Question 1

An asset is a possession that has value in an exchange and can be classified as ________.

Accepted Answer

A)   financial or intangible.
B)   financial or variable.
C)   tangible or intangible.
D)   fixed or variable.E) None of the above
F) B) and D)

Question 2

An ultimate and important cause of financial innovation does not involve ________.

Accepted Answer

A)   incentives to follow existing regulation and and tax laws.
B)   increased volatility of interest rates, inflation, equity prices, and exchange rates.
C)   changing global patterns of financial wealth.
D)   financial intermediary competition.E) C) and D)
F) A) and B)

Question 3

Name and describe some of the ways to classify financial markets.

Accepted Answer

There are many ways to classify financia...

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)   Because of the prominent role played by financial markets in economies, governments have long deemed it necessary to regulate certain aspects of these markets.
B)   In their regulatory capacities, governments have had little influence on the development and evolution of financial markets and institutions.
C)   It is important to realize that governments, markets, and institutions tend to behave interactively and to affect one another's actions in certain ways.
D)   A sense of how the government can affect a market and its participants is important to an understanding of the numerous markets and securities.E) All of the above
F) None of the above

Question 5

Derivative markets may have at least three advantages over the corresponding cash (spot)  market for the same financial asset. Which of the below is ONE of these advantages?

Accepted Answer

A)   Transactions typically can be accomplished faster in the derivatives market.
B)   It will always cost more to execute a transaction in the derivatives market in order to adjust the risk exposure of an investor's portfolio to new economic information than it would cost to make that adjustment in the cash market.
C)   All derivative markets can absorb a greater dollar transaction without an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.
D)   Some derivative markets can absorb a greater dollar transaction but with an adverse effect on the price of the derivative instrument; that is, the derivative market may be more liquid than the cash market.E) A) and C)
F) All of the above

Question 6

Professor Stephen Ross suggests two classes of financial innovation. List these two classes.

Accepted Answer

Professor Stephen Ross suggests these tw...

Question 7

IBM pension fund owns a portfolio consisting of the common stock of a large number of companies. Suppose the pension fund knows that two months from now it must sell stock in its portfolio to pay beneficiaries $20 million. The risk that IBM pension fund faces is that two months from now when the stocks are sold, the price of most or all stocks may be higher than they are today.

Accepted Answer

A) True 
 B)False

Question 8

A basic economic principle is that the price of any financial asset ________ the present value of its expected cash flow, even if the cash flow is not known with certainty.

Accepted Answer

A)   is greater than
B)   is equal to
C)   is less than
D)   is equal to or greater thanE) C) and D)
F) B) and C)

Question 9

There are two extreme views of financial innovation. Which of the below is ONE of these?

Accepted Answer

A)   Some hold that the essence of innovation is the introduction of financial assets that are less efficient for redistributing risks among market participants.
B)   There are some who believe that the minor impetus for innovation has been the endeavor to circumvent regulations and find loopholes in tax rules.
C)   Some hold that the essence of innovation is the introduction of financial instruments that are more efficient for redistributing risks among market participants.
D)   None of theseE) All of the above
F) B) and D)

Question 10

________ increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers.

Accepted Answer

A)   Market-broadening instruments
B)   Market-management instruments
C)   Risk-management instruments
D)   Arbitraging-broadening instrumentsE) A) and C)
F) B) and C)

Question 11

Financial markets can be categorized as those dealing with newly issued financial claims that are called the ________, and those for exchanging financial claims previously issued that are called the ________.

Accepted Answer

A)   secondary market; primary market.
B)   financial market; secondary market.
C)   OTC market; NYSE/AMEX market.
D)   primary market; secondary market.E) A) and D)
F) B) and D)

Question 12

Financial assets have two principal economic functions. One function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in tangible assets.

Accepted Answer

A) True 
 B)False

Question 13

The financial asset is referred to as a ________ if the claim is a fixed dollar.

Accepted Answer

A)   debt instrument.
B)   common equity instrument.
C)   derivative instrument.
D)   preferred equity instrument.E) None of the above
F) B) and D)

Question 14

One economic function of a financial market is to reduce the cost of transacting. There are two costs associated with transacting: search costs and information costs.

Accepted Answer

A) True 
 B)False  True

Question 15

Describe at least two reasons why a corporation may seek to raise funds outside its domestic market.

Accepted Answer

There are several reasons why a corporation may seek to raise funds outside its domestic market.
First, in some countries, large corporations seeking to raise a substantial amount of funds may have no choice but to obtain financing in either the foreign market sector of another country or the Euromarket. This is because the fund-seeking corporation's domestic market is not fully developed and cannot satisfy its demand for funds on globally competitive terms. Governments of developing countries have used these markets in seeking funds for government-owned corporations that they are privatizing.
The second reason is that there may be opportunities for obtaining a lower cost of funding than is available in the domestic market, although with the integration of capital markets throughout the world, such opportunities have diminished. Nevertheless, there are still some imperfections in capital markets throughout the world that may permit a reduced cost of funds. The causes of these imperfections are discussed throughout the book.
A third reason for using foreign or Euromarkets is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors.

Question 16

A principal economic function to transfer funds from those who have ________ to invest to those who need funds to invest in ________.

Accepted Answer

A)   deficit funds; tangible assets.
B)   surplus funds; intangible assets.
C)   deficit funds; intangible assets.
D)   surplus funds; tangible assets.E) None of the above
F) A) and B)

Question 17

The three economic functions of financial markets are: to improve the price discovery process; to lessen liquidity; and, to reduce the cost of transacting.

Accepted Answer

A) True 
 B)False

Question 18

The Economic Council of Canada classifies financial innovations into three broad categories. Which of the below is NOT one of these?

Accepted Answer

A)   market-broadening instruments
B)   risk-management instruments
C)   risk-broadening instruments
D)   arbitraging instruments and processesE) B) and D)
F) B) and C) C

Question 19

A reason for a corporation using ________ is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors.

Accepted Answer

A)   Euromarkets
B)   domestic equity markets
C)   domestic government markets
D)   None of theseE) A) and D)
F) All of the above

Question 20

A(n)  ________ such as plant or equipment purchased by a business entity shares at least one characteristic with a financial asset: Both are expected to generate future cash flow for their owner.

Accepted Answer

A)   tangible asset
B)   intangible asset
C)   balance sheet asset
D)   cash assetE) A) and B)
F) A) and C)

Exam 1: Introduction

An asset is a possession that has value in an exchange and can be classified as ________.

Correct Answer
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An ultimate and important cause of financial innovation does not involve ________.

Correct Answer
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Name and describe some of the ways to classify financial markets.

Correct Answer
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There are many ways to classify financia...
View Answer

Which of the following statements is FALSE?

Correct Answer
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Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset. Which of the below is ONE of these advantages?

Correct Answer
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Professor Stephen Ross suggests two classes of financial innovation. List these two classes.

Correct Answer
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Professor Stephen Ross suggests these tw...
View Answer

Correct Answer
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A basic economic principle is that the price of any financial asset ________ the present value of its expected cash flow, even if the cash flow is not known with certainty.

Correct Answer
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There are two extreme views of financial innovation. Which of the below is ONE of these?

Correct Answer
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________ increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers.

Correct Answer
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Financial markets can be categorized as those dealing with newly issued financial claims that are called the , and those for exchanging financial claims previously issued that are called the .

Correct Answer
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Financial assets have two principal economic functions. One function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in tangible assets.

Correct Answer
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The financial asset is referred to as a ________ if the claim is a fixed dollar.

Correct Answer
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One economic function of a financial market is to reduce the cost of transacting. There are two costs associated with transacting: search costs and information costs.

Correct Answer
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True

Describe at least two reasons why a corporation may seek to raise funds outside its domestic market.

A principal economic function to transfer funds from those who have to invest to those who need funds to invest in .

Correct Answer
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The three economic functions of financial markets are: to improve the price discovery process; to lessen liquidity; and, to reduce the cost of transacting.

Correct Answer
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The Economic Council of Canada classifies financial innovations into three broad categories. Which of the below is NOT one of these?

Correct Answer
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C

A reason for a corporation using ________ is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors.

Correct Answer
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A(n) ________ such as plant or equipment purchased by a business entity shares at least one characteristic with a financial asset: Both are expected to generate future cash flow for their owner.

Correct Answer
verified

Exam 1: Introduction

An asset is a possession that has value in an exchange and can be classified as ________.

Correct AnswerverifiedShow Answer

An ultimate and important cause of financial innovation does not involve ________.

Correct AnswerverifiedShow Answer

Name and describe some of the ways to classify financial markets.

Correct AnswerverifiedThere are many ways to classify financia...View AnswerShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Derivative markets may have at least three advantages over the corresponding cash (spot) market for the same financial asset. Which of the below is ONE of these advantages?

Correct AnswerverifiedShow Answer

Professor Stephen Ross suggests two classes of financial innovation. List these two classes.

Correct AnswerverifiedProfessor Stephen Ross suggests these tw...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A basic economic principle is that the price of any financial asset ________ the present value of its expected cash flow, even if the cash flow is not known with certainty.

Correct AnswerverifiedShow Answer

There are two extreme views of financial innovation. Which of the below is ONE of these?

Correct AnswerverifiedShow Answer

________ increase the liquidity of markets and the availability of funds by attracting new investors and offering new opportunities for borrowers.

Correct AnswerverifiedShow Answer

Financial markets can be categorized as those dealing with newly issued financial claims that are called the ________, and those for exchanging financial claims previously issued that are called the ________.

Correct AnswerverifiedShow Answer

Financial assets have two principal economic functions. One function is to transfer funds from those who have surplus funds to invest to those who need funds to invest in tangible assets.

Correct AnswerverifiedShow Answer

The financial asset is referred to as a ________ if the claim is a fixed dollar.

Correct AnswerverifiedShow Answer

One economic function of a financial market is to reduce the cost of transacting. There are two costs associated with transacting: search costs and information costs.

Correct AnswerverifiedTrue

Describe at least two reasons why a corporation may seek to raise funds outside its domestic market.

A principal economic function to transfer funds from those who have ________ to invest to those who need funds to invest in ________.

Correct AnswerverifiedShow Answer

The three economic functions of financial markets are: to improve the price discovery process; to lessen liquidity; and, to reduce the cost of transacting.

Correct AnswerverifiedShow Answer

The Economic Council of Canada classifies financial innovations into three broad categories. Which of the below is NOT one of these?

Correct AnswerverifiedC

A reason for a corporation using ________ is a desire by issuers to diversify their source of funding so as to reduce reliance on domestic investors.

Correct AnswerverifiedShow Answer

A(n) ________ such as plant or equipment purchased by a business entity shares at least one characteristic with a financial asset: Both are expected to generate future cash flow for their owner.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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There are many ways to classify financia...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Professor Stephen Ross suggests these tw...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Financial markets can be categorized as those dealing with newly issued financial claims that are called the , and those for exchanging financial claims previously issued that are called the .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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True

A principal economic function to transfer funds from those who have to invest to those who need funds to invest in .

Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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