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Fin 342 Midterm Exam Questions With Proper Solutions 2024|2025
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Fin 342 Midterm Exam Questions With Proper Solutions 2024|2025
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Fin 342 Midterm Exam Questions WithProper Solutions 2024|2025
What factors are encouraging financial institutions to offer overlapping financial services
such as banking,investment banking, brokerage, etc.?
I. Regulatory changes allowing institutions to offer more services
II. Technological improvements reducing the cost of providing financial services
III. Increasing competition from full-service global financial institutions
IV. Reduction in the need to manage risk at financial institutions CORRECT ANSWERS
I, II, and III only
BM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public through its mutual funds. This
transaction is an example of a(n): CORRECT ANSWERS primary market transaction.
IBM creates and sells additional stock to the investment banker Morgan Stanley.
Morgan Stanley then resells the issue to the U.S. public through its mutual funds
CORRECT ANSWERS asset transformer
A corporation seeking to sell new equity securities to the public for the first time in order
to raise cash for capital investment would most likely: CORRECT ANSWERS conduct
an IPO with the assistance of an investment banker.
User Funds --> <-- Underwriter --><--- Suppliers of Funds CORRECT ANSWERS
primary markets
_________ and __________ allow a financial intermediary to offer safe liquid liabilities
such as deposits while investing the depositors' money in riskier illiquid assets.
CORRECT ANSWERS Monitoring; diversification
Match the intermediary with the characteristic that best describes its function.
I. Provide protection from adverse events
II. Pool funds of small savers and invest in either money or capital markets
III. Provide consumer loans and real estate loans funded by deposits
IV. Accumulate and transfer wealth from work period to retirement period
V. Underwrite and trade securities and provide brokerage services
1.Thrifts
2.Insurers
3.Pension funds
4.Securities firms and investment banks
5.Mutual funds CORRECT ANSWERS 2, 5, 1, 3, 4
, Secondary markets help support primary markets because secondary markets:
I. offer primary market purchasers liquidity for their holdings.
II. update the price or value of the primary market claims.
III. reduce the cost of trading the primary market claims CORRECT ANSWERS I, II, and
III
Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a
capital market security, even though the intermediary invests in risky illiquid instruments
because: CORRECT ANSWERS FIs can diversify away some of their risk and closely
monitor the riskiness of their assets
Which of the following is/are money market instrument(s)? CORRECT ANSWERS
Negotiable CDs
The most diversified type of depository institutions is: CORRECT ANSWERS
commercial banks
Depository institutions (DIs) play an important role in the transmission of monetary
policy from the Federal Reserve to the rest of the economy because: CORRECT
ANSWERS DI deposits are a major portion of the money supply
Liquidity risk at a financial intermediary (FI) is the risk: CORRECT ANSWERS that a
sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire
sale prices.
Money markets trade securities that:
I. mature in one year or less.
II. have little chance of loss of principal.
III. must be guaranteed by the federal government. CORRECT ANSWERS I and II only
Which of the following are capital market instruments? CORRECT ANSWERS All of
these choices are correct
IBM creates and sells additional stock to the investment banker Morgan Stanley.
Morgan Stanley then resells the issue to the U.S. public through its mutual funds. This
transaction is an example of what type of a transaction? CORRECT ANSWERS primary
market transaction
A corporation seeking to sell new equity securities to the public for the first time in order
to raise cash for capital investment would most likely do what? CORRECT ANSWERS
Conduct an IPO with the assistance of an investment banker.
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