FIN 310 Final Exam
Will computer technology cause financial intermediaries to become extinct? - Answers-Yes because
individuals will be able to look up information before investing or borrowing funds
EX: might be eliminated for brokerage firms
Loans still need financial intermediaries because of the credit assessment required
Surplus Units - Answers-Provide funds to the financial markets
Households and savings
Defecit Units - Answers-Obtain funds from the financial markets
Firms or government agencies that borrow funds
EX: car loans, college tuition loans, etc.
Primary Markets - Answers-Used for the issuance of new securities
Secondary Markets - Answers-Used for the trading of existing securities
,Money Markets - Answers-Facilitate the trade of short- term (money market) instruments
Capital Market - Answers-Facilitate the trade of long-term (capital market) instruments
Perfect Financial Markets - Answers-All information about securities for sale would be freely available
for investors
Information about surplus and deficit units would be freely available
All securities could be unbundled into any desired size
Imperfect Financial Markets - Answers-Surplus and deficit units do not have free access to information
Securities cannot be bundled into any desired size
Financial Intermediaries - Answers-Needed to facilitate the exchange of funds between surplus and
deficit units
can repackage deposits to provide the amount of funds that borrowers desire
When markets are efficient - Answers-Prices of securities available in these markets properly reflect all
information. We should expect markets to be efficient because if they weren't, investors would
capitalize on the discrepancy between what prices are and what they should be. This action would force
market prices to represent the appropriate prices as perceived by the market.
Securities Act of 1933 - Answers-was intended to assure complete disclosure of relevant financial
information on publicly offered securities and prevent fraudulent practices when selling these securities.
,Securities Act of 1934 - Answers-extended the disclosure requirements to secondary market issues. It
also declared a variety of deceptive practices illegal but does not prevent poor investments.
International Merger - Answers-between financial institutions and it enables the merged company to
offer the services of both entities to its entire customer base
International Expansion - Answers-Many financial institutions have expanded internationally to
capitalize on their expertise. Commercial banks, insurance companies, and securities firms have
expanded through international mergers
How to determine proper value of stocks - Answers-Since the valuation of a stock at a future point in
time is uncertain, so is the selling price of a stock at a future point in time. Investors often rely on
financial statements by firms in order to assess how stock prices might change in the future
Examples of financial statements by firms to value stocks - Answers-accounting reports of a firm's
revenue, expenses, and earnings as a basis for estimating its future cash flows. Firms with publicly
traded stock are required to disclose financial information and financial statements.
Securities Firms - Answers-functions: underwriting and brokerage
enhance a borrower's ability to borrow funds or an investor's ability to invest funds
Brokers - Answers-compensated with commissions on trades
Dealers - Answers-compensated on their positions in particular securities. Some dealers also provide
brokerage services
Why are the securities more marketable than the loans in the secondary market? - Answers-Securities
are more standardized than loans and therefore can be more easily sold in the secondary market. The
, excessive documentation on commercial loans limits a bank's ability to sell loans in the secondary
market.
Saving Institutions - Answers-Concentrated in mortgage
can now diversify their asset portfolio to a greater degree and will likely increase their concentration in
commercial loans
Commercial Banks - Answers-Concentrated in commercial lending
greater degree of diversification than saving institutions have
How do credit unions differ from other financial institutions? - Answers-They are non-profit financial
institutions
Non-Depository Institution: Finance Companies - Answers-Sell securities to obtain funds
use funds to provide direct loans to consumers and businesses. Ins
Non-Depository Institution: Insurance Companies and Pension Funds - Answers-receive
employee/employer contributions
purchase securities
Mutual Funds - Answers-sells shares to investors, pools the funds, and invests the funds in a portfolio of
securities
Will computer technology cause financial intermediaries to become extinct? - Answers-Yes because
individuals will be able to look up information before investing or borrowing funds
EX: might be eliminated for brokerage firms
Loans still need financial intermediaries because of the credit assessment required
Surplus Units - Answers-Provide funds to the financial markets
Households and savings
Defecit Units - Answers-Obtain funds from the financial markets
Firms or government agencies that borrow funds
EX: car loans, college tuition loans, etc.
Primary Markets - Answers-Used for the issuance of new securities
Secondary Markets - Answers-Used for the trading of existing securities
,Money Markets - Answers-Facilitate the trade of short- term (money market) instruments
Capital Market - Answers-Facilitate the trade of long-term (capital market) instruments
Perfect Financial Markets - Answers-All information about securities for sale would be freely available
for investors
Information about surplus and deficit units would be freely available
All securities could be unbundled into any desired size
Imperfect Financial Markets - Answers-Surplus and deficit units do not have free access to information
Securities cannot be bundled into any desired size
Financial Intermediaries - Answers-Needed to facilitate the exchange of funds between surplus and
deficit units
can repackage deposits to provide the amount of funds that borrowers desire
When markets are efficient - Answers-Prices of securities available in these markets properly reflect all
information. We should expect markets to be efficient because if they weren't, investors would
capitalize on the discrepancy between what prices are and what they should be. This action would force
market prices to represent the appropriate prices as perceived by the market.
Securities Act of 1933 - Answers-was intended to assure complete disclosure of relevant financial
information on publicly offered securities and prevent fraudulent practices when selling these securities.
,Securities Act of 1934 - Answers-extended the disclosure requirements to secondary market issues. It
also declared a variety of deceptive practices illegal but does not prevent poor investments.
International Merger - Answers-between financial institutions and it enables the merged company to
offer the services of both entities to its entire customer base
International Expansion - Answers-Many financial institutions have expanded internationally to
capitalize on their expertise. Commercial banks, insurance companies, and securities firms have
expanded through international mergers
How to determine proper value of stocks - Answers-Since the valuation of a stock at a future point in
time is uncertain, so is the selling price of a stock at a future point in time. Investors often rely on
financial statements by firms in order to assess how stock prices might change in the future
Examples of financial statements by firms to value stocks - Answers-accounting reports of a firm's
revenue, expenses, and earnings as a basis for estimating its future cash flows. Firms with publicly
traded stock are required to disclose financial information and financial statements.
Securities Firms - Answers-functions: underwriting and brokerage
enhance a borrower's ability to borrow funds or an investor's ability to invest funds
Brokers - Answers-compensated with commissions on trades
Dealers - Answers-compensated on their positions in particular securities. Some dealers also provide
brokerage services
Why are the securities more marketable than the loans in the secondary market? - Answers-Securities
are more standardized than loans and therefore can be more easily sold in the secondary market. The
, excessive documentation on commercial loans limits a bank's ability to sell loans in the secondary
market.
Saving Institutions - Answers-Concentrated in mortgage
can now diversify their asset portfolio to a greater degree and will likely increase their concentration in
commercial loans
Commercial Banks - Answers-Concentrated in commercial lending
greater degree of diversification than saving institutions have
How do credit unions differ from other financial institutions? - Answers-They are non-profit financial
institutions
Non-Depository Institution: Finance Companies - Answers-Sell securities to obtain funds
use funds to provide direct loans to consumers and businesses. Ins
Non-Depository Institution: Insurance Companies and Pension Funds - Answers-receive
employee/employer contributions
purchase securities
Mutual Funds - Answers-sells shares to investors, pools the funds, and invests the funds in a portfolio of
securities
