1. A financial intermediary transfers
A. savings to households.
B. savings to borrowers.
C. stocks to brokers.
D. new stock issues to buyers.
2. If an individual buys stock on margin and its price rises, the investor
A. must put up additional collateral.
B. must pay tax on the unrealized gain.
C. must pay interest on the borrowed funds.
D. may take delivery of the stock.
3. Which of the following best explains why commercial banks assume significant liabilities?
A. All commercial bank deposits are liabilities.
B. The loans commercial banks write can be risky.
C. Banks may pay too much interest on their deposits.
D. Banks may not charge enough interest on their loans to fund operations and loan default risk.
4. Which of the following best explains a potential disadvantage of leaving securities in street name?
A. Securities held in street name become the property of the custodian and the customer is only beneficiary of the securities.
B. Correspondence sent by securities issuers may not be forwarded to brokerage clients who own securities held in street name.
C. Securities held in street name can't be quickly purchased or sold.
D. In the event of class action suits against securities issuers, the custodian, not the beneficial owner (customer), is the only party that may benefit from court orders.
5. Which of the following assets is the most liquid?
A. Money and antiques
B. Bonds and real estate
C. Savings accounts and checking accounts
D. Stocks and bonds
6. When investing in securities, an investor may place a limit order that
A. limits the amount of commissions.
B. specifies when the stock will be purchased.
C. establishes the exchange on which the security is to be bought or sold.
D. states a price at which the investor seeks to buy or sell the stock.
7. Terry buys 100 shares of XYZ stock on margin at $20 per share. If the margin requirement is 45 percent, the interest rate is 10 percent, and he holds the security for 1 year, how much interest must he pay?
A. $2,000
B. $200
C. $110
D. $90
8. The reserves of commercial banks must be held against
A. the bank as equity.
B. losses.
C. savings deposits.
D. commercial loans.
9. Which of the following statements about specialists is correct?
A. A specialist stresses one type of investment.
B. A specialist buys only stock.
C. A specialist analyzes corporate securities.
D. A specialist makes a market in securities.
10. The term structure of interest rates involves the relationship between
A. risk and yields.
B. yields and bond ratings.
C. term and yields.
D. stock and bond yields.
11. A stock is currently selling for $36 a share. What is your gain/loss if you sell the stock short and the price rises to $62?
A. You would lose $26 per share.
B. You would gain $26 per share.
C. You would gain $13 per share.
D. You would lose $6 per share.
12. Which of the following is indicated by an upward-sloping yield curve?
A. Lower prices for short-term maturity
B. Higher prices for long-term maturity
C. Lower interest rates for long-term maturity
D. Higher interest rates for long-term maturity
13. Which of these statements best describes the function of a preliminary prospectus?
A. A preliminary prospectus is the document that registers a new security issue with the Securities and Exchange Commission (SEC) and on which the SEC bases its approval or disapproval of the issue for the general investing public.
B. A preliminary prospectus informs the investing public about many of the terms of a proposed new security offering.
C. A preliminary prospectus announces to the SEC and the investing public the terms of a new public issue, including the issuer's planned use of the proceeds of the sale and the proposed price of the issue.
D. A preliminary prospectus, or "red herring," serves to provide both valid information about the proposed issue and conflicting information designed to confuse potential purchasers of the issue.
14. Which of the following statements about pension plans is correct?
A. A pension plan that grants mortgage loans is an example of a financial intermediary.
B. A pension plan that grants mortgage loans can't suffer losses.
C. A pension plan that grants mortgage loans is called a savings and loan association.
D. A pension plan that grants mortgage loans isn't an example of a financial intermediary.
15. Money market mutual funds invest in
A. corporate bonds.
B. corporate stock.
C. federal government treasury bills.
D. federal government bonds.
16. Entering an order to sell stock at $17 when the bid is $18-$19 is an example of a
A. market order.
B. short sale.
C. margin payment.
D. limit order.
17. Which of the following statements about organized security markets is correct?
A. Organized security markets are examples of financial intermediaries.
B. Organized security markets transfer resources from savers to borrowers.
C. Organized security markets provide secondary markets.
D. Organized security markets aren't subject to regulation.
18. The minimum margin requirement is established by
A. brokerage firms.
B. Congress.
C. the SEC.
D. the Federal Reserve.
19. If an investor sells short, then he or she
A. buys an odd lot of a security.
B. sells securities from his or her portfolio.
C. anticipates a price increase.
D. anticipates a price decrease.
20. Which of the following is a federally insured investment?
A. A savings account in a national commercial bank
B. A certificate of deposit in excess of $100,000
C. A life insurance policy
D. Commercial bank assets