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BA 3303- Exam 1 With Complete
Solution
A Ponzi scheme is a fraudulent investment scheme where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. What is a red flag of a Ponzi scheme? - Answer Overly consistent investment returns in all market cycles.
An economy's _____________________ is the interaction of policy makers, a monetary system, financial institutions, and financial markets to expedite the flow of financial capital from savings into investment: - Answer Financial system
The principle of finance that "management objectives may differ from owner objectives" implies that owner returns may suffer as a result of manager objectives - Answer True
The primary goal of the financial manager of a profit-seeking organization is to: - Answer Maximize shareholder value
What is the name of the market where debt securities with maturities longer than one year and corporate stocks are issued or traded? - Answer Capital Market
A market is considered information efficient when - Answer Any point in time the prices of securities reflect all information available to the public.
The principle of finance that "lower returns are expected for taking less risk" implies that rational investors would choose a risky investment only if they feel the expected return is high enough to justify the greater risk. - Answer True
Which of the following are Principles of Finance: - Answer -Time adds value to money
-Financial markets are efficient in pricing securities
Financial institutions are intermediaries that aid in the flow of funds between borrowers and investors. Which of the following is not a financial institution? - Answer Real Estate Developers
How much return is expected for taking on more risk? - Answer Higher
Two risky assets can be combined to lower the overall risk of a portfolio. This principle is commonly referred to as - Answer Diversification
The theory of ___________________ implies that information is quickly embedded in prices making it difficult for investors to "beat the market." - Answer Efficient market
_______________ is the study of how individuals, institutions, governments, and businesses acquire, spend, and manage money and other financial assets. - Answer
Finance
Money markets are where debt securities with maturities of one year or more are issued and traded. - Answer False
What does the time value of money principle help individuals to understand? - Answer The economic behavior of individuals and the businesses they run
___________________________ are debt instruments or securities with maturities of one year or less and have low default risk and high liquidity. - Answer Money market securities
Which of the following is not characteristic of a Treasury bill? - Answer Long-term debt obligation
A major factor in the severity of the 2007 - 2009 financial crisis was primarily due to: - Answer The decline in housing prices exposing risky mortgage assets in mortgage-backed securities
Fiat money must be backed by a specific amount of gold or silver - Answer False
A mortgage is a financing option when purchasing a home. There are various types of mortgages for people to choose from that best meets their needs. Which of the following best describes an adjustable rate mortgage? - Answer A mortgage in which the payments are fixed for a set number of years after which the payments could change to reflect current interest rates.
The Dow Jones Industrial Average is a market capitalization index consisting of _______ stocks: - Answer 30
A subprime mortgage is a type of home loan in which credit underwriting has been relaxed compared to a prime mortgage. Therefore, the rate of interest charged should be: - Answer Higher than a prime mortgage
Inflation leads to an increase in the purchasing power of money - Answer False
Fiat money is: - Answer Paper money issued by central banks
____________________ provide predetermined credit limits to consumers at the time the cards are issued: - Answer Credit cards
_____________________ include the direct ownership of land, buildings or homes, equipment, inventories, durable goods, and even precious metals - Answer Real assets
___________________ are very short-term loans, usally with maturities of one day to one week between banks - Answer Federal funds
Which of the following best describes a money market security? - Answer A debt instrument or security with maturities of one year or less
of the mortgage-related debt securities originated and sold to others, or held, by banks became difficult to value during the perfect financial storm and quickly became known as "troubled" or "toxic" assets.
A structured settlement is a legal arrangement in which a plaintiff has been awarded a significant financial award. All of the following are characteristics of a structured settlement except: - Answer Periodic payments from a structured settlement can increase over time due to investment performance.
The process of ______________ which is the process of pooling and packaging mortgage loans into debt securities resulted in the creation of ______________. - Answer securitization, mortgage backed securities
All of the following are characteristics of a commercial bank EXCEPT - Answer A commercial bank helps businesses sell their new debt and equity securities to raise financial capital.
The prime rate of interest has been relatively stable during the past twenty-five years. - Answer False
Investment companies sell shares in their firms to individuals and invest the pooled proceeds in corporate and government securities. - Answer True
The likelihood that borrowers could lose their job and would not be able to make interest and principal payments is an example of: - Answer Credit risk
The item on the liabilities and equity section of a bank's balance sheet that represents the largest proportion of a typical bank's assets is: - Answer Deposits
You bank at Plains Capital. At the bank you have several accounts with your spouse and business. You have a joint checking account, a savings account, a certificate of deposit used for collateral against a loan and a business account. The balances in each account are as follows:
Mary and John Smith Checking :
$ 50,
Mary and John Smith Savings : $ 100,
John Smith Business Certificate of Deposit $ 150,
John Smith Business Checking: $ 75,000 - Answer $250,000 with $50,000 uninsured
All of the following are true regarding mortgage-backed securities except: - Answer Only mortgage loans with the highest credit quality are allowed to be placed in the mortgage-backed security
Which of the following regulations allow banks to engage in both commercial banking and investment banking? - Answer Gramm-Bliley Act of 1999
Which of the following Standard & Poor Credit ratings apply to non-investment grade or low credit ratings: - Answer BB
All of the following are features of mutual funds EXCEPT: - Answer Illiquidity
In the 1930s during the Great Depression, Congress passed a law that in effect put up a regulatory barrier between two types of banks, an investment bank and a commercial bank, that separated investment services from depository services. The name of this legislation was: - Answer Glass-Stegall Act
________________ ________________ receive contributions from employees or their employers and invest the proceeds on behalf of the employees. - Answer Pension funds
An organization that received contributions from employees and/or their employers and invests the proceeds on behalf of the employees for use during their retirement years is called a(n) - Answer Pension fund
Investment banking firms sell or market new securities issued by businesses to individual and institutional investors - Answer True
Which of the following financial institutions can take deposits and loan the pooled assets: - Answer Commercial banks and credit unions
Currently, The Chairperson of the Federal Reserve is ______________________________. - Answer Janet Yellan
Which of the following is the most likely outcome of the Federal Reserve lowering interest rates? - Answer Businesses could expand at a lower borrowing cost.
The Federal Reserve can implement monetary policy by a implementing a discount policy. One of the discount rates is the Federal Funds Target Rate. Which of the following defines the Federal Funds Target Rate? - Answer Interest rate that banks and credit unions charge each other for overnight loans
Under the Federal Reserve Act of 1913, the number of Federal Reserve districts - Answer 12
Which of the following statements would be false? The discount rate is - Answer frequently used as a tool of fiscal policy
____________________________ requires disclosure of the finance charge and the annual percentage rate of credit along with certain other costs and terms to permit consumers
Quantitative Easing is a non-traditional monetary policy designed to stimulate economic activity when conventional monetary policy methods are ineffective. In executing quantitative easing, the Federal Reserve: - Answer Purchased financial assets from banks and other financial institutions
After the housing price bubble burst in mid-2006, the values of mortgage loans and mortgage-backed securities declined rapidly. Mortgage default rates increased dramatically particularly for low quality, subprime mortgages. Which of the following was actions taken by the Federal Reserve in 2008 - Answer Provided funds to Fannie Mae and Freddie Mac
The European Central Bank (ECB) conducts monetary policy for the twelve European countries that formed the European Monetary Union and adopted what common currency? - Answer Euro
During the past several years, the discount rate... - Answer Has been lower than the prime rate
The interest rate that a bank must pay to borrow from its regional Federal Reserve Bank is called: - Answer Discount rate
Which of the following organizations purchases home loans (or mortgages), securitizes those loans, and then sells the securities as mortgage-backed securities? - Answer Federal National Mortgage Association (FNMA or Fannie Mae)
The Federal National Mortgage Association and Government National Mortgage Association - Answer issue mortgage-backed securities to fund the mortgages that they purchase from financial institutions.
A central bank is a Federal government agency that lends money to its member banks, hold its own reserves, and be responsible for creating money. - Answer True
Today the responsibilities of the Fed may be described as: - Answer those relating to monetary policy, to supervision and regulation, and to services provided for depository institutions and the government.
The basic policy instruments that the Fed uses to execute monetary policy include all of the following EXCEPT: - Answer Conducting closed market operations
Which of the following best describes the Discount rate from the Federal Reserve? - Answer Interest rate that a bank must pay to borrow from its regional Federal Reserve Bank
Inflation occurs when an increase in the price of goods or services is more than offset by an increase in quality. - Answer False
The four groups of policy makers that are actively involved in achieving the nation's economic policy objectives are the Federal Reserve System, the President, Congress, and the U.S. Treasury - Answer True
The U.S. Treasury has primary responsibility for management of the federal debt - Answer True
The "perfect financial storm" that developed in 2008, which put the U.S. economy was on the verge of collapse was characterized by all of the following EXCEPT - Answer The Federal Reserve began purchasing troubled-assets through the Corporate Recovery Asset Program (CRAP).
The Fed increasing the money supply to help offset the demand for increased funds to finance the deficit is called ____________. - Answer Monetizing the debt
Budget deficits have the effect of - Answer creating governmental competition for private investment funds.
Government financing of large budgetary deficits: - Answer may crowd out private
increases in the quality of those goods and services.
Debt management of the federal government includes: - Answer A. determining which types of refunding to implement
B. determining which securities to sell
C. deciding which interest rate patterns to use
The U.S. government may influence monetary and credit conditions indirectly through taxation and expenditure programs. - Answer True
Our country's economic policy actions are directed toward all of these general goals except - Answer High unemployment
During the 2007 - 2009 financial crisis, many major financial institutions and business corporations were on the verge of collapse or failure; however, some of the very largest corporations and financial institutions were deemed as being ________ because their failure would cause cascading negative repercussions throughout the U.S. and many foreign economies. - Answer Too big to fail
The national debt of the United States is approximately: - Answer $20,000,000,000,
Nations that export more than they import will have a trade deficity - Answer False
Congress delegated the power to create money to _____________. - Answer Federal Reserve
A primary focus of the Economic Stabilization Act of 2008, which became known as the ___________________________, was to allow the U.S. Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions. - Answer Troubled Asset Relief Program (TARP
The Great Recession of 2008-09 was the steepest U.S. recession since the Great Depression of the 1930's. Which of these factors did not play a role in causing the Great Recession? - Answer The U.S.Treasury purchased billions of dollar of toxic assets held by financial institutions.
Primary groups of policy makers that are actively involved in achieving U.S. economic policy objectives include all of the following EXCEPT: - Answer Supreme Court
The Fed plays a significant role in tax policy. - Answer False
The federal government pays for the services it provides primarily through: - Answer taxation
The standard of living of U.S. citizens has improved dramatically during the history of the United States as a result of what factors? - Answer the growth of the economy and its productivity
The relationship between the money supply and demand affects the level of prices and economic activity in our market economy. - Answer True
