Question 1. The secondary markets for capital market securities have facilitated economic growth in the U.S. because

• they help provide marketability for capital market claims.
• they have increased people's willingness to buy capital market claims.
• they make people more willing to invest because they can more easily diversify their risk.
• All of the above

Question 2. A capital market financing is most likely to finance

• new plant and equipment.
• seasonal inventory needs.
• a quarterly dividend payment.
• the sale of common stock.

Question 3. You purchase a Treasury inflation-protected note with an original principal amount of $1,000,000 and a 2.8 percent annual coupon (paid semiannually). What will the first coupon payment be if the semiannual inflation over the first six months is 1.4%?

• $28,000
• $14,000
• $14,196
• $14,169

Question 4. The yield on a three-year Treasury note is 4.5% and the yield on a three-year TIPS is 2.4%. What is the market's estimate of the annual inflation rate over the next three years?

• 1.1%
• 4.5%
• 2.4%
• 2.1%

Question 5. Investors in U.S. Treasury STRIPs are primarily interested in eliminating which of the following bond investor risks?

• Default risk
• Price risk
• Reinvestment risk
• Foreign exchange risk

Question 6. Which of the following terms is not commonly associated with municipal bonds?

• Inflation-protected bonds
• Serial bonds
• General obligation bonds
• Revenue bonds

Question 7. If average corporate bond and tax-exempt municipal bond rates were 9.33% and 5.25% respectively, an investor in the 34% marginal corporate tax bracket would purchase

• the tax-exempt bond.
• the corporate bond.
• either security (i.e., the investor is indifferent).
• the security with the higher pre-tax yield.

Question 8. Most general obligation bonds are backed by

• corporations.
• brokers.
• the issuing government.
• None of the above

Question 9. Corporate bonds are less marketable than money market instruments and corporate equities because

• they have special features (e.g., call provisions) that make them difficult to value.
• they are long-term securities, which tend to be riskier and less marketable.
• they have special features (e.g., call provisions) that make them difficult to value and they are long-term securities, which tend to be riskier and less marketable.
• corporate bonds are in fact not less marketable than money market instruments and corporate equities.

Question 10. Bonds may be classified as junk bonds because they

• are issued in large volumes.
• originate within small businesses.
• have high default risk.
• None of the above

Question 11. Which of the following is not a reason that foreign exchange markets exist?

• To provide for efficient exchange between governments.
• To exchange purchasing power between trading partners with different local currencies.
• To provide a means for passing the risk associated with changes in foreign exchange rates to professional risk-takers.
• To accommodate credit extension and delayed payments for goods and services between countries.

Question 12. The current exchange rate between U.S. Dollar and Euro is $1.355/.738. It means that

• one Euro can buy 0.738 Dollars.
• one Dollar can buy 0.738 Euros.
• one Euro can buy 1.355 Dollars.
• both one Dollar can buy 0.738 Euros and one Euro can buy 1.355 Dollars.

Question 13. When a balance of payments trade balance is in a deficit position,

• sell financial assets to foreign entities.
• buy more imports.
• borrow from foreign countries.
• sell financial assets to foreign entities and buy more imports.

Question 14. A _______ draft is paid on demand; whereas a bank would pay a _______ draft at maturity.

• electronic; time
• letter; electronic
• time; sight
• sight; time

Question 15. Eurocurrency markets are a source of attractively priced working capital loans for multinational firms because

• lower regulatory costs allow lenders to offer lower cost loans.
• with transactions starting at $500,000, economies of scale provide better pricing.
• lower credit checking costs and other processing costs lowers lending rates.
• All of the above