b. False
ANSWER: False
66. Since markets are efficient, institutional and individual investors should ignore the various investment instruments available.
a. True
b. False
ANSWER: False
67. Speculating with derivative contracts on an underlying asset typically results in both higher risk and higher returns than speculating in the underlying asset itself.
a. True
b. False
ANSWER: True
68. When security prices fully reflect all available information, the markets for these securities are said to be perfect.
a. True
b. False
ANSWER: False
69. Securities that are not as safe and liquid as other securities are never considered for investment by anyone.
a. True
b. False
ANSWER: False
70. By requiring full disclosure of information, securities laws prevent investors from making poor investment decisions.
a. True
b. False
ANSWER: False
71. When a depository institution offers a loan, it is acting as a creditor.
a. True
b. False
ANSWER: True
72. Savings institutions are a type of nondepository institution.
a. True
b. False
ANSWER: False
73. Most mutual funds raise funds by issuing securities and then lend the funds to individuals and small businesses.
a. True
b. False
ANSWER: False
74. Institutional investors not only provide financial support to companies but also exercise some degree of corporate control over them.
a. True
b. False
ANSWER: True
75. Which of the following is NOT a reason why depository financial institutions are popular?
a. They offer deposit accounts that can accommodate the amount and liquidity characteristics desired by most surplus units.
b. They repackage funds received from deposits to provide loans of the size and maturity desired by deficit units.
c. They accept the risk on loans that they provide.
d. They use their information resources to act as brokers, executing securities transactions between two parties.
e. They have more expertise than individual surplus units in evaluating the creditworthiness of deficit units.
ANSWER: d
76. Which of the following are NOT considered money market securities?
a. Treasury bills
b. mortgage-backed securities
c. negotiable certificates of deposit
d. commercial paper
ANSWER: b
77. ____ are not considered capital market securities.
a. Derivative securities
b. Treasury bonds
c. Corporate bonds
d. Equity securities
e. Mortgages
ANSWER: a
78. ____ are long-term debt obligations issued by corporations and government agencies to support their operations.
a. Common stock
b. Derivative securities
c. Bonds
d. None of these are correct.
ANSWER: c
79. Which of the following is an example of an asymmetric information problem?
a. A corporation releases toxic wastes into a river.
b. A corporation relocates to Ireland to take advantage of lower corporate tax rates.
c. A stock analyst rates a stock higher than it deserves because the securities firm she works for wants to obtain business from the corporation that issued the stock.
d. A corporation manipulates its financial information to avoid disclosing a large loss from its operations in China.
ANSWER: d
80. If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.
a. lower; lower
b. lower; higher
c. higher; lower
d. higher; higher
ANSWER: d
81. When particular securities are perceived to be ____ by the market, their prices decrease when they are sold by investors.
a. undervalued