Financial Institutions
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1. If an investor sells short, then he or she
A. anticipates a price increase.
B. sells securities from his or her portfolio.
C. buys an odd lot of a security.
D. anticipates a price decrease.
2. Which of the following assets is the most liquid?
A. Bonds and real estate
B. Savings accounts and checking accounts
C. Stocks and bonds
D. Money and antiques
3. Which of the following best explains a potential disadvantage of leaving securities in street name?
A. Securities held in street name can’t be quickly purchased or sold.
B. Correspondence sent by securities issuers may not be forwarded to brokerage clients who own securities held in street name.
C. 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.
D. Securities held in street name become the property of the custodian and the customer is only beneficiary of the securities.
4. A stock is currently selling for $45 a share. What is your gain/loss if you sell the stock short and the
price rises to $62?
A. You would gain $17 per share.
B. You would lose $0 per share.
C. You would lose $17 per share.
D. You would gain $13 per share.
5. Entering an order to sell stock at $17 when the bid is $18 to $19 is an example of a
A. short sale.
B. margin payment.
C. limit order.
D. market order.
6. Which of the following statements about pension plans is correct?
A. A pension plan that grants mortgage loans isn’t an example of a financial intermediary.
B. A pension plan that grants mortgage loans is called a savings and loan association.
C. A pension plan that grants mortgage loans can’t suffer losses.
D. A pension plan that grants mortgage loans is an example of a financial intermediary.
7. The term structure of interest rates involves the relationship between
A. term and yields.
B. stock and bond yields.
C. risk and yields.
D. yields and bond ratings.
8. Money market mutual funds invest in
A. federal government treasury bills.
B. corporate stock.
C. federal government bonds.
D. corporate bonds.
9. Which of the following statements about specialists is correct?
A. A specialist analyzes corporate securities.
B. A specialist buys only stock.
C. A specialist stresses one type of investment.
D. A specialist makes a market in securities.
10. If a nation exports fewer goods than it imports, it experiences
A. an inflow of currency.
B. a surplus in current account.
C. no change to currency.
D. an outflow of currency.
11. The International Monetary Fund
A. holds a pool of currencies.
B. buys foreign securities.
C. developed to help the Federal Reserve control U.S. investments abroad.
D. can lend a country currencies to meet a surplus in its merchandise trade balance.
12. If an individual buys stock on margin and its price rises, the investor
A. may take delivery of the stock.
B. must pay tax on the unrealized gain.
C. must put up additional collateral.
D. must pay interest on the borrowed funds.
13. Which of the following best explains why commercial banks assume significant liabilities?
A. The loans commercial banks write can be risky.
B. All commercial bank deposits are liabilities.
C. Banks may not charge enough interest on their loans to fund operations and loan default risk.
D. Banks may pay too much interest on their deposits.
14. In an efficient market, security prices
A. poorly value a firm’s future prospects.
B. indicate that the firm is overvalued.
C. adjust rapidly to new information.
D. adjust slowly to new information.
15. 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
16. Foreign investments may be financed by issuing
A. London Interbank Bonds.
B. Eurobonds.
C. Euro dollars.
D. IMF reserve securities.
17. Which of the following is indicated by an upward-sloping yield curve?
A. Lower prices for short-term maturity
B. Lower interest rates for long-term maturity
C. Higher interest rates for long-term maturity
D. Higher prices for long-term maturity
18. The reserves of commercial banks must be held against
A. losses.
B. the bank as equity.
C. savings deposits.
D. commercial loans.
19. When investing in securities, an investor may place a limit order that
A. specifies when the stock will be purchased.
B. limits the amount of commissions.
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.
20. A financial intermediary transfers
A. new stock issues to buyers.
B. stocks to brokers.
C. savings to borrowers.
D. savings to households
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