1. The primary regulator of securities markets in the United States is:

a. Federal Reserve Bank

b. Department of the Treasury

c. Internal Revenue Service

d. Securities and Exchange Commission

2. Which statement is most true according to the Efficient Market Hypothesis?

a. Active trading will produce returns in excess of the market

b. Security prices reflect fair value over the long run

c. Security prices adjust slowly to new information

d. A small investor will never succeed

3. The yield curve is:

a. An index of all bonds sold in the United States

b. A measure of the excess yield over Treasuries that is required from a corporate bond

c. A graphic representation showing the relationship of interest rates for different maturities, usually with respect to Treasury bills, notes, and bonds

d. A measure of agricultural production during the length of the harvest season.

4. M-1 includes coins, currency, and:

a. Demand deposits

b. Savings accounts

c. Jumbo CDs

d. Time deposits

5. A firm that guarantees the proceeds from the sale of a new issue of securities is the:

a. Issuer

b. Insurance company

c. Firm commitment underwriter

d. Financial intermediary

6. All of these are purposes of the Federal Reserve except:

a. Economic growth

b. Full employment

c. Lower interest rates

d. Stable prices

7. The Federal Reserve is purchasing Treasury Notes on the open market. The chief purpose of this action is to:

a. Expand the money supply and lower interest rates

b. Contract the money supply and raise interest rates

c. Be the financier of last resort by buying bad assets

d. Support the Euro, since investors will buy other sovereign bonds with the cash

8. Buying stock on margin

1. is an example of financial leverage

2. is buying stock with borrowed funds

3. is a great way to increase gains when you expect a stock price to fall

a. 1 and 2 are true

b. 1 and 3 are true

c. 2 and 3 are true

d. 1,2, and 3 are true

9. All of the following definitional statements are correct, except:

a. Interest is the cost of credit

b. Liquidity is the ability to convert into cash without loss

c. Cash is the legal tender for all debts

d. Demand does not affect interest rates

10. Excess reserves at a bank are directly affected by which of the following:

1. reserve requirements

2. a change in the Fed Funds target rate

3. additional deposits

a. 1 and 2

b. 1 and 3

c. 2 and 3

d. 1, 2, and 3

11. Commercial banks can lend excess reserves to other banks for a short period in which of the following:

a. NASDAQ

b. Federal funds market

c. NYSE

d. Discount Window market

12. You buy 100 shares of a stock on margin. The stock price is $50. You have $500 of cash on deposit with your broker and you borrow the $5,000 needed to purchase the stock. Minimum margin requirement is 50%, and your broker will only make a margin call if you are below the minimum. The stock price declines to $45 per share.

True or False. Will the broker make a margin call?

a. True

b. False

13. If a stock is listed with a Bid of 17 and an Ask of 18, which of the following is true?

a. You can sell the stock for $18 per share

b. You can buy the stock for $18 per share

c. The commission on a sale will be $2 per share

d. The market maker is ready to sell the stock at $17 per share

14. You own 100 shares of ABC on September 15. Current price is $50 per share. You put in a day order to sell at $55 per share. The stock rises to $54 per share at market close on September 15. A merger with XYZ is announced at 5 PM on September 15. The next day, ABC shares rise to $56 before closing at $54. What do you own at the end of September 16th (ignore any commissions or taxes):

a. 100 shares of ABC

b. $5400 proceeds from the sale

c. $5500 proceeds from the sale

d. $5600 proceeds from the sale

15. Which of the following is not a true statement about the New York Stock Exchange (NYSE)?

a. It is regulated by the Securities and Exchange Commission.

b. One of its major functions is to raise funds for corporations.

c. It establishes rules for market conduct among its members.

d. It is an open auction market allowing buyers and sellers to trade securities listed by the NYSE