1. Which of the following scenario would likely increase money supply?

a.	The Federal government issues more debt
b.	Congress passes a bill to cut income tax
c.	Consumers drastically reduce using cash for all transactions
d.	Businesses cut back borrowing as the economy slumps

2. The Federal Reserve (Fed) would have unlimited capacity to supply money except when:

a.	The President replaces the Fed governors all at once
b.	The Fed receives no more new deposits
c.	There is no more Treasury securities for the Fed to buy in open markets
d.	The U.S. adopts a new commodity money (e.g., Gold) standard

3. Which of the following scenarios could raise interest rates, other things being the same?

a.	The Fed sells more treasury securities in the open market
b.	The government reduces its budget deficit by a big amount
c.	The economy is entering a recession
d.	The nations trade balance improves (a bigger surplus or a smaller deficit)

4. Which institution is most likely to involve in indirect (vs. direct) finance?

a.	A mutual fund
b.	An investment bank
c.	An angel investor
d.	A credit union

5. Which of the following parties is a lender in the transaction?

a.	You open a Chase savings account.
b.	A company that sells newly issued securities to an investment banker.
c.	A company that goes for a bank loan.
d.	A start-up that uses crowdsourcing (raise money using the web) to fund a social networking site.

6. From the perspective of the investor, which of the following statements is most correct if other things being the same?

1. Mortgage bonds are riskier than debentures
2. A straight bond is riskier than a convertible bond
3. Bonds with higher ratings are riskier than those with lower ratings
4. Debentures are riskier than income bonds

7. Which of the following statements can be considered market manipulation?

1. A brokerage promotes stocks of a firm as prospect of good return when the firm is actually under SEC investigation
2. A mutual fund sells an unusually large amount of IBM stock to avoid future losses
3. High frequency traders using high speed computers can take advantage of minute changes in stock buy-sell margins instantly before discrepancies fall back into the normal range
4. The CEO of a failing firm affirms the firms rosy forecast right before the facts come out
5. None of the above

8. Which of the following cases is not considered insider trading?

a.	You bought on a tip from your broker who thought Biogene is nearing success on developing a miracle cancer drug. It paid off when it turned out true.
b.	You traded and profited on information you overheard at a party when one CEO privately proposed a merger buyout to another CEO.
c.	A lawyer working on a merger case inadvertently leaked it to his wife who then traded on and profited from the information.
d.	A movie star avoided huge losses by selling her stake in a firm that her friend, who is an executive in the company, alerted her to the impending bankruptcy filing.

9. In financial markets, __________ constitutes the key contents of any transaction and ___________ with respect to such contents drive volatility.

1. Cashflow; speculation
2. Information; confidence
3. Risk; expectation
4. Time; riskiness (preference)

10. Which of the following is an illustration of a situation of agency conflict?

a.	The company buys a corporate jet for senior officers frequent business travels presumably to save travel cost.
b.	The CEO convinces the Board of Directors to grant him a severance package amounting to $20 million in cash and stock (allegedly to avoid costly lawsuits) even though he is being forced out for poor performance.
c.	An oil company borrowed a large sum by issuing bonds to the public and invested the money in a risky social networking start-up, although the bond carries no restrictions on such an investment.
d.	ABC Co. borrowed a loan from XYZ National Bank at the same time as it paid an extra dividend to its shareholders (dividend was announced 2 months ago).