25. Firms that specialize in helping companies raise capital by selling securities are called ________.
A. commercial banks
B. investment banks
C. savings banks
D. credit unions
E. all of the above.
An important role of investment banks is to act as middlemen in helping firms place new issues in the market.
Difficulty: Easy
26. Financial assets ______.
A. directly contribute to the country's productive capacity
B. indirectly contribute to the country's productive capacity
C. contribute to the country's productive capacity both directly and indirectly
D. do not contribute to the country's productive capacity either directly or indirectly
E. are of no value to anyone
Financial assets indirectly contribute to the country's productive capacity because these assets permit individuals to invest in firms and governments. This in turn allows firms and governments to increase productive capacity.
Difficulty: Easy
27. The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________.
A. credit enhancement
B. securitization
C. unbundling
D. derivatives
E. none of the above
The financial asset is secured by the mortgages backing the instrument.
Difficulty: Easy
28. Corporate shareholders are best protected from incompetent management decisions by
A. the ability to engage in proxy fights.
B. management's control of pecuniary rewards.
C. the ability to call shareholder meetings.
D. the threat of takeover by other firms.
E. one-share / one-vote election rules.
Proxy fights are expensive and seldom successful, and management may often control the board or own significant shares. It is the threat of takeover of underperforming firms that has the strongest ability to keep management on their toes.
Difficulty: Moderate
29. The national net worth of the U.S. in 2007 was _________.
A. $15.411 trillion
B. $26.431 trillion
C. $42.669 trillion
D. $48.038 trillion
E. $70.983 trillion
See Table 1.2.
Difficulty: Moderate
30. In 2007, _______ of the assets of U.S. households were financial assets as opposed to tangible assets.
A. 20.4%
B. 34.2%
C. 61.1%
D. 71.7%
E. 82.5%
See Table 1.1.
Difficulty: Moderate
31. Investment bankers perform the following role(s) ___________.
A. market new stock and bond issues for firms
B. provide advice to the firms as to market conditions, price, etc
C. design securities with desirable properties
D. all of the above
E. none of the above
Investment bankers perform all of the roles described above for their clients.
Difficulty: Easy
32. Theoretically, takeovers should result in ___________.
A. improved management
B. increased stock price
C. increased benefits to existing management of taken over firm
D. A and B
E. A, B, and C
Theoretically, when firms are taken over, better managers come in and thus increase the price of the stock; existing management often must either leave the firm, be demoted, or suffer a loss of existing benefits.
Difficulty: Easy
33. Important trends changing the contemporary investment environment are
A. globalization.
B. securitization.
C. information and computer networks.
D. financial engineering.
E. all of the above
All of these are examples of important trends in the contemporary investment environment.
Difficulty: Easy
34. The means by which individuals hold their claims on real assets in a well-developed economy are
A. investment assets.
B. depository assets.
C. derivative assets
D. financial assets.
E. exchange-driven assets
Financial assets allocate the wealth of the economy. Example: it is easier for an individual to own shares of an auto company than to own an auto company directly.
Difficulty: Easy
35. Which of the following financial assets made up the greatest proportion of the financial assets held by U.S. households?