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Many households & businesses with excess funds are willing to supply funds

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Many households & businesses with excess funds are willing to supply funds

Name __________________________________ December
10, 2015

1.
Many households &
businesses with excess funds are willing to supply funds to financial markets
because they
a.
Will be able to apply for lower
cost loans
b.
Will be able to earn a return
on their investment
c.
Will be able to establish a low
cost account for their financial needs
d.
Will be able to establish
credit with the institution

2.
Secondary market transactions provide funds to the initial issuer of
the security
a.
TRUE
b.
FALSE

3.
Investors prefer ___________ __________
securities so they can easily sell the security whenever they want without a
loss in value
a.
blue chip
b.
well-known
c.
low risk
d.
veryliquid

4.
Securities that trade in the financial
markets can be classified as
a.
Money market, capital market,
derivatives
b.
Stocks, bonds, mortgages
c.
Mortgages, equities,
commodities
d.
Stocks, bonds, commodities

5.
Three common types of capital
market securities are
a.
Money market, capital market,
derivatives
b.
Stocks, bonds, commodities
c.
Stocks, bonds, mortgages
d.
Mortgages, equities, commodities

6.
Treasury bonds are perceived to
be free from default risk because they are issued by the US Treasury
a.
TRUE
b.
FALSE

7.
Equity securities are subject to risk because
a.
The stock market can crash at
any time
b.
Interest rates may decline
c.
Buyers may not be available on
the secondary market
d.
Their future prices are
uncertain

8.
The valuation of a security is
measured as the present value of its ________________ discounted at a rate that
reflects the uncertainty surrounding the ______________
a.
market price, liquidity
b.
market price, issuer
c.
cash flows, cash flows
d.
cash flows, default risk

9.
In an efficient market,
securities are ________ priced
a.
accurately
b.
rationally
c.
incorrectly
d.
market

10.
Private Placement is one method
of issuing bonds. Privately placed bonds also have an active secondary
market
a.
True
b.
False

11.
Depository institutions include
a.
Savings Institutions, pension
funds, credit unions
b.
Securities firms, mutual funds,
commercial banks
c.
Credit unions, commercial
banks, savings institutions
d.
Insurance companies, savings
institutions, mutual funds

12.
The main source of funds
provided to finance companies is by
a.
Securities sold to households
& businesses
b.
Employer/employee contributions
c.
Deposits from households,
businesses& government agencies
d.
Shares sold to households,
businesses & government agencies

13.
The quantity of funds demanded
by businesses depends on the
a.
Market interest rates
b.
Federal funds rate
c.
Type of short term assets
d.
Number of business projects to
be implemented

14.
Net suppliers of
loanable funds are
a.
Businesses
b.
Government
c.
Households
d.
Foreign investors

15.
The impact of economic growth
on businesses creates a larger demand for loanable funds and a decrease in the
equilibrium interest rate
a.
TRUE
b.
FALSE

16.
In general _________ __________
are the primary forces behind a change in the supply of savings
provided by households or a change in the demand for funds by
households, businesses or government
a.
monetary policies
b.
interest rates
c.
fiscal policies
d.
economic conditions

17.
The yields on debt securities
are affected by all of the following EXCEPT
a.
Current ratio
b.
Liquidity
c.
Term to maturity
d.
Tax status
18.
Bond credit rating agencies
assign ratings based on
a.
The Yield to Maturity (YTM) of
a particular bond
b.
The liquidity of the security
in the secondary market
c.
The risk premium spread between
US Treasuries and the corporate bond
d.
The ability of the issuer to
repay the debt

19.
The before tax yield on
Municipal bonds makes them very attractive to investors
a.
TRUE
b.
FALSE

20.
Investors in high tax brackets
benefit most from
a.
Mutual fund securities
b.
Tax exempt securities
c.
Capital market securities
d.
Equity market securities

21.
The term structure of interest
rates defines the relationship between the term to maturity and the _____ _____ of debt securities at a specific
moment in time holding other factors constant
a.
interest rates
b.
default risk
c.
annualized yield
d.
market price

22.
In the Money market, the
yield on US Treasury bills is slightly higher than the yield on
Commercial paper
a.
TRUE
b.
FALSE

23.
The secondary market for BBB
rated bonds is typically more active than the secondary market for AAA
rated bonds
a.
TRUE
b.
FALSE

24.
Other factors the same, you
would expect to receive higher yields on a ___________ bond as well as a __________ bond
a.
callable, non-convertible
b.
non-callable, non-convertible
c.
callable, convertible
d.
non-callable, convertible

25.
Long-term securities are normally considered to be more liquid because they
are more likely to be converted to cash without a loss in value
a.
TRUE
b.
FALSE

26.
Analysts believe a downward
sloping yield curve (which indicates expectations for lower future interest
rates) may indicate a __________ in the near term
a.
recession
b.
financial bubble
c.
bull market
d.
premium

27.
The Fed has the responsibility
for conducting national monetary policy in an attempt to achieve
a.
Low federal fund rates &
discount window rates
b.
Adequate inflation & price
stability
c.
Price stability & low
federal fund rates
d.
Full employment & price
stability

28.
The Federal Reserve of the U.S.
was created in
a.
1907
b.
1891
c.
1913
d.
1929

29.
The Federal Reserve earns most
of its earnings from
a.
Interest on holdings in US
government securities
b.
Stocks & bonds
c.
Negotiable certificate of
deposits
d.
Discount window loans

30.
The Financial Reform Act of
2010 brought about some system changes. One of them was that the Chairman of
the Federal Reserve gets to appoint a “Vice Chairman of Supervision”
a.
TRUE
b.
FALSE

31.
The Board of Governors has the
power to change reserve requirements imposed on depository institutions
a.
TRUE
b.
FALSE

32.
The Fed influences the federal
funds rate by
a.
Changing the Discount window
interest rate
b.
Buying & selling stock of
companies like they did with General Motors
c.
Revising the amount of funds in
the banking system
d.
Managing the reserve
requirements

33.
If the Fed decides to “expand”
the money supply. The primary decision given by the FOMC would be to
a.
Sell US treasuries
b.
Increase the federal funds rate
and increase reserve requirements
c.
Decrease the federal funds rate
and increase the reserve requirements
d.
Purchase US treasuries

34.
A measure of our “Industrial
production” is what type of indicator used by the Fed in monitoring the
economy?
a.
Lagging
b.
Leading
c.
Coincident
d.
None

35.
Who are the most active
participants in the federal funds market?
a.
Corporations
b.
Savings & Loan institutions
c.
US Treasury
d.
Commercial banks

36.
Money Market securities are
issued in the
a.
Secondary market
b.
Equity market
c.
Bond market
d.
Primary market

37.
CNBC tells us that the yield of
a bond has increased 10 basis points. If it was at 2.6% – what is the new rate?

38.
Money market securities have a
short term maturity and an active secondary market. This provides ____________
to investors
a.
Yields
b.
Liquidity
c.
Returns
d.
Risk

39.
Commercial paper is typically
a.
Cashed in after a 2 year holding
period
b.
Issued by stock exchanges
c.
An unsecured security
d.
Underwritten by the US Treasury

40.
The minimum denomination of a
corporate bond is
a.
$10,000
b.
$100,000
c.
$1,000
d.
$110,000

41.
Negotiable certificate of
deposits are sold at a “premium” to their face value
a.
TRUE
b.
FALSE

42.
If you purchase 45 day
Commercial paper with a par value of $2,000,000 and purchase it at a price of
$1,995,000, the yield is
a.
3.5%
b.
4%
c.
3%
d.
2%

43.
Many market participants view
changes in the ___________ as an indicator of potential changes in other money
market rates
a.
Federal funds rate
b.
Prime lending rate
c.
10 year treasury rate
d.
Discount lending rate

44.
Banker’s Acceptance securities
may be sold early or held until maturity but are often times held to maturity
to maximize returns
a.
TRUE
b.
FALSE

45.
Depository institutions (DI) generally
allocate a greater portion of their asset portfolio to money market securities
vs. pension funds because
a.
Interest rates charged by
DI’scan be typically lower
b.
Less risk for DI’s
c.
Their (DI) cash inflows &
outflows are more uncertain
d.
Pension funds need higher cash
outflows than DI’s

46.
Investors commonly invest in
certain money market securities such as commercial paper & negotiable
certificate of deposits because they offer a slightly higher return over
Treasury bills and are
a.
More short term
b.
Easier to buy & sell on the
secondary market
c.
Less likely to default vs
capital market securities
d.
Steadier in the delivery of
returns

47.
Bonds are often classified
according to the type of
a.
Issuer
b.
Risk level
c.
Denomination
d.
Credit rating

48.
The minimum denomination of a
negotiable CD is $1,000,000
a.
TRUE
b.
FALSE

49.
A strong secondary market for
Savings bonds has made them very desirable for investors to hold
a.
TRUE
b.
FALSE

50.
The ratings issued by credit
rating agencies are “guarantees”
a.
TRUE
b.
FALSE

51.
In order to obtain the benefit
of converting a bond (debt) to equity by holding a convertible bond, the buyer
is willing to
a.
Accept a lower rate of interest
when purchasing
b.
Forgive the bond indenture
restrictions
c.
Pay a premium for the bond
d.
Agree to not accept any stock
dividends offered

52.
Bonds that offer very high
yields (Risk Premiums that are typically 3 to 7 points above Treasury bonds)
with the same maturity are called
a.
Skeptical bonds
b.
Investment grade bonds
c.
Junk bonds
d.
Municipal bonds

53.
Rank the following securities
in order from highest expected before tax yield to lowest

i.
Treasury Bill

ii.
10 year Treasury Note

iii.
BBB corporate bond

iv.
10 year Municipal bond
a.
iii, iv, ii, i
b.
iii, ii, i, iv
c.
iv, ii, iii, i
d.
ii, iv, i, iii

54.
The Dow Jones stock index is a
primary market
a.
TRUE
b.
FALSE

55.
The borrowing needs of a bank
are increased during a stimulative policy by the Fed
a.
TRUE
b.
FALSE

56.
“When” does an investor
purchase a stock?

57.
Two “factors” that affect stock
prices are what?

58.
The lowest bid received is
applied to all accepted bids
in what type of Treasury bidding auction?

59.
_________________ _____________________ mortgages guarantee loan repayment to the
lending financial institution thereby protecting it against the possibility of
default by the borrower

60.
The interest rate “caps”
commonly found with an adjustable rate mortgage are ______ % per year and
________ % over the life of the mortgage

61.
Define a “subprime mortgage”

62.
During periods of uncertainty
about the economy, investors tend to shift $$’s from risky money market
securities to Treasury securities. This is call a ____________ to
_______________

63.
One reason a corporation may
“call” a bond is what?

64.
Securities with a higher degree
of default risk must offer higher ________ before investors will purchase them

65.
Monetary policy may not achieve
its desired results due to numerous factors. One is due to the delay from the
time a serious issue is identified to the time that the Fed imparts a policy to
address it. This is known as _____________
________________.

66.
What is the type of bond called
that generates its payments back to the bondholders from the project’s revenue
that it was used to fund?

67.
The US Treasury issues money
market securities to finance the ___________
_________________

68.
Who employs a “commission” type of floor
broker?
Name ____________________________ Answer sheet –
FIN 308 Grade:
____________/100




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