Introduction to Financial Markets
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Course Introduction
Introduction to Financial Markets offers a comprehensive overview of the structure, function, and significance of financial markets in the global economy. Students will explore the various types of financial instruments, such as stocks, bonds, derivatives, and foreign exchange, as well as the institutions and participants that facilitate market operations. The course emphasizes the fundamental principles of risk, return, and market efficiency, and introduces key concepts including market regulation, trading mechanisms, and the impact of economic and political factors on financial markets. Through a blend of theoretical frameworks and real-world examples, students will gain a foundational understanding necessary for further study or careers in finance.
Recommended Textbook
Introduction to Finance Markets Investments and Financial Management 15th Edition by Ronald
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Chapter 1: The Financial Environment
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Sample Questions
Q1) An effective financial system must have:
A)several sets of policy makers who pass laws and make decisions relating to fiscal and monetary policies
B)an efficient monetary system for creating and transferring money
C)financial markets that facilitate the transfer of financial assets amongst individuals, institutions, and businesses
D)all of the above
Answer: D
Q2) Personal finance is the study of how individuals prepare for financial emergencies, protect against premature death and property losses, and accumulate wealth.
A)True
B)False
Answer: True
Q3) Securitization is the process of pooling and packaging mortgage loans into debt securities.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Money and the Monetary System
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Sample Questions
Q1) When it is a means of paying for goods and services and discharging debts, money is referred to as a:
A)store of purchasing power
B)medium of exchange
C)standard of value
D)liquid asset
Answer: B
Q2) _____________ are very short-term loans, usually with maturities of one day to one week made between depository institutions.
A)Overnight loans
B)Commercial paper
C)Federal funds
D)A banker's acceptance
E)none of the above
Answer: C
Q3) Fiat money is a form of credit money.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Banks and Other Financial Institutions
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Sample Questions
Q1) Credit unions are cooperative nonprofit organizations that exist primarily to provide member depositors with consumer credit.
A)True
B)False
Answer: True
Q2) The item on the liabilities and equity section of a bank's balance sheet that represents the largest proportion of a typical bank's assets is:
A)deposits
B)owner's capital
C)securities
D)federal funds
Answer: A
Q3) There is more of a need for international banking because of:
A)decreased international trade
B)a stable exchange of goods and services among nations
C)the large international trade deficit of the United States
D)national savings and investment rates that dictate small flows of capital among nations
Answer: C
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Page 5
Chapter 4: Federal Reserve System
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Sample Questions
Q1) The interest rate that a bank must pay to borrow from its regional federal reserve bank is called
A)the National Discount Rate
B)the Prime Rate
C)the Federal Discount Rate
D)none of the above
Q2) The central bank in the United Kingdom is the:
A)Bank of Britain
B)British Fed
C)British Bank
D)Bank of England
E)none of the above
Q3) The Federal Reserve System exercises its most direct control of the money supply:
A)by the issuance of Federal Reserve notes
B)through reserve requirements
C)by setting the discount rates on loans to depository institutions
D)through open market operations
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Chapter 5: Policy Makers and the Money Supply
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Sample Questions
Q1) Although the Treasury has vast power to affect the supply of money and credit, the Treasury largely limits its actions to taxing, borrowing, paying bills, and refunding maturing obligations.
A)True
B)False
Q2) During the 2007 - 2009 financial crisis, some of the very largest financial institutions were deemed as being "too big to fail" because their failure would cause cascading negative repercussions throughout the U.S.and many foreign economies.As a result, the Federal Reserve
A)moved to reduce liquidity in the monetary system and increased its target federal funds rate to above .25 percent.
B)worked with the U.S.Treasury to help facilitate the separation of financially weak institutions with institutions that were financially stronger.
C)both a and b are true
D)none of the above are true
Q3) The government body primarily responsible for monetary policy is Congress. A)True
B)False
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Chapter 6: International Finance and Trade
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Q1) To protect against loss as a result of adverse currency fluctuations, an export firm may:
A)demand cash settlement
B)purchase use a futures contract as a hedge
C)require the customer to make payment in the exporter's currency
D)require a government guarantee against currency loss of valueall of the above are possible protections.
Q2) Balances in foreign accounts are maintained for purposes of dealing in foreign exchange by:
A)central banks
B)correspondents of domestic banks
C)correspondents or foreign branches of domestic banks
D)most multinational corporations
Q3) The International Bank for Reconstruction and Development (World Bank) was created to provide banking services for U.S.firms operating overseas.
A)True
B)False
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Chapter 7: Savings and Investment Process
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Q1) Gross private domestic investment (GPDI) measures fixed investment in residential and nonresidential structures, producers' durable equipment, and changes in business inventories.
A)True
B)False
Q2) If personal consumption expenditures are $1 billion, government purchases are $2 billion, gross private domestic investments are $4 billion and net exports are $5 billion, then GDP is:
A) $12 billion
B) $8 billion
C) $7 billion
D) $2 billion
Q3) When current savings of an economic unit exceed its direct investment in real assets,
A)more funds are needed by the economic unit
B)funds can be made available to a savings deficit unit
C)interest rates will rise
The firm has undistributed profits
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Chapter 8: Interest Rates
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Sample Questions
Q1) Which of the following may accumulate savings?
A)individuals
B)corporations
C)governmental units
D)all the above may have savings
Q2) Interest rate differentialsA maturity risk premium at a certain point in time may be expressed by comparing the interest rates on:
A)a Treasury bill and a Treasury bond
B)a Treasury bill and a long-term corporate bond
C)a Treasury bill and the commercial paper rate
D)a risky security and a comparable maturity U.S.Treasury security
E)none of the above
Q3) Which war led to no inflationary price movements?
A)The Revolutionary War
B)The War of 1812
C)The Civil War
D)World War I
Q4) Treasury notes are intermediate-term Federal debt obligations.
A)True
B)False
Page 10
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Chapter 9: Time Value of Money
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Sample Questions
Q1) The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent is ________.
A)$253
B)$252
C)$158
D)$135
Q2) The effective annual rate (EAR) is sometimes called the annual effective yield.
A)True B)False
Q3) The values of stocks and bonds are not affected by time value of money concepts. A)True B)False
Q4) Compound interest is interest earned on interest in addition to interest earned on the principal.
A)True B)False
Q5) An annuity is a series of equal payments that occur over a number of time periods. A)True B)False
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Chapter 10: Bonds and Stocks: Characteristics and Valuation
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Sample Questions
Q1) Callable preferred stock gives the corporation the right to retire the preferred stock at its option.
A)True
B)False
Q2) You are considering buying a 10-year, $1,000 par value bond issued by IBM.The coupon rate is 8% annually, with interest being paid semiannually.If you expect to earn a 10% rate of return on this bond, what is the maximum price you should be willing to pay for this IBM bond?
A)$189.93
B)$875.39
C)$898.54
D)$911.46
Q3) Governmental agencies may not issue debenture bonds. Not in the chapter
A)True
B)False
Q4) Firms issue more bonds than equities.
A)True
B)False
12
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Chapter 11: Securities Markets
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Sample Questions
Q1) American depository receipts are receipts which represent foreign shares to U.S.investors.
A)True
B)False
Q2) Which of the following statements is false?
A)The Dow Jones Industrial Average is an example of a price-weighted index.
B)An American depository receipt is a receipt which represents foreign shares to U.S.investors.
C)Index arbitrage occurs when traders buy and sell stocks with offsetting trades in futures and options in order to lock in profits from price differences between these different markets.
D)Each of the above statements is correct.
Q3) IPO under pricing occurs only in the United States.
A)True
B)False
Q4) The syndicate dissolves:
A)when members elect to do so
B)30 days after securities issue
C)when the lead investment banker decides
D)the syndicate never dissolves
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Chapter 12: Financial Return and Risk Concepts
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Q1) Assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .45 and .30, and the returns associated with those states of nature are 10%, 12%, and 16% for asset X.Based on this information, the expected return and standard deviation of return are:
A)12.0% and 4.0%
B)12.7% and 2.3%
C)12.7% and 4.0%
D)12.0% and 2.3%
E)none of the above
Q2) If the expected return is 10%, the standard deviation is 3%, about 68% of the time returns will be expected to fall between 10% and 13%.
A)True
B)False
Q3) Future returns and risk cannot be predicted precisely from past measures.
A)True
B)False
Q4) Most market risk can be eliminated through diversification.
A)True
B)False
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Chapter 13: Business Organization and Financial Data
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Sample Questions
Q1) The goal of a business should be:
A)maximization of the owners' wealth
B)maximization of accounting profit
C)maximization of sales
D)maximization of assets
Q2) The goal of any firm should be the maximization of sales.
A)True
B)False
Q3) An annual report contains descriptive information on operating and financial performance during the past year, a discussion of current and future business opportunities, and five year projected stock prices and shareholder returns.
A)True
B)False
Q4) Corporate stockholders:
A)cannot have limited liability
B)cannot easily transfer ownership
C)cannot be subject to taxes on dividends
D)can limit their liability to the amount of their investment
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Chapter 14: Financial Analysis and Long-Term Financial Planning
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Sample Questions
Q1) Sacramento Sandals (SS) has fixed annual operating costs of $75,000.SS retails each pair of sandals for $14.99 each and the variable cost per pair is $4.99.Based on this information, the breakeven sales level in dollars is
A)$125,495
B)$112,425
C)$108,995
D)none of the above
Q2) Financial leverage ratios indicate the extent to which borrowed funds are used to finance assets.
A)True
B)False
Q3) Which one of the following is not a basic component of the DuPont method of ratio analysis?
A)profit margin
B)total asset turnover
C)equity multiplier
D)liquidity margin
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Page 16
Chapter 15: Managing Working Capital
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Sample Questions
Q1) A firm with an inventory period of 30 days, an accounts receivable period of 30 days, and an accounts payable period of 90 days has a cash conversion cycle of _____ days.
A)150
B)-60
C)30
D)-30
Q2) By multiplying the average sales per day times the inventory conversion period, the inventories investment amount can be determined.
A)True
B)False
Q3) Transactions motives for holding cash include holding funds to meet unexpected demands.
A)True
B)False
Q4) If the cash conversion cycle is shortensr, then the firm's investment in inventories and receivables will always be smaller.
A)True
B)False
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Chapter 16: Short-Term Business Financing
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Sample Questions
Q1) Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions.
Not important
A)True
B)False
Q2) An organization that engages in accounts-receivable financing by purchasing the accounts outright is referred to as a:
A)field warehouse firm
B)commercial finance company
C)factor
D)commercial paper house
Q3) A factor engages in accounts receivable financing for business by purchasing accounts outright and assuming all credit risks.
A)True
B)False
Q4) An advantage of short-term borrowing is the need for frequent renewals.
A)True
B)False
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Page 18
Chapter 17: Capital Budgeting Analysis
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Sample Questions
Q1) To maximize shareholder wealth, a financial manager needs to find capital budgeting projects that have positive net present values.
A)True
B)False
Q2) As a rule, independent projects are accepted if the internal rate of return is greater than or equal to:
A)1.0
B)zero
C)marginal cost of capital
D)expected rate of return
Q3) The IRR None of the above clone of the prior item
A)shows the graphical relationship between a project's NPV and cost of capital.
B)is the return that causes the NPV to be negative.
C)is the return that causes the NPV to be positive.
D)measures the firm and project's required rate of return.
E)none of the above
Q4) The internal rate of return measures the return on the project's initial cost.
A)True
B)False
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Chapter 18: Capital Structure and the Cost of Capital
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Sample Questions
Q1) Flotation costs include:
A)cost of printing shares
B)legal and accounting costs
C)investment banker fees
D)all the above
Q2) A firm's financial risk is measured by its variability in EBIT over time.
A)True
B)False
Q3) Which of the following statements is most correct?
A)All component costs in a firm's weighted average cost of capital must reflect after-tax costs, but the only component that requires an adjustment for taxes is the cost of new common stock.
B)An increase in the marginal corporate tax rate would lower the weighted average cost of capital for the firm, other things held constant.
C)The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt.
D)All the above statements are equally true.
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