The SEC can suspend, or revoke, after proper notice and hearing the franchise or

certificate of registration of corporations, partnership or associations, upon any of the

grounds provided by law

1/1

TRUE

False

The Commission’s jurisdiction over all cases enumerated under section 5 of Presidential
Decree No. 902-A is transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court:*

1/1

TRUE

FALSE

Securities may be sold or offered for sale or distribution within the Philippines, even
without a registration statement duly filed with and approved by the Commission but
approved by the Board of Directors of the Corporation.

1/1

True

False
The Securities and Exchange Commission may unconditionally approve the registration
statement under such terms as it may deem necessary

1/1

True

False

The Commission may audit the financial statements, assets and other information of
firm applying for registration of its securities whenever it deems the same necessary to
insure full disclosure or to protect the interest of the investors and the public in general.

1/1

True

False

When investors take a decision to invest in either stocks or bonds or attempt to make an
investment in a portfolio of assets in any market or across markets (i.e. international
investing), they make such decisions in an investment environment where higher
returns are associated with lower risk.

1/1
 True

False

The most widely followed market in the US is the bond market and from the point of
view of economic activity,

1/1

True

False

Real asset does not have a strong negative correlation with financial markets.

0/1

True

False

Financial assets have higher maintenance costs than other forms of assets. *

1/1

True

False
Real assets provide a steady and stable income to its investors, maximizing returns and
diversifying risks, which in many ways balances the portfolio of investors as real assets
have a negative correlation with other assets.*

1/1

True

False

Real assets are less liquid than financial assets

1/1

True

False

The market prices of securities may be indicative of their intrinsic value because of
macroeconomic forces like taxes.

1/1

True

False

Intercontinental Exchange (ICE) now owns the NYSE, having purchased the exchange
in 2018.
*

1/1

True

False

1Signals and shouts made in a particular manner and sequence would convey trading
information, intentions, and acceptance in the trading pits.

1/1

True

False

The verbal and hand signal communication used by traders at stock, option, and futures
exchanges are now frequently employed,

1/1

True

False

Electronic trading platforms have totally replaced all of the pits or trading floors.

*
1/1

True

False

A stock exchange does not own shares.

1/1

True

False

The money market is characterized by a high degree of safety and high rates of return.

1/1

True

False

An individual may invest in the money market by purchasing a money market mutual
fund, buying a Treasury bill, or opening a money market account at a bank.

1/1
 True

False

MULTIPLE CHOICES. 2 POINTS EACH

The Powers and Functions of the Commission. are the following, except

2/2

Approve, reject, suspend, revoke or require amendments to registration statements, and

registration and licensing applications;

Invented sanctions for the violation of laws and rules, regulations and orders, and issued
pursuant thereto;

Formulate policies and recommendations on issues concerning the securities market, advise
Congress and other government agencies on all aspect of the securities market and propose
legislation and amendments thereto;

Regulate, investigate or supervise the activities of persons to ensure compliance;

Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and
other SROs;

The Commission may audit the financial statements, assets and other information of
firm applying for registration of its securities whenever it deems the same necessary to
insure full disclosure or to protect the interest of the investors and the public in general,
EXCEPT:

0/2
 Any security issued or guaranteed by the Government of the Philippines, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as an
instrumentality of said Government.

Any security issued or guaranteed by the government of any country with which the
Philippines maintains diplomatic relations, or by any state, province or political subdivision
thereof on the basis of reciprocity: Provided, That the Commission may require compliance
with the form and content for disclosures the Commission may prescribe.

Any security issued by a bank and its own shares of stock.

Any security or its derivatives the sale or transfer of which, by law, is under the supervision and
regulation of the Office of the Insurance Commission, Housing and Land Use Rule Regulatory
Board, or the Bureau of Internal Revenue.

Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper

adjudicatory body.

Avoiding Pump-and-Dump Schemes are the following, except

0/2

Conduct Your Own Research and Due Diligence

Be Extremely Wary of Solicited Investment Offers

Look Out for Obvious Red Flags

Look Out for Affinity Fraud

Option 5

Which of the the following documents is/ are not required to secure a business permit?

*
2/2

Police Clearance

SEC Registration, Articles of Incorporation, and By-laws

Locational Clearance

Lease Contract

There were more than 231 members in the International Organization of Securities
Commissions (IOSCO) as of February 2022.1 Membership is divided into three
categories. Which one is not included?:

2/2

Special members

Ordinary members,

Associate members

Affiliate members

The advantages of Real Estate are the following, except:*

2/2

Capital gains tax is applicable on the sale of real assets at a higher price
 They are a good hedge against inflation. When inflation is high, asset prices go up.

They are not dependent on financial market volatility. It is a profitable investment alternative
for risk diversification and offers profitability, not related to or dependent on financial markets.

Unlike the capital market, the real assets market is complete with inefficiencies. There is a lack
of knowledge that makes the potential for profit high.

It can be leveraged wherein real assets can be bought with debt.

The call option considering interest rates and have multiple exercise dates is classified
as

2/2

notion multiplier

swaps multiplier

floor

cap

The position which occurs because of selling floor and buying cap is classified as

2/2

collar

fixed collar
 floating collar

currency collar

Which of the following statements is true*

0/2

Interest rate swaps are forward contracts where one stream of present interest payments is
exchanged for another based on a specified principal amount.

Interest rate swaps can exchange fixed or floating rates in order to reduce or increase
exposure to fluctuations in interest rates.

Interest rate swaps are sometimes called plain vanilla swaps, since they were the not original
and often the simplest such swap instruments.

All of the above.

Correct answer

Interest rate swaps can exchange fixed or floating rates in order to reduce or increase
exposure to fluctuations in interest rates.

Which of the following statements is false?*

2/2

Interest rate swaps are the exchange of one set of cash flows for another.

Interest rate swaps can not be traded over-the-counter (OTC)

Interest rate swaps can be customized in many different ways.

The contracts are between two or more parties according to their desired specifications
Which of the following statements is false?*

0/2

A fixed interest rate avoids the risk that a mortgage or loan payment can significantly increase
over time.

Fixed interest rates can be higher than variable rates.

Borrowers are more likely to opt for fixed-rate loans during periods of high interest rates.

A fixed interest rate is attractive to borrowers who don’t want their interest rates fluctuating
over the term of their loans

Other:

Correct answer

Borrowers are more likely to opt for fixed-rate loans during periods of high interest rates.

Mr Juan de la torre, Finance Manager of Ayala Multi National Corporation confirmed

that the type of interest rate swaps where AMNC wishes to receive a fixed rate to hedge
interest rate exposure is called:

2/2

floating-to-fixed

floating-to-floating

Fixed-to-floating

None of the above

When the price equilibrium is lower than the price floor, it results in

2/2

a shortage

a surplus

limited choices

None of the above

The 3 Most Common Pricing Strategies are the following, except

2/2

Market-based pricing.

Revenue based or income based pricing

Cost-based or cost-plus pricing.

Value-based pricing.

Short selling comes with numerous risks as follows, except:

2/2
 A sudden change in fees.

Margin calls

Dividend Payments.

Potentially limitless profits:

What is the correct definition of 'Price Mechanism?

I. Price mechanism refers to the system where the forces of demand and supply
determine the prices of commodities and the changes therein. It is the buyers and
sellers who actually determine the price of a commodity.

II. Price mechanism is the outcome of the free play of market forces of demand and
supply. However, sometimes the government controls the price mechanism to make
commodities affordable for the poor people too.

2/2

I only

II. only

Both I & II

None of the above.

TRUE OR FALSE. 2 POINTS EACH.

Option 1
Price floors prevent a price from increasing above a certain level.

2/2

True

False

When a price floor is set above the equilibrium price, quantity supplied will exceed
quantity demanded, and excess supply or surpluses will result.*

2/2

True

False

There is price control when government laws regulate prices instead of letting market
forces determine prices, *

2/2

True

False

There are three types of Price Controls, namely: price ceilings, price equilibrium and
price floors*
2/2

True

False

Totalitarianism is an authoritarian form of government in which the ruling party

recognizes no limitations whatsoever on its power, including in its citizens' lives or rights
just like in Russia.

2/2

True

False

Being short a stock means that you own it and will profit if the stock rises. Being long a
stock means that you have a negative position in the stock and will profit if the stock
falls.

2/2

True

False

Long selling involves borrowing a security whose price you think is going to fall from
your brokerage and selling it on the open market.
*

2/2

True

False

Short sellers aren't entitled to dividend payments from the shares they've borrowed.

2/2

True

False

The cost to borrow a stock changes frequently in response to supply and demand
conditions.

2/2

True

False

When you buy shares of stock (take a long position), your downside is limited to 100%
of the money you invested. But when you short a stock, its price can keep rising. In
theory, that means there's no upper limit to the amount you'd have to pay to replace the
borrowed shares.
*

2/2

True

False

Government restrictions take a variety of forms, including bans on trades, controls on

prices, and the imposition of taxes and subsidies to change incentives.

2/2

True

False

The law mandates that if the prevailing price of any basic necessity is excessive or
unreasonable, the implementing government agency may recommend to the president
the imposition of a price ceiling for the sale of the basic necessity at a price other than
its prevailing price

2/2

True

False
Price mechanism refers to the system where the forces of demand and supply
determine the prices of commodities and the changes therein. It is the buyers and
sellers who actually determine the price of a commodity.

2/2

True

False

When the market price is not allowed to rise to the equilibrium level, quantity demanded
exceeds quantity supplied, and thus a shortage occurs.

2/2

True

False

A price floor is the highest legal price that can be paid in a market for goods and
services, labor, or financial capital.

2/2

True
 False

The basic objectives of capital budgeting are primary objectives and secondary
objectives. Which of the following is the primary objective of capital budgeting?*

0/2

Maximization of the present value of resource investment to obtain a high return as possible
without assuming undue risks.

Utilization of funds of the company within the limits of his authority so that over the long run,
the company receives at least as high rate of return on its investment as might be obtained.

Maximization of the earning power of the company

All of the above.

None of the above.

Other:

Arrange the following capital budgeting process in order of priorities/steps:

I. Development of the project proposal. II. Determine the riskiness of
the projected cash flows. III. Identification of potential projects. IV.
Development of capital budget. V. Estimation of cost and
benefits. VI. Re-evaluation of projects.*

0/2

I, III, V, VI, II, IV

III, V, II, I, IV, VI

III, IV, VI, V, I, II

 VI, IV, I, III, II, V.

It measures the length of time where the total accumulated annual returns and the scrap
value at a given period is at least, equal to the net investment*

0/2

Payback bailout

Payback reciprocal

Payback period

Option 4

The most vital factor influencing the success of a firm is the management ability to make
the right decisions at all times. Another reason why resource utilization and evaluation
decision require careful study is because of the following essential characteristics,
except:*

2/2

risks involved are greater as well as its uncertainties.

the effect of wise decision is severe and difficult to correct.

the amount or cost involved is so substantial

the fund is normally not available automatically to the firm, thus, it requires financing
arrangements.

cash (inflow) recovery takes a long period of time

Which of the following factors affect Capital Budgeting Decisions?*

2/2

I. The amount of cash outflows related to the investments.

II. The expected cash flow returns (inflows) on the investments.

III. The lowest acceptable rate of return the company must set before considering analyzing
capital investment or hurdle rate of the minimum desired rate of return.

I & II only

I & III only

II & III only

I, II & III

Net investment cost includes which of the following items that are considered to be a
direct effect of the decisions?*

0/2

I. Costs avoided (repairs and other costs)

II. Proceeds from disposal of an old asset

III. Income tax effect on the disposal of old asset.

I & II only

I & III only

II & III.

I, II, & III

Accounting Rate of Return formula is*

2/2

Annual net operating cash inflow less annual depreciation expense on incremental investment
multiplied by average investment.

Annual net operating cash inflow plus annual depreciation expense on incremental investment
divided by average investment.

Annual net operating cash inflow less annual depreciation expense on incremental investment
divided by average investment.

Annual net operating cash inflow plus annual depreciation expense on incremental investment
multiplied by average investment.

Which of the following is false about internal rate of return?*

0/2

It is a method of ranking investment proposal using the rate of return on asset investment

It is calculated by finding the discount rate that equates the present value of future cash
inflows to the investment costs.

It is the discounted rate that makes the present value of a project.

It is the discount rate that makes the present value of project less than or greater than zero

'It is the discount rate that makes the present vaue of a project's expected cash inflows equal
to the present value of the project's expected cash outflows.

Project X’s IRR is 19 percent. Project Y’s IRR is 17 percent. Both projects have the
same risk, and both projects have normal cash flows (an up-front cost followed by a
series of positive cash flows). If the cost of capital is 10 percent, Project Y has a higher
NPV than Project X. Given this information, which of the following statements is most
correct?*
2/2

a. The crossover rate between the two projects (that is, the point where the two projects have
the same NPV) is greater than 10 percent.

b. If the cost of capital is 8 percent, Project X will have a higher NPV than Project Y.

c. If the cost of capital is 10 percent, Project X’s MIRR is greater than 19 percent.

.d. Statements a and b are correct.

e. All of the statements above are correct.

Which of the following statements is most correct?*

2/2

c. . The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return
equal to the cost of capital.

e. None of the statements above is correct

a. If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net
present value (NPV) must be positive.

b.. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

d. Statements a and c are correct.

MATCHING TYPE. 2 POINTS EACH. MATCH THE ROWS WITH THE COLUMNS*

Accounting Rate of Return

Discounted cash flow method

Cost of capital
 Internal rate of return

Payback Bailout Period

Present value

Discounted payback period.

Capital budgeting

Net present value method

Hurdle rate, cut-off rate or discount rate

Score

is the process for evaluating an economic entity's proposed long-range projects or course of
future activity for the purpose of allocating limited resources to desirable projects

0/2

Measures the length of time, where the total accumulated annual returns and the scrap value at
a given period is, at least equal to the net investment

0/2

The expected cash flows are discounted by the projects cost of capital or the required rate of
return.

0/2

is the process that uses the discounted cash flows of a project to determine whether the rate of
return on that project is equal to, higher, or lower than the desired rate of return.

2/2

also known as book value rate of return

2/2
refers to the minimum desired rate of return that is based on the firm's cost of capital.

2/2

is also known as time-adjusted rate of return.

2/2

focuses on a project's cash inflows and outflows where explicitly and systematically incorporate
the time value of money.

0/2

is the weighted average cost of long-term funds(interest dividends)

2/2

converts future peso into current peso equivalent

2/2

is the process for evaluating an economic entity's proposed long-range projects or course of
future activity for the purpose of allocating limited resources to desirable projects

Measures the length of time, where the total accumulated annual returns and the scrap value at
a given period is, at least equal to the net investment

The expected cash flows are discounted by the projects cost of capital or the required rate of
return.

is the process that uses the discounted cash flows of a project to determine whether the rate of
return on that project is equal to, higher, or lower than the desired rate of return.

also known as book value rate of return

refers to the minimum desired rate of return that is based on the firm's cost of capital.

is also known as time-adjusted rate of return.

focuses on a project's cash inflows and outflows where explicitly and systematically incorporate
the time value of money.

is the weighted average cost of long-term funds(interest dividends)

converts future peso into current peso equivalent

PROBLEM SOLVING. 4 POINTS EACH. CLICK THE CIRCLE OF YOUR CHOIICE

Great Company is planning to spend P60,000 for a machine, which will be depreciated
on a straight line method over a ten-year period. The machine will generate additional
cash revenue of P12,000 a year. Great will not incur additional costs except for
depreciation. The income tax rate is 35%. Determine the net income after tax.*

4/4

P11,700

P3,900

P210,000

none of the above

Great Company is planning to spend P60,000 for a machine, which will be depreciated
on a straight line method over a ten-year period. The machine will generate additional
cash revenue of P12,000 a year. Great will not incur additional costs except for
depreciation. The income tax rate is 35%. Calculate the accounting rate of return.*

4/4

20%

7%
 6.5%

19.5%

Great Company is planning to spend P60,000 for a machine, which will be depreciated
on a straight line method over a ten-year period. The machine will generate additional
cash revenue of P12,000 a year. Great will not incur additional costs except for
depreciation. The income tax rate is 35%. Calculate the after tax annual cash flow.*

4/4

P9,900

P12,000

P14,900

none of the above

Great Company is planning to spend P60,000 for a machine, which will be depreciated
on a straight line method over a ten-year period. The machine will generate additional
cash revenue of P12,000 a year. Great will not incur additional costs except for
depreciation. The income tax rate is 35%. What is the payback period?*

4/4

6.00 years

5 years

4.25 years

6.06 years
Great Company is planning to spend P60,000 for a machine, which will be depreciated
on a straight line method over a ten-year period. The machine will generate additional
cash revenue of P12,000 a year. Great will not incur additional costs except for
depreciation. The income tax rate is 35%. What is the payback reciprocal?*

4/4

16.5%

17%

23.5%

none of the above

Zelensky Production, a motion picture produce, is considering the purchase of a new

movie camera. The new camera will cost P30,000, have an eight-year life and create
cost savings of P5,000 per year. However, the new camera will require P700 o
maintenance each year. The company uses a discount rate of 9%. Determine the
payback period.*

4/4

6.976 years

7 years

7.5 years

7.769 years

Assume the following proposals were available to Company A.

. Project 1 Project 2 Cost of Capital
10% 10% Amount of investment P1,000 P1,000
Yearly Net Cash Inflows Year 1 . P 500
P 100 . Year 2 400 300
. Year 3 300 400 . Year 4 100
600 . ----- -----
. P1,300 P1,400 .
===== ====== .Compute for the discounted cash flows.
. *

4/4

Proposal 1 1,o49.18, Proposal 2 P1,078.92

Proposal 1 1,o94.81, Proposal 2 P1,078.92

Proposal 1 1,078.82 Proposal 2 P1,049.18

Proposal 1 1,087.92, Proposal 2 P1,087.92

Assume the following proposals were available to Company A.

.

Project 1 Project 2 Cost of Capital 10% 10%

Amount of investment P1,000 P1,000 Yearly Net Cash Inflows
. Year 1 . P 500 P 100 . Year 2
400 300 . Year 3 300 400
. Year 4 100 600 .
----- ----- . P1,300 P1,400
. ===== ====== . Compute for the
discounted payback period. .

*
4/4

Proposal 1 2.85 years Proposal 2 3.90 years

Proposal 1 2.95 years Proposal 2 3.88 years

Proposal 1 3.88 years Proposal 2 2.95 years

Proposal 1 3.00 years Proposal 2 4 years

Assume that a certain project will cost P6,075 and will earn cash inflows, after tax, of
P2,000 for four years with a minimum desired rate of return of 10% Determine the net
present value.*

4/4

(P 75)

( P 265)

P 265

P 75

XYZ Co. bought a new machine that cost P150,000, and have a salvage value of
P70,000 at the end of its seven-year useful life. XYZ has determined that the cash
inflows for years 1 to 7 will be as follows: P32,000; P57,000; P15,000; P28,000;
P16,000, P10,000 and P15,000 respectively. Maintenance will be required in 3 years
and years at P10,000 and P70,000 respectively. XYZ USES A DISCOUNT RATE OF
11 % and wants projects to have a payback of no longer than 5 years. Determine the
payback period.*

4/4
 6.20 years

6 years

6.11 years

none of the above

5.11 years

Other:

The high liquidity of marketable securities makes them very popular among individual
and institutional investors.

2/2

True

False

The equities that trade via OTC are often small companies .

2/2

True

False
Derivatives are private and public contracts arranged by a broker and can be options,
forwards, futures, or other agreements whose value is based on that of an underlying
asset, like a stock.

2/2

True

False

Stocks trading OTC are, generally, known for their large volume of trades.

2/2

True

False

Bonds, ADRs, and derivatives trade in the OTC marketplace, investors face lesser risk
when investing in more speculative OTC securities because of filing requirements and
financial advisors.

0/2

True
 False

The Philippine Government issues both Peso and US Dollar denominated securities.

2/2

True

False

Treasury Bills are obligations with maturity of one year or less. Typically BSP prohibits
their issuance with a discount to the maturity value.

2/2

True

False

Government Securities (GS) are conditional obligations of the Republic of the

Philippines.

2/2

True

False
Government securities are relatively free from credit risk because the principal and
interest are guaranteed by the National Government, backed by the full taxing power of
the sovereignty as the issuer and and BSP as the selling agent.

···/2

True

False

Treasury Bonds are obligations with maturities ranging from 2 years to 25 years,
typically issued at par with periodic coupon payments to be made up to final maturity.

2/2

True

False

Peso and Dollar Denominated GS are not insured by the Philippine Deposit Insurance
Company (PDIC)

2/2

True
 False

Investors typically pay less for securities on the primary market than on the secondary
market.

2/2

True

False

The Treasury bill is subject to tax even if it is issued by the government.*

0/2

True

False

The Intercontinental Exchange (ICE) now owns the Big Board..

0/2

True

False

A red herring is a preliminary prospectus filed with the SEC, usually in connection
with an IPO—excludes key details of the issue, such as price and number of shares
offered. The document states that a registration statement has been filed with the SEC
and is effective.

2/2

True

False

MLTIPLE CHOICE. 2 POINTS EACH.

Which of the following are examples of securities?

A. Common shares B. Debts C, Preferred shares D. Exchange traded fund

(ETF)

0/2

A only

B only

C. only

D. only

all of the above

A & B only
 C & D. only

A & C only

none of the above

Which of the following refers to ETF*

2/2

are offered on virtually every conceivable asset class from traditional investments to so-called
alternative assets like commodities or currencies.

allow investors to short markets, to gain leverage, and to avoid short-term capital gains taxes.

is a basket of securities that you can buy or sell through a brokerage firm on a stock exchange.

All of the above

none of the above

Which of the following is FALSE about Peso Denominated Securities?

2/2

Can be used as collateral for loan

Interest rates subject to prevailing market rate

Treasury Bills (TBills), Fixed Rate Treasury Notes (FXTNs) and Retail Treasury Bonds (RTB)

Minimum investment – Php10,000.00

Which of the following is TRUE about over-the-counter?*

···/2

Securities that are traded over-the-counter may be facilitated by a dealer or broker specializing
in OTC markets.

securities are traded without being listed on an exchange.

Companies with OTC shares may raise capital through the purchase of stock.

trading helps promote equity and financial instruments that would otherwise be unavailable to
investors.

Which of the following is FALSE about Going Public?*

0/2

Going public refers to a public company's initial public offering (IPO), thus becoming a
privately-traded and owned entity.

Going public increases prestige and helps a company raise capital to invest in future
operations, expansion, or acquisitions.

However, going public diversifies ownership, imposes restrictions on management, and opens
the company up to regulatory constraints.

None of the above is FALSE

Which of the following portfolio construction methods starts with asset allocation?

Buy and hold

Top-down
 Middle-out

Asset allocation

Bottom-up

. Which of the following portfolio construction methods starts with security analysis?

Bottom-up

Buy and hold

Middle-out

Top-down

Asset allocation

Asset allocation refers to ____________

nvesting only in "safe" securities

choosing which securities to hold based on their valuation

 all of the above

the allocation of assets into broad asset classes

bottom-up analysis

The Sarbanes-Oxley Act ____________

A and B are correct.

requires corporations to have more independent directors

A, B, and C are correct.

requires the firm's CFO to personally vouch for the firm's accounting statements

prohibits auditing firms from providing other services to clients

Financial assets permit all of the following except ____________.

allocation of risk

separation of ownership and control

 all of the above Option 6

consumption timing

elimination of risk

Money market securities ____________

. are short term

pay a fixed income

all of the above

generally very low risk

are highly marketable

A fixed-income security pays ____________.

B. a fixed stream of income or a stream of income that is determined according to a specified

formula for the life of the security
 none of the above

a variable level of income for owners on a fixed income

. a fixed level of income for the life of the owner

a fixed or variable income stream at the option of the owner

During the period between 2000 and 2002, a large number of scandals were
uncovered

Most of these scandals were related to

I) Manipulation of financial data to misrepresent the actual condition of the firm.

II) Misleading and overly optimistic research reports produced by analysts.

III) Allocating IPOs to executives as a quid pro quo for personal favors. IV) Greenmail.

B. I, II, and IV

D. I, III, and IV

. II, III, and IV

E. I, II, and IIIOption 1

C. II and IV
 A disadvantage of using stock options to compensate managers is that

none of the above.

all of the above.

temporarily, giving them a chance to cash out before the price returns to a level reflective of
the firms true prospects.

it encourages mangers to undertake projects that will increase stock price.

it encourages managers to engage in empire building.

it can create an incentive for mangers to manipulate information to prop up a stock price
temporarily, giving them a chance to cash out before the price returns to a level reflective of
the

Correct answer

it can create an incentive for mangers to manipulate information to prop up a stock price
temporarily, giving them a chance to cash out before the price returns to a level reflective of
the

Although derivatives can be used as speculative instruments, businesses most often

use

them to
*

appease stockholders.

offset debt.

enhance their balance sheets.

hedge.

attract customers.

Correct answer

hedge.

Commercial banks differ from other businesses in that both their assets and their
liabilities

are mostly

financial.

owned by the government.

real.
 regulated.

illiquid.

The means by which individuals hold their claims on real assets in a well-developed

economy are

derivative assets

depository assets.

exchange-driven assets

financial assets.

investment assets.

Investment bankers perform the following role(s) ___________.

provide advice to the firms as to market conditions, price, etc

none of the above

market new stock and bond issues for firms

 all of the above

design securities with desirable properties

Corporate shareholders are best protected from incompetent management decisions by

the ability to call shareholder meetings.

management's control of pecuniary rewards.

one-share / one-vote election rules.

the threat of takeover by other firms.

the ability to engage in proxy fights.

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an

example of ________.

unbundling

credit enhancement
 none of the above

securitization

derivatives

Financial assets ______.

contribute to the country's productive capacity both directly and indirectly

directly contribute to the country's productive capacity

are of no value to anyone

indirectly contribute to the country's productive capacity

do not contribute to the country's productive capacity either directly or indirectly

Firms that specialize in helping companies raise capital by selling securities are called

________.

commercial banks
 credit unions

savings banks

all of the above.

investment banks

Financial intermediaries exist because small investors cannot efficiently ________.

diversify their portfolios

advertise for needed investments

gather all relevant information

assess credit risk of borrowers

all of the above.

_______ are examples of financial intermediaries.

All of the above

 Commercial banks

Investment companies

Insurance companies

Credit unions

The value of a derivative security _______.

depends on the value of the related primitive security

is unrelated to the value of the related primitive security

can only cause increased risk.

has been enhanced due the recent misuse and negative publicity regarding these instruments

is worthless today

_________ financial asset(s).

C. Derivatives are
 A. Buildings are

B. Land is

D. US Agency bonds are

C & D.

An example of derivative security is _____________*

B and C

A. Common share of Delta Motors

C. . A commodity futures contract

A and B

B. . A call option of Mobil Stock