Basic Finance An Introduction to Financial Institutions, Investments, And Management 11th Edition by Herbert B. Mayo – Test Bank
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Sample Test
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Chapter_03_INVESTMENT_BANKING 1. The market in which securities are initially sold to
the general public is the secondary market.
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2. When an individual buys stock
through a secondary market (e.g., the NYSE), the firm receives the sales
proceeds.
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3. An investment banker
specializes in corporate loans.
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4. In an underwriting, the firm
selling (issuing) the securities forms the syndicate.
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5. The underwriting of an issue of
securities guarantees the firm issuing the securities a specified amount of
money.
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6. The risk associated with an
underwriting rests with the investment bankers.
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7. A major function of the New
York Stock Exchange is to raise money for firms.
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8. The price of a new issue is
established through the registration process with the SEC.
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9. In a best efforts agreement to
sell new securities, the firm issuing the securities agrees to make the best
effort to sell the securities.
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10. Firms whose securities are
already publicly held may file a shelf registration for possible future sales
of stocks and bonds.
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11. If a company went public at
$10 per share and the shares immediately upon reaching the public sell for
$13, the $3 windfall gain goes to the underwriter.
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12. If an investment banker makes
a best efforts agreement to sell 1,200,000 shares at $10 a share, the
investment banker must sell at least 200,000 shares.
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13. A prospectus gives estimates
of a firm’s prospective earnings for five years.
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14. The larger the dollar value of
an underwriting, the smaller is the underwriting discount as a percentage of
the offer price.
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15. In an underwriting the
managing house forms the syndicate.
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16. If an issue of securities is
overpriced, the underwriters may let the price fall to sell the securities.
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17. The purchasing of a new issue
of stock is different than buying stock on the NYSE because in the former
funds flow to the firm while in the latter the funds flow to the individual
selling the shares.
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18. The SEC establishes a price
for a new issue of securities.
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19. A major function of the NYSE
is to facilitate the transfer of funds between investors and firms.
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20. A firm that guarantees the
proceeds from the sale of a new issue of securities is the
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21. If the initial offer price for
new securities is too high, the underwriters may 1. purchase the securities with their own funds 2. sell the securities at the offer price 3. let the price fall
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22. If a stock is initially
offered to the public for $20 in an underwriting but the price immediately
falls to $15, 1. the firm received $20 a share 2. the initial investors sustain a loss 3. demand exceeded supply 4. supply exceeded demand
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23. An investment banker 1. often underwrites new issues of securities 2. may be a division within a brokerage firm 3. facilitates the sale of new securities
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24. Which of the following is not
part of the underwriting process?
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25. An investment banker 1. is usually not a banker 2. is frequently a division of a brokerage firm 3. serves as a middleman between financial intermediaries and
firms issuing new securities
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26. Which of the following is part
of the underwriting process?
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27. Venture capitalists
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28. If the initial offer price is
too low, 1. supply will exceed demand 2. demand will exceed supply 3. the price of the security will rise 4. the price of the security will decline
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29. An investment banker is not a
financial intermediary because
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30. The Securities Investor
Protection Corporation protects individuals from
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31. The Securities and Exchange
Commission regulates
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32. The regulation of securities
markets
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Chapter_05_THE_FEDERAL_RESERVE True / False |
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1. The power to create money is
given by the Constitution to the Federal Reserve.
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2. When commercial banks grant
loans to the public, their total reserves are reduced.
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3. When corporations retire (pay
off) loans from commercial banks, excess reserves are increased.
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4. When the general public uses
money in checking accounts to purchase stock issued by corporations, the
required reserves of banks are reduced.
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5. Only large commercial banks
are subject to the regulation of the Federal Reserve.
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6. When the Federal Reserve sells
securities that are purchased by individuals, the money supply is increased.
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7. When the Federal Reserve buys
securities, the reserves of banks are increased.
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8. Open market operations is a
more flexible tool of monetary policy than changing the reserve requirements.
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9. Reserve requirements are
infrequently changed to affect commercial bank lending.
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10. The Federal Open Market Committee
(FOMC) has twelve members that include the Board of Governors.
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11. The presidents of the District
Banks elect the Board of Governors of the Federal Reserve.
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12. The federal funds rate is the
interest rate the Federal Reserve charges banks when they borrow reserves.
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13. If the Treasury borrows from
the Federal Reserve, the lending capacity of banks is reduced.
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14. Deflation is a period of
declining prices.
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15. During a period of recession,
the Fed sells securities.
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16. The Consumer Price Index (CPI)
is a measure of inflation.
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17. The President of the United
States appoints the Board of Governors of the Federal Reserve.
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18. Open market operations is a
more flexible tool of monetary policy than the discount rate.
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19. Commercial banks may buy and
sell reserves in the federal funds market.
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20. If the Treasury issues new
bonds that are purchased by the general public, the money supply is reduced
if the Treasury deposits the funds in the Federal Reserve.
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21. Recession is a period of
falling prices.
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22. The Fed uses the target
federal funds rate as a primary tool of monetary policy compared to reserve
requirements.
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23. The target federal funds rate
is set by the supply and demand for commercial bank reserves.
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Multiple Choice |
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24. Withdrawing cash from a
checking account does not decrease
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25. Excess reserves are affected
by 1. reserve requirements 2. the repayment of existing bank loans 3. cash withdrawals
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26. When commercial banks grant
loans,
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27. If deposits are withdrawn from
a commercial bank, it may obtain reserves by
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28. When a commercial bank
receives a cash deposit, 1. its required reserves increase 2. its required reserves decrease 3. its total reserves increase
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29. Commercial banks lend excess
reserves for one day in the
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30. The Federal Reserve increases
reserves by
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31. The Federal Reserve
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32. By lowering the discount
rate, the Federal Reserve
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33. The purpose of the Federal
Reserve is to
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34. The structure of the Federal
Reserve includes 1. all commercial banks 2. the twelve district banks 3. the Board of Governors
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35. The members of the Board of
Governors are
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36. During a period of recession,
a federal government surplus should retire debt owed
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37. The Federal Reserve may
contract the money supply by 1. selling securities 2. buying securities 3. raising reserve requirements 4. lowering reserve requirements
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38. If the federal government runs
a deficit and borrows from commercial banks, 1. total deposits are not affected 2. total deposits are increased 3. excess reserves are reduced 4. excess reserves are decreased
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39. Anticipation of inflation
discourages 1. saving 2. borrowing 3. lending 4. purchasing goods
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40. If the federal government runs
a surplus,
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41. Recession is a period of
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42. The Board of Governors
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43. If commercial banks grant
loans,
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44. Commercial banks may borrow
reserves from each other in the
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45. By selling securities to the
general public, the FED
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46. The tools of monetary policy
include
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47. If the federal government runs
a deficit,
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48. Anticipation of inflation
encourages
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49. During a period of recession
the Federal Reserve 1. increases the targe federal funds rate 2. buys government securities 3. sells government securities 4. lowers the target federal funds are
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Subjective Short Answer |
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50. If the reserve requirement
for demand deposits is 10 percent, what is the maximum change in the money supply that the banking
system can create if a. the Federal Reserve puts $1,000,000 of new reserves
in the banking system b. $1,000,000 in cash is deposited in checking accounts c. IBM borrows $1,000,000 from an insurance company?
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51. What is the effect on (1)
demand deposits, (2) required reserves, and (3) excess reserves of banks
given the following transactions? a. The general public transfers funds from savings accounts
checking accounts. b. Corporations borrow from commercial banks. c. State and local governments issue debt securities that are
purchased by commercial banks. d. Homeowners borrow from commercial banks to finance home
improvements. (Are there any differences on the expansion of the money supply
in questions (b), (c), and (d)?) e. A bank in California with excess reserves lends these funds
through the federal funds market to a bank in Maine that has insufficient
reserves. f. Corporations issue short‑term securities that are purchased
by the general public. g. Corporations retire (i.e., pay off) loans from commercial
banks. h. The Federal Reserve buys Treasury bills that are sold by
the general public. i. The Federal Reserve raises the discount rate, and banks
retire debt owed the Federal Reserve. j. The Federal Reserve raises the reserve requirement on demand
deposits. k. The Treasury borrows from the banks to finance payments. l. The federal government runs a deficit and borrows the funds
from the general public. m. The federal government runs a deficit and borrows the funds
from the Federal Reserve.
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