Fin 413 FINAL UPDATED ACTUAL Questions and CORRECT Answers
Question: Classifications of financial market
Correct Answer: Primary market: The investor pays the corporation directly
Question: Classifications of financial market
Correct Answer: Secondary Market: Investors pay investors for shares - NYSE
Question: Classifications of financial market
Correct Answer: Spot market: The exchange is happening right now
Question: Classifications of financial market
Correct Answer: Futures market: Contractually agreeing to pay a certain rate in the future: used for
currency exchanges or the farmer example
Question: Classifications of financial market
Correct Answer: Money Markets: Markets where securities with a maturity of less then a year are traded.
Example: T-bills, CDs
Question: Classifications of financial market
Correct Answer: Capital Markets: Markets where capital assets are traded. Example: bonds, preferred or
common stock
Question: Can debt be traded?
Correct Answer: Yes, examples of this a T-bills or government bonds
Question: Depository institutions
Correct Answer: Financial institutions that accept deposits from individuals and provide loans. Example
commercial banks or credit unions
Question: non-depository institutions
Correct Answer: do not handle deposits, but they do act as an intermediary between savers and borrowers.
Examples : insurance companies or pension funds
Question: Fixed income market
Correct Answer: The market by which debt is traded
Question: How would the world look without financial intermediaries?
Correct Answer: People would not be able to issue debt or equity, everything would have to be paid in
cash
Question: How does a mutual fund work?
Correct Answer: This is a portfolio managed by a company in which investors can buy shares. The
managers take a fee then the extra is split between investors.
Question: How does a hedge fund work?
Correct Answer: Similar to a mutual fund by using pooled money through investors but these investments
are generally less liquid and riskier. Example: Investment in real estate
, Question: What is an exchange traded fund?
Correct Answer: a type of investment fund with various assest that is traded on a stock exchange
Question: Risks to financial intermediaries
Correct Answer: Credit risk: Not being paid back Foreign exchange rates changes Sovereign risk:
Institution is not able to pull money out of a country
Question: Transport purchasing power forward
Correct Answer: Take a loan out and pay it back later
Question: Transport purchasing power backward
Correct Answer: Save money and pull it out later
Question: Enterprise risk management
Correct Answer: a process used by a company to identify its risks and develop responses to them that
enable it to be reasonably assured of meeting its goals
Question: The Securities Act of 1933
Correct Answer: Full and fair disclosure and securities registration
Question: The Securities Exchange Act of 1934
Correct Answer: A federal law dealing with securities regulation that established the Securities and
Exchange Commission(SEC) to regulate and oversee the securities industry.
Question: Which country has the most outstanding debt
Correct Answer: US
Question: Which financial market was the biggest in the world
Correct Answer: NYSE
Question: Loanable funds theory
Correct Answer: suggests that the market interest rate is determined by the factors that control supply of
and demand for loanable funds
Question: Factors that influence interest rates
Correct Answer: Higher production opportunities = higher interest rates higher value of money= higher
interest rates higher risk= higher interest rates Higher inflation= higher interest rates
Question: Inflation premium
Correct Answer: a premium to compensate for anticipated inflation that is equal to the price change
expected to occur over the life of the bond or investment instrument
Question: Debt interest rate equation
Correct Answer: R = SUM OF(R■, IP, DRP, LP, MRP, SPRP) -R: Real risk-free security (in absence of
inflation) - IP: Inflation Premium - DRP: Default Risk Premium - LP: Liquidity Risk Premium - MRP:
Maturity Risk Premium - SRP: Special Provisions Risk Premium "I Dont Like Magic Spells"
Question: Unbiased expectations theory
Question: Classifications of financial market
Correct Answer: Primary market: The investor pays the corporation directly
Question: Classifications of financial market
Correct Answer: Secondary Market: Investors pay investors for shares - NYSE
Question: Classifications of financial market
Correct Answer: Spot market: The exchange is happening right now
Question: Classifications of financial market
Correct Answer: Futures market: Contractually agreeing to pay a certain rate in the future: used for
currency exchanges or the farmer example
Question: Classifications of financial market
Correct Answer: Money Markets: Markets where securities with a maturity of less then a year are traded.
Example: T-bills, CDs
Question: Classifications of financial market
Correct Answer: Capital Markets: Markets where capital assets are traded. Example: bonds, preferred or
common stock
Question: Can debt be traded?
Correct Answer: Yes, examples of this a T-bills or government bonds
Question: Depository institutions
Correct Answer: Financial institutions that accept deposits from individuals and provide loans. Example
commercial banks or credit unions
Question: non-depository institutions
Correct Answer: do not handle deposits, but they do act as an intermediary between savers and borrowers.
Examples : insurance companies or pension funds
Question: Fixed income market
Correct Answer: The market by which debt is traded
Question: How would the world look without financial intermediaries?
Correct Answer: People would not be able to issue debt or equity, everything would have to be paid in
cash
Question: How does a mutual fund work?
Correct Answer: This is a portfolio managed by a company in which investors can buy shares. The
managers take a fee then the extra is split between investors.
Question: How does a hedge fund work?
Correct Answer: Similar to a mutual fund by using pooled money through investors but these investments
are generally less liquid and riskier. Example: Investment in real estate
, Question: What is an exchange traded fund?
Correct Answer: a type of investment fund with various assest that is traded on a stock exchange
Question: Risks to financial intermediaries
Correct Answer: Credit risk: Not being paid back Foreign exchange rates changes Sovereign risk:
Institution is not able to pull money out of a country
Question: Transport purchasing power forward
Correct Answer: Take a loan out and pay it back later
Question: Transport purchasing power backward
Correct Answer: Save money and pull it out later
Question: Enterprise risk management
Correct Answer: a process used by a company to identify its risks and develop responses to them that
enable it to be reasonably assured of meeting its goals
Question: The Securities Act of 1933
Correct Answer: Full and fair disclosure and securities registration
Question: The Securities Exchange Act of 1934
Correct Answer: A federal law dealing with securities regulation that established the Securities and
Exchange Commission(SEC) to regulate and oversee the securities industry.
Question: Which country has the most outstanding debt
Correct Answer: US
Question: Which financial market was the biggest in the world
Correct Answer: NYSE
Question: Loanable funds theory
Correct Answer: suggests that the market interest rate is determined by the factors that control supply of
and demand for loanable funds
Question: Factors that influence interest rates
Correct Answer: Higher production opportunities = higher interest rates higher value of money= higher
interest rates higher risk= higher interest rates Higher inflation= higher interest rates
Question: Inflation premium
Correct Answer: a premium to compensate for anticipated inflation that is equal to the price change
expected to occur over the life of the bond or investment instrument
Question: Debt interest rate equation
Correct Answer: R = SUM OF(R■, IP, DRP, LP, MRP, SPRP) -R: Real risk-free security (in absence of
inflation) - IP: Inflation Premium - DRP: Default Risk Premium - LP: Liquidity Risk Premium - MRP:
Maturity Risk Premium - SRP: Special Provisions Risk Premium "I Dont Like Magic Spells"
Question: Unbiased expectations theory
