FMI - Chapter 1

Financial market participants who provide funds are called

• deficit units.

• surplus units.

• primary units.

• secondary units.

Funds are provided to the initial issuer of securities in the

• secondary market.

• primary market.

• deficit market.

• surplus market.

Those financial markets that facilitate the flow of short-term funds are known as

• money markets.

• capital markets.

• primary markets.

• secondary markets.

Equity securities have a ____ expected return than most long-term debt securities, and they exhibit a ____ degree of risk.

• higher; higher

• lower; lower

• lower; higher

• higher; lower

Money market securities generally have ____. Capital market securities are typically expected to have a ____.

• less liquidity; higher annualized return

• more liquidity; lower annualized return

• less liquidity; lower annualized return

• more liquidity; higher annualized return

If security prices fully reflect all available information, the markets for these securities are

• efficient.

• primary.

• overvalued.

• undervalued.

If markets are ____, investors could use available information ignored by the market to earn abnormally high returns.

• perfect

• inefficient

• active

• in equilibrium

If financial markets are efficient, this implies that all securities should earn the same return.

• TRUE

• FALSE

Common stock is an example of a(n)

• debt security.

• money market security.

• equity security.

• A and B

Which of the following is most likely to be described as a depository institution?

• finance companies

• securities firms

• credit unions

• pension funds

• insurance companies