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Exam 14: Capital Markets

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Question 1

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The Federal National Mortgage Association buys mortgage loans from local lenders, bundles them together, and resells them as securities.

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Question 2

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The efficient market hypothesis is generally concerned with the impact of information on the behavior of stock prices.

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Question 3

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Financial intermediaries serve which of the following purposes?

The Securities Act of 1933 did not

Retained earnings account for the majority of internally generated corporate funds. On average, less than half of U.S. corporations' funding come from retained earnings, rather than the issuance of new securities.

With respect to the United States and its relationship with the rest of the world, it can be said that

In times of recession, a company's retained earnings may decline as a percent of internal funds.

One of the advantages of the BATS exchange is that it simply matches orders in a very fast pace.

The purpose of Securities Act Amendments of 1975 is to protect the investors by forcing companies to reveal more relevant financial information.

Federal government agency issues, though backed directly by the U.S. Treasury, are deemed substantially more risky than regular government issues. The government does not "directly" back the debts of these agencies, thereby increasing their risk slightly over U.S. securities.

Which of the following is an internal source of funds?

The major suppliers of funds to the U.S. credit markets are foreign suppliers, mutual funds, and federal, state, and local governments. In this case, the governments are not direct suppliers of funds into the U.S. credit markets.

When an investor buys stock in the stock market, he is purchasing shares from a company. Investors purchase shares from the company only in the initial offering.

The emergence of trading via ECNs has

The most important capital markets in the world (in terms of dollar value) are located in

The Sarbanes-Oxley Act of 2002 has ensured that financial executives refrain from fraudulent activities. SOX is a preventive measure, but it does not provide complete assurance against fraud.

Fannie Mae, Freddie Mac, and Sallie Mae are private stockholder-owned corporations whose stocks are traded on the NYSE.

The NASDAQ Small-Cap Market is composed of smaller regionally based companies that often remain controlled by their founders so that fewer shares are available to the public.

The main reason for the small amount of financing with preferred stock is that dividends on preferred stock are not tax deductible, as is the interest paid on bonds.

The weak form of the efficient market hypothesis states that an investor can profit by using past price data. The weak form indicates that past pricing is unrelated to future pricing, and therefore has no predictive value.