Which of the following is a primary market transaction?a$.$You buy $200$ shares of IBM stock from your brother. The trade is not made through a broker; you just give him cash and he gives you the stock.b$.$IBM sells $2,000,000$ shares of treasury stock to its employees when they exercise options that were granted in prior years.c$.$IBM issues $2,000,000$ shares of new stock and sells them to the public through an investment banker.d$.$You sell $200$ shares of IBM stock on the NYSE through your broker.e$.$One financial institution buys $200,000$ shares of IBM stock from another institution. An investment banker arranges the transaction$\mathrm{.}2$ points QUESTION $2$Which of the following statements is CORRECT?a$.$Home mortgage loans are traded in the money market.b$.$While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.c$.$Capital markets deal only with common stocks and other equity securities$.$d$.$The New York Stock Exchange is an auction market, and it has a physical location.e$.$If an investor sells shares of stock through a broker, then it would be a primary market transaction$\mathrm{.}2$ points QUESTION $3$Which of the following statements is NOT CORRECT?a$.$When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market.b$.$"Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.c$.$When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held."d$.$It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.e$.$The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC$\mathrm{.}2$ points QUESTION $4$The "over$-$the$-$counter" market received its name years ago because brokerage firms would hold inventories of stocks and then sell them by literally passing them over the counter to the buyer. True False$2$ points QUESTION $5$Private markets are those like the NYSE, where transactions are handled by members of the organization, while public markets are those like the NASDAQ, where anyone can make transactions. True False$2$ points QUESTION $6$Money markets are markets fora.Short$-$term debt securities such as Treasury bills and commercial paper.b$.$Foreign currencies.c$.$Long$-$term bonds.d$.$Common stocks.e$.$Consumer automobile loans$\mathrm{.}2$ points QUESTION $7$Financial institutions are more diversified today than they were in the past, when federal laws kept investment banks, commercial banks, insurance companies, and similar organizations quite separate. Today the larger financial services corporations offer a variety of services, ranging from checking accounts, to insurance, to underwriting securities$,$ to stock brokerage. True False$2$ points QUESTION $8$If you decide to buy $100$ shares of Google, you would probably do so by calling your broker and asking him or her to execute the trade for you. This would be defined as a secondary market transaction, not a primary market transaction. True False$2$ points QUESTION $9$Trades on the NYSE are generally completed by having a brokerage firm acting as a "dealer" buy securities and adding them to its inventory or selling from its inventory. The NASDAQ, on the other hand, operates as an auction market, where buyers offer to buy, and sellers to sell, and the price is negotiated on the floor of the exchange. True False$2$ points QUESTION $10$Which of the following statements is CORRECT?a$.$If your uncle in New York sold $100$ shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.b$.$An example of a primary market transaction would be your uncle transferring $100$ shares of Walmart stock to you as a birthday gift.c$.$Capital market instruments include both long$-$term debt and common stocks.d$.$The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically.e$.$While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors$\mathrm{.}2$ points QUESTION $11$The term IPO stands for "individual purchase order," as when an individual $($as opposed to an institution$)$ places an order to buy a stock. True False$2$ points QUESTION $12$When a corporation's shares are owned by a few individuals who are associated with the firm's management, we say that the stock is closely held. True False$2$ points QUESTION $13$Primary markets are large and important, while secondary markets are smaller and less important. True False$2$ points QUESTION $14$Which of the following statements is CORRECT?a$.$Capital market transactions involve only preferred stock or common stock.b$.$Both NASDAQ dealers and "specialists" on the NYSE hold inventories of stocks.c$.$The most important difference between spot markets versus futures markets is the maturity of the instruments that are traded. Spot market transactions involve securities that have maturities of less than one year whereas futures markets transactions involve securities with maturities greater than one year.d$.$If General Electric were to issue new stock this year, this would be considered a secondary market transaction since the company already has stock outstanding.e$.$Money market transactions do not involve securities denominated in currencies other than the U$.$S$.$ dollar$\mathrm{.}2$ points QUESTION $15$You recently sold $200$ shares of Disney stock, and the transfer was made through a broker. This is an example of:a$.$A futures market transaction.b$.$A primary market transaction.c$.$An over$-$the$-$counter market transaction.d$.$A money market transaction.e$.$A secondary market transaction$\mathrm{.}2$ points QUESTION $16$Which of the following statements is CORRECT?a$.$A liquid security is a security whose value is derived from the price of some other "underlying" asset.b$.$Money markets are markets for long$-$term debt and common stocks.c$.$While the distinctions are becoming blurred, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.d$.$The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market.e$.$Money market mutual funds usually invest their money in a well$-$diversified portfolio of liquid common stocks$\mathrm{.}2$ points QUESTION $17$A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors. True False$2$ points QUESTION $18$Multiple Choice: Conceptual You recently sold $100$ shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction?a$.$This is an example of a direct transfer of capital.b$.$This is an example of a derivative market transaction.c$.$This is an example of a money market transaction.d$.$This is an example of a primary market transaction.e$.$This is an example of an exchange of physical assets$\mathrm{.}2$ points QUESTION $19$Which of the following statements is CORRECT?a$.$If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.b$.$Only institutions, and not individuals, can engage in derivative market transactions.c$.$The NYSE is an example of an over$-$the$-$counter market.d$.$If you purchase $100$ shares of Disney stock from your brother$-$in$-$law, this is an example of a primary market transaction.e$.$As they are generally defined, money market transactions involve debt securities with maturities of less than one year$\mathrm{.}2$ points QUESTION $20$Hedge funds are somewhat similar to mutual funds. The primary differences are that hedge funds are less highly regulated, have more flexibility regarding what they can buy, and restrict their investors to wealthy, sophisticated individuals and institutions. True False$2$ points QUESTION $21$Which of the following statements is CORRECT?a$.$It is possible that the price set in an IPO is so high that investors will refuse to buy the number of shares that the company wants to sell. In this situation, the IPO is said to be oversubscribed.b$.$In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay.c$.$It is possible that the price set in an IPO is so low that investors will want to buy more shares than the company wants to sell. In that case, the company will have to issue more shares than it wants to sell.d$.$IPO prices are generally established by the market, and buyers of the new stock must pay the price that prevails at the close of trading on the day the stock is offered to the public.e$.$The term "IPO" stands for Introductory Price Offered, and it is the price at which shares of a new company are offered to the public$\mathrm{.}2$ points QUESTION $22$The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year, divided by its beginning$-$of$-$year price. True False$2$ points QUESTION $23$Which of the following statements is CORRECT?a$.$Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.b$.$Hedge funds have more in common with commercial banks than with any other type of financial institution.c$.$Hedge funds are not as highly regulated as most other types of financial institutions. The justification for this light regulation is that only "sophisticated" investors $($i$.$e$.,$ those with high net worths and high incomes$)$ are permitted to invest in these funds, and these investors supposedly can do any necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.d$.$Hedge funds have more in common with investment banks than with any other type of financial institution.e$.$Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia$\mathrm{.}2$ points QUESTION $24$Which of the following is an example of a capital market instrument?a$.$U$.$S$.$ Treasury bills.b$.$Preferred stock.c$.$Banker's acceptances.d$.$Money market mutual funds.e$.$Commercial paper$\mathrm{.}2$ points QUESTION $25$The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the world. True False