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1. The principal-agent problem is best defined as _____.
a. When the person managing the business for an owner acts in accordance with
the owner's interests.
b. When the person managing the business for an owner acts in a manner that
benefits the shareholders.
c. When the person managing the business for an owner acts in a manner that
improves the financial well-being of the owner.
d. When the person managing the business and the person who owns the business
are not aligned on the activities of the business.
2. The agency problem exists between one of Apple's shareholders and Tim Cook.
When Cook decides to pursue projects that are not profitable, which of the
potential solutions to the agency problem is he likely executing?
a. Incentives
b. Bounded-rationality
c. Philosophy of ethics and fairness
d. Self-interests
3. The principal-agent problem is influenced by three characteristics found in

agents. Which characteristic is influenced by the constraints of knowledge,
capability and time?
a. Self-interest
b. Risk aversion
c. Bounded rationality
d. Well-being
4. _____ is the most actively-traded currency.
a. The euro
b. The pound
c. The dollar
d. The yuan
5. Which of the following is TRUE about common and preferred stock?
a. Common stockholders have voting rights, while preferred stockholders typically

do not.
b. Common stockholders must be paid a dividend before preferred stockholders
are paid.
c. Preferred stockholders typically have voting rights, while common stockholders
do not.
d. In the case of bankruptcy, common stockholders are paid before preferred
stockholders.
6. Which is TRUE of Treasury bills?
a. Treasury bills typically pay a higher rate than commercial paper due to higher
default risk.
b. Treasury bills are issued with maturities of three months, six months and one
year.
c. Treasury bills are typically issued with maturities of one year, three years, and
10 years.
d. Treasury bills are paid interest that is free from federal income taxes.
7. Money market instruments include __________.
a. common stock
b. preferred stock
c. t-bonds
d. t-bills
8. The primary assets of money market mutual funds are:
A) stocks.
B) bonds.
C) money market instruments.
D) deposits.
9. The primary assets of a pension fund are:
A) money market instruments.

B) corporate bonds and stock.
C) consumer and business loans.
D) mortgages.
10. The international money market is called
A. The Forex Market

B. The Capital Market
C. The Money Market
D. The Financial Market
11. Which of the following statements about financial markets and securities are
true?
A. Most common stocks are traded over - the - counter, although the largest
corporations usually are their shares traded at organized stock exchanges, such as
the New York Stock Exchange
B. As a corporation gets a share of the broker's commission, a corporation
acquires new funds whenever the securities are sold
C. Because of their short terms to maturity, the prices of money market
instruments tend not to fluctuate wildly
D. Only (A) and (C) of the above are true
12. What type of bank uses financial markets to increase funds and grant loans to
customers?
a. A corporate bank
b. An investment bank
c. A commercial bank
d. An exchange bank
13. What is the purpose of the derivatives market?
a. To buy cryptocurrencies for financial institutions

b. To trade exchange rates with foreign companies
c. To sell commodities to multiple organizations
d. To transfer risk among market participants
14. A banker's acceptance is backed by a _____.
a. Company's physical assets

b. Commercial bank
c. Government
d. None of these
15. Long-term bonds have a maturity of _____.
a. >10 years
b. >15 years
c. <10 years
d. >5 years
16. Treasury Bills or T-bills are typically _____
a. Issued by corporations
b. Sold below par
c. Long-term debt instruments
d. None of these
17. Which of the following is sold on a securities market?
a. Money
b. Stock
c. Bonds
d. Stock and Bonds
18. What's the best explanation of a primary securities market?
a. A market where stocks are sold

b. A market where bonds are sold
c. A market where stocks and bonds are sold
d. A market where stocks and bonds are initially sold
19. How would an investment bank help a company raise funds in the secondary
securities market?
a. Investment banks only loan money to big businesses; they do not work to raise
funds for businesses.
b. Investment banks only work with companies on the secondary market with a c.
new stock offering if the first sale didn't meet the minimum requirements.
c. Investment banks only work with companies on the primary market with a new
stock offering.
d. Investment banks know how to spread the cost of the stock sale around and
keep the price of the stock lower
20. _____ securities represent ownership in a company, and provide _____ rights
to individuals who hold them.
a. OTC, voting
b. Equity, voting
c. Equity, owners
d. OTC, owners
21. Futures are _____.
a. absolutely the same as forwards.

b. over-the-counter derivatives.
c. exchange-traded derivatives.
d. customizable like forwards
22. The first public offering of a corporation's stock is called a _____, and it is
handled by the _____ market.
(a) IPO; primary

(b) IPO; secondary
(c) PSO; secondary
(d) PSO; primary.
23. What's the difference between a person acting as a broker as opposed to a

dealer?
a. Nothing
b. A broker trades stocks and a dealer trades bonds
c. A broker is licensed to buy stock and a dealer is licensed to sell stock
d. A broker trades on behalf of clients and a dealer trades for its own account
e. A broker trades stock and bonds and a dealer just trades bonds
24. A(n) _ market is one in which previously issued financial securities are traded
among investors.
a. technical
b. fundamental
c. efficient
d. secondary
e. primary
25. Which of the following is not part of the underwriting process?
a. the prospectus
b. the Federal reserve
c. the Securities and Exchange commission
d. the syndicate
26. Investment companies that underwrite IPOs are called ___________.
a. commercial banks
b. mercantile banks
c. investment banks
d. stock exchanges
27. A firm commitment offering is also know as
a. A best efforts offering.

b. A bought offering.
c. A regulated offering.
d. A stock offering.
28. Which of the following is NOT a characteristic of a public company?
a. A public company is subject to strict quarterly financial reporting requirements.

b. A public company is regulated by the Securities & Exchange Commission (SEC).
c. Stock of public companies trade on stock exchanges every business day.
d. Large investors can buy shares of public companies in private, unreported
transactions.
29. What are the proper steps in the underwriting process?
1) The syndicate buys securities from the issuing corporation.

2) The issuing corporation chooses a lead bank.
3) A selling group is formed to market and sell the securities.
4) An investment banking syndicate is formed.
a. Steps 4, 3, 1, 2
b. Steps 4, 1, 2, 3
c. Steps 2, 3, 4, 1
d. Steps 2, 4, 1, 3
30. What does the term underwriting commitment refer to?
a. The dedication of an investment bank to its shareholders

b. The level of involvement of an investment bank in the marketing and selling of
IPO shares
c. The risk level for investors of a new IPO
d. A document that needs to be submitted to the SEC
31. Placing a trade order to buy or sell stock at the current market price is
known as a:
a. Market Order
b. Limit Order
c. Stop Order
d. None of the Above
32. A market order:
a. Buys or sells your stock at the current market price.

b. Allows you to chose which stock market is used by your broker.
c. Can only be used on buy orders.
d. Has not existed since the stock market decline of 2008.
33. A trade order that is submitted as a limit order is placed using a specific:
a. Quantity
b. Price
c. Time Frame
d. Trading Volume
34. Stock trading on the NYSE is what type of market?
A. An auction market
B. A dealer market
C. An efficient market
D. A primary market
E. A direct trading market
35, . Why would the stock inventory go down if a dealer received a buy order
from a client?
a. The dealer would be buying shares of stock from the client.

b. The dealer would be selling shares from the inventory to the client.
c. The dealer would buy shares of stock from the stock exchange to add to
inventory.
d. The dealer would sell the client's shares on the stock exchange, depleting
inventory.
36. How do stock market brokers make a profit?
a. Commissions on trades
b. They keep a portion of profits made at the sale
c. Subscription fees
d. Markups and markdowns
37. Auction exchanges across the world have been replaced by _____.
a. electronic exchanges
b. dark pools of liquidity
c. over-the-counter exchanges
d. secondary markets
38. Communication between buyers and sellers occurs in what type of exchange?
a. Electronic exchanges
b. Electronic communication networks (ECNs)
c. Auction market
d. Pink sheets

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1. The principal-agent problem is best defined as _____.

3. The principal-agent problem is influenced by three characteristics found in

4. _____ is the most actively-traded currency.

5. Which of the following is TRUE about common and preferred stock?

a. Common stockholders have voting rights, while preferred stockholders typically

6. Which is TRUE of Treasury bills?

7. Money market instruments include __________.

8. The primary assets of money market mutual funds are:

9. The primary assets of a pension fund are:

A) money market instruments.

10. The international money market is called

A. The Forex Market

13. What is the purpose of the derivatives market?

a. To buy cryptocurrencies for financial institutions

14. A banker's acceptance is backed by a _____.

a. Company's physical assets

15. Long-term bonds have a maturity of _____.

16. Treasury Bills or T-bills are typically _____

17. Which of the following is sold on a securities market?

18. What's the best explanation of a primary securities market?

a. A market where stocks are sold

21. Futures are _____.

a. absolutely the same as forwards.

(a) IPO; primary

23. What's the difference between a person acting as a broker as opposed to a

25. Which of the following is not part of the underwriting process?

26. Investment companies that underwrite IPOs are called ___________.

27. A firm commitment offering is also know as

a. A best efforts offering.

28. Which of the following is NOT a characteristic of a public company?

a. A public company is subject to strict quarterly financial reporting requirements.

29. What are the proper steps in the underwriting process?

1) The syndicate buys securities from the issuing corporation.

30. What does the term underwriting commitment refer to?

a. The dedication of an investment bank to its shareholders

32. A market order:

a. Buys or sells your stock at the current market price.

34. Stock trading on the NYSE is what type of market?

a. The dealer would be buying shares of stock from the client.

36. How do stock market brokers make a profit?

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