1.

Financial securities are assets for the

and liabilities for the

A. issuer; buyer

B. buyer; issuer

C. grantor; grantee

D. brokerage house; client

2 Financial intermediaries lower costs by spreading them over a large number of customers, thereby taking advantage of:

A. diversification

B economies of scale

C. transactions costs

D. risk sharing

3 All of the following involve claims or potential claims against financial intermediaries EXCEPT:

A. a chequeing account at First Caribbean Bank

B. Mayberry Investment Limited stock

C. a pension fund account

D. life insurance

4 Demand deposits are liabilities to a bank because:

A. the banks must pay interest on these accounts

B. we need some method of creating a balance

C. the bank could potentially lose this money if loans are not repaid

D. the customers have the right to withdraw money from their current accounts

5 The difference between a financial and a real investment is that real investment involves some kind of

asset purchase, while financial investment involves which represent(s) the purchase of an asset.

A. tangible; contracts

B. liquid; lending

C. current; arbitrage

D. fixed; proxies

6. The notion that prices represent optimal forecasts based on all past and present information is known as the

_version of the efficient market theory.

A. weak

B. semi-strong

C. medium rare

D. strong

7 The explicit rate of interest paid on T-Bills is:

A. paid by the issuing government

B. zero, because T-bills are sold at a discount from their face value at maturity, so

interest is implicit

C. usually higher than the rate on government bonds

D. stated at the time of issue

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8 The Arcadia Pension Fund may choose to warehouse surplus funds in money market instruments because:

A. money markets usually generate the highest average rate of return

B. capital markets are less risky and tend to yield lower rates of return

C. most financial institutions are quite risk averse and therefore are reluctant to invest

D. in capital securities the timing might not be quite right for longer-term investments in higher-yield stocks, bonds or loans

9. Assess the following statements.

i. The debt market is often referred to as the bond market.

ii. A bond is a security that gives the owner a claim on the assets and earnings of a

corporation.

A. i is true, ii is false

B. ii is true, i is false

C. i and ii are true

D. i and ii are false

10. Andrew is looking for an investment opportunity. His friend recommends a type of security that represents the commitment of a company to pay periodic and variable cash dividends. The type of security being recommended is a:

A. corporate t-bill

B. common stock

C. preferred stock

D. corporate bond

11. Companies may obtain funds through direct or indirect methods. One indirect method is to:

A. issue bonds

B. buy options

C. issue common stock

D. borrow money from the bank

12. You are considering buying some stock in a Chinese company that manufactures baby formula. Which of the following is an example of non-diversifiable risk?

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A. Risk resulting from a general decline in the stock market

B. Risk resulting from a news release that the deaths of several infants had been linked to the company's product

C. Risk resulting from an explosion in a factory owned by the company

D. Risk resulting from an impending lawsuit against the company

13. Which of the following about the bid-ask spread is NOT correct?

A The smaller the bid-ask spread, the less the liquidity

B The bid price is less than the ask price

C The bid-ask spread will be less to the extent that the anticipated risk of large equilibrium price changes is low

D The bid-ask spread will be less to the extent that the expected volume of transactions is low

14 money market mutual fund is unlikely to purchase:

A. commercial paper

B. t-bills

C. government bonds

D. reverse repos

15. An organization that underwrites and distributes new investment securities and helps businesses obtain financing refers to:

A. mutual saving banks

B. commercial banks

C. mutual fund

D. investment banking house

16. Mr. Brown called his broker and placed an order to purchase Grace Kennedy stocks at a maximum price of $50 and sell Seprod stocks at a minimum price of $70 he is:

A. placing a market order

B. making a short sale

C. placing a stop order

D. placing a limit order

17. Mrs. Bimshire is more likely to instruct her broker to put in a short sell if she believed

that in the very near future:

A. interest rates are going to rise

B. the price of a stock is going to increase

C. the price of stock is going to decrease

D. the company is about to announce quarterly earnings in excess of the earnings

forecast by most analysts

18. The stated functions of the Jamaica Stock Exchange include all of the following EXCEPT to:

A. provide an additional channel for encouraging and mobilizing domestic savings

B provide savers with greater opportunities to protect themselves against inflation

C. provide regional companies with the opportunity to raise capital in Jamaica

D. facilitate privatization

19. Implicit trading costs include which of the following?

i. Impact costs

ii. Timing costs

iii. Opportunity costs

iv. Brokerage commission

A. i, ii and iv

B. i, ii and iii

C. i, iii and iv

D. i, ii, iii and iv

20. The Jamaica Stock Exchange (JSE) differs from the New York Stock Exchange (NYSE) in that:

i. only approved brokers may trade on the JSE

ii. on the NYSE, specialists trade designated stock(s) at posts

iii. all trading on the JSE takes place via Horizon, the computerised trading platform

A. i only

B. i and ii only

C. ii and iii only

D. i, ii and iii

21. The Jamaica Stock Exchange (ISE) Index includes:

A. all companies listed on the JSE

B. only Jamaican companies listed on the JSE

C. the JSE's most liquid companies

D. only non-Jamaican companies listed on the JSE

22. The Jamaica Stock Exchange (JSE) Cross List Index is designed to track the performance of:

A. all companies listed on the JSE

B. Jamaican companies listed on other regional exchanges

C. non-Jamaican companies listed on the JSE

D. the JSE's 15 most liquid securities

23 Typically, increasing interest rates:

A. encourage corporate borrowing

B. discourage individuals from saving

C. discourage corporate investments

D. encourage corporate expansion

24. Makeda instructs her broker to sell a security if it falls by 5% of the price she recently paid for it. Makeda has placed a:

A. stop-loss order

B. maximum authorisation

C. limit order

D. short order