LSUS MBA 727 EXAMINATION TEST PAPER
2026: COMPLETE REGULATORY QUESTION
AND REQUIRED RESPONSE DATA SET FOR
EXPERTS
⫸ Which of the following is a capital market instrument? Answer: A
ten-year bond
⫸ Which of the following is a money market security? Answer:
commercial paper
⫸ Money market securities generally have Answer: relatively high
liquidity, low expected return, and a low degree of credit risk
⫸ The Securities and Exchange Commission(SEC) was established
by the Answer: Securities Exchange Act of 1934
⫸ Which of the following is a nondepository financial institution?
Answer: Mutual fund
⫸ _____________securities have a maturity of one year or less;
_____________securities generally have relatively high liquidity.
Answer: Money market; money market
,⫸ Which of the following transactions would not be considered a
secondary market transaction? Answer: A firm that was privately held
engages in an offering of stock to the public
⫸ Which of the following are not considered money market
securities? Answer: Mortgage backed securities
⫸ The Securities Exchange Commission(SEC) does NOT Answer:
decide whether a public issue is fairly priced.
⫸ Discuss how secondary markets benefit funds issuers Answer: The
secondary markets provide liquidity to investors after their initial
purchase of the security. This liquidity encourages them to purchase
the security at the initial offer. The current market price also reflects
current prospects for the firm and the competitiveness of the issue
relative to similar securities. Corporate treasurers follow their stocks'
price closely because the stock price reflects how well their firm and
the market are performing. The current security price also provides
information about the cost of obtaining any additional funds.
⫸ What determines the price of financial instruments? Which are
riskier, capital market instruments or money market instruments?
Why? Answer: The price of any financial instrument is the present
value of future cash flows discounted at an appropriate rate. A small
change in interest rates causes a large change in present value of
distant cash flows. Hence, the prices of long-term instruments. In
addition, distant cash flows for stocks are not known with certainty.
Changing economic prospects can cause very large changes in current
, stock values. Money market instruments have predictable cash flows
and mature in one year or less, so they are much less risky.
⫸ Distinguish between primary and secondary markets. Distinguish
between money and capital markets. Answer: primary markets are
used for the issuance of new securities while secondary markets are
used for trading of existing securities. Money markets facilitate the
trading of short-term(money market) instruments while capital
markets facilitate the trading of long-term (capital market)
instruments.
⫸ Distinguish between perfect and imperfect security markets.
Explain why the existence of imperfect markets creates a need for
finacial intermediaries. Answer: With perfect financial markets, all
information about any securities for sale would be freely available to
investors, information about surplus and deficit units would be freely
available, and all securities could be unbundled into any size desired.
In reality, markets are imperfect, so that surplus and deficit units do
not have free access to information, and securities cannot be
unbundled as desired. Financial intermediaries are needed to facilitate
the exchange of funds between surplus and deficit units. They have
the information to provide this service and can even repackage
deposits to provide the amount of funds that borrowers desire.
⫸ What was the purpose of the Securities Act of 1933? What was the
purpose of the Securities Exchange Act of 1934? Do these laws
prevent investors from making poor investment decisions? Explain.
Answer: The Securities Act of 1933 was intended to assure complete
disclosure of relevant financial information on publicly offered
securities, and prevent fraudulent practices when selling these
2026: COMPLETE REGULATORY QUESTION
AND REQUIRED RESPONSE DATA SET FOR
EXPERTS
⫸ Which of the following is a capital market instrument? Answer: A
ten-year bond
⫸ Which of the following is a money market security? Answer:
commercial paper
⫸ Money market securities generally have Answer: relatively high
liquidity, low expected return, and a low degree of credit risk
⫸ The Securities and Exchange Commission(SEC) was established
by the Answer: Securities Exchange Act of 1934
⫸ Which of the following is a nondepository financial institution?
Answer: Mutual fund
⫸ _____________securities have a maturity of one year or less;
_____________securities generally have relatively high liquidity.
Answer: Money market; money market
,⫸ Which of the following transactions would not be considered a
secondary market transaction? Answer: A firm that was privately held
engages in an offering of stock to the public
⫸ Which of the following are not considered money market
securities? Answer: Mortgage backed securities
⫸ The Securities Exchange Commission(SEC) does NOT Answer:
decide whether a public issue is fairly priced.
⫸ Discuss how secondary markets benefit funds issuers Answer: The
secondary markets provide liquidity to investors after their initial
purchase of the security. This liquidity encourages them to purchase
the security at the initial offer. The current market price also reflects
current prospects for the firm and the competitiveness of the issue
relative to similar securities. Corporate treasurers follow their stocks'
price closely because the stock price reflects how well their firm and
the market are performing. The current security price also provides
information about the cost of obtaining any additional funds.
⫸ What determines the price of financial instruments? Which are
riskier, capital market instruments or money market instruments?
Why? Answer: The price of any financial instrument is the present
value of future cash flows discounted at an appropriate rate. A small
change in interest rates causes a large change in present value of
distant cash flows. Hence, the prices of long-term instruments. In
addition, distant cash flows for stocks are not known with certainty.
Changing economic prospects can cause very large changes in current
, stock values. Money market instruments have predictable cash flows
and mature in one year or less, so they are much less risky.
⫸ Distinguish between primary and secondary markets. Distinguish
between money and capital markets. Answer: primary markets are
used for the issuance of new securities while secondary markets are
used for trading of existing securities. Money markets facilitate the
trading of short-term(money market) instruments while capital
markets facilitate the trading of long-term (capital market)
instruments.
⫸ Distinguish between perfect and imperfect security markets.
Explain why the existence of imperfect markets creates a need for
finacial intermediaries. Answer: With perfect financial markets, all
information about any securities for sale would be freely available to
investors, information about surplus and deficit units would be freely
available, and all securities could be unbundled into any size desired.
In reality, markets are imperfect, so that surplus and deficit units do
not have free access to information, and securities cannot be
unbundled as desired. Financial intermediaries are needed to facilitate
the exchange of funds between surplus and deficit units. They have
the information to provide this service and can even repackage
deposits to provide the amount of funds that borrowers desire.
⫸ What was the purpose of the Securities Act of 1933? What was the
purpose of the Securities Exchange Act of 1934? Do these laws
prevent investors from making poor investment decisions? Explain.
Answer: The Securities Act of 1933 was intended to assure complete
disclosure of relevant financial information on publicly offered
securities, and prevent fraudulent practices when selling these
