current yield would increase.
A)True
B)False
Page 18
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Government Securities
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/64595
Sample Questions
Q1) The prices of treasury bonds are insensitive to changes in interest rates.
A)True
B)False
Q2) A revenue bond is supported by the taxation authority of the issuing government.
A)True
B)False
Q3) The federal government only issues marketable securities such as treasury bills.
A)True
B)False
Q4) Municipal bonds
A) pay more interest than corporate debt
B) are exempt from federal income taxation
C) are exempt from federal estate taxation
D) reduce interest rate risk
Q5) If an individual is in the 35 percent income tax bracket and corporate debt yields 7.5 percent,then to be competitive municipal debt must yield at least
A) 11.54%
B) 7.59%
C) 4.88%
D) 2.63%
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Convertible Bonds and Convertible Preferred Stock
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/64596
Sample Questions
Q1) A put bond permits the investor to sell the bond back to the issuer at par prior to maturity.
A)True
B)False
Q2) The longer it takes to overcome the capital gains advantage to the stock,the less attractive is a convertible bond.
A)True
B)False
Q3) The price of a convertible bond increases when 1.interest rates rise
2)interest rates fall
3)the price of the stock rises
4)the price of the stock falls
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Q4) Convertible bonds are often subordinated to the firm's other debt.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: An Introduction to Options
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/64597
Sample Questions
Q1) Call options are usually for less than a year.
A)True
B)False
Q2) The writer of a covered call cannot lose money if the price of the stock rises.
A)True
B)False
Q3) The time premium paid for an option tends to reduce the option's potential leverage.
A)True
B)False
Q4) The most the investor who sells a naked stock index option can lose is the cost of the option.
A)True
B)False
Q5) An option's intrinsic value exceeds the option's price.
A)True
B)False
Q6) The strike price of an option is fixed.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Option Valuation and Strategies
Available Study Resources on Quizplus for this Chatper
33 Verified Questions
33 Flashcards
Source URL: https://quizplus.com/quiz/64598
Sample Questions
Q1) If a stock is selling for $33 and you expect the price not to fluctuate,what are the potential profits and losses from writing a straddle if a call option at $35 sells for $3 and the put option at $35 sells for $4?
Q2) According to the Black/Scholes option valuation model,the value of a call option increases if
A) the option approaches expiration
B) the return on the stock is more certain
C) interest rates on a discounted bond decline
D) the standard deviation of the stock's return increases
Q3) An investor buys a straddle in anticipation of stable stock prices.
A)True
B)False
Q4) According to the Black/Scholes option valuation model,the value of a call option rises as interest rates increase.
A)True B)False
Q5) The investor owns 1,000 shares of stock but anticipates its price may decline.To reduce the risk of loss,how many call options must be sold if the hedge ratio is 0.7?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Commodity and Financial Futures
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/64599
Sample Questions
Q1) Investing in futures is
A) investing in physical goods
B) entering into contracts for future delivery
C) executing contracts for prior delivery
D) selling a contract in anticipation of price increases
Q2) The primary advantage offered investors (speculators)by commodity futures is the large amount of leverage.
A)True
B)False
Q3) A futures contract to take delivery is canceled by
A) entering into a contract to make delivery
B) refusing to take delivery
C) refusing to make delivery
D) letting the contract expire
Q4) The cost of carrying a commodity suggests that the futures price will be less than the spot price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 22: Investing in Foreign Securities
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/64600
Sample Questions
Q1) One advantage offered by investments in foreign stocks is diversification of the portfolio.
A)True
B)False
Q2) The risk associated with fluctuations in exchange rates is increased through hedging with foreign currencies futures.
A)True
B)False
Q3) Anticipation that the value of a currency will rise results in the spot price exceeding the futures price.
A)True
B)False
Q4) The EAFE is
A) an index of European stocks
B) a global index of stocks
C) an index of stocks traded in Europe, Australia, and the far east
D) an index of stocks trade in Europe, the Americas, and the far east
Q5) The futures price of a currency equals the spot price of the currency. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Investing in Nonfinancial Assets: Collectibles, resources, and Real Estate
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/64601
Sample Questions
Q1) The cost of investing in collectibles may include 1.insurance 2)the spread between the bid and ask 3)commissions
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q2) Fakes of collectibles,such as rare stamps,are one possible source of risk.
A)True
B)False
Q3) Investors should specialize in a type of collectible in order to know what may appreciate in value.
A)True
B)False
Q4) The effective interest cost of home ownership depends on the individual's tax bracket.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: Portfolio Planning and Management in an Efficient Market Context
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/64602
Sample Questions
Q1) The amount of an outstanding mortgage appears on the individual's balance sheet. A)True
B)False
Q2) An individual's cash budget differs from a firm's balance sheet because the cash budget 1.is for a period of time
2)enumerates assets and equity
3)is concerned with receipts and disbursements
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q3) Diversification is an important concept in finance and investments because it
A) reduces the risk associated with market price fluctuations
B) increases the investor's return
C) decreases the need for investment planning
D) decreases the variability of returns
Q4) Interest earned and received appears on the individual's balance sheet. A)True
B)False
26
To view all questions and flashcards with answers, click on the resource link above.