FIN 413 EXAM QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026
Classifications of financial market:
Primary market - Answers The investor pays the corporation directly
Classifications of financial market: Secondary Market - Answers Investors pay investors for shares -
NYSE
Classifications of financial market: Spot market - Answers The exchange is happening right now
Classifications of financial market: Futures market - Answers Contractually agreeing to pay a certain
rate in the future: used for currency exchanges or the farmer example
Classifications of financial market: Money Markets - Answers Markets where securities with a
maturity of less then a year are traded. Example: T-bills, CDs
Classifications of financial market: Capital Markets - Answers Markets where capital assets are traded.
Example: bonds, preferred or common stock
Can debt be traded? - Answers Yes, examples of this a T-bills or government bonds
Depository institutions - Answers Financial institutions that accept deposits from individuals and
provide loans. Example commercial banks or credit unions
non-depository institutions - Answers do not handle deposits, but they do act as an intermediary
between savers and borrowers. Examples : insurance companies or pension funds
Fixed income market - Answers The market by which debt is traded
How would the world look without financial intermediaries? - Answers People would not be able to
issue debt or equity, everything would have to be paid in cash
How does a mutual fund work? - Answers This is a portfolio managed by a company in which investors
can buy shares. The managers take a fee then the extra is split between investors.
How does a hedge fund work? - Answers Similar to a mutual fund by using pooled money through
investors but these investments are generally less liquid and riskier. Example: Investment in real
estate
What is an exchange traded fund? - Answers a type of investment fund with various assest that is
traded on a stock exchange
Risks to financial intermediaries - Answers Credit risk: Not being paid back
Foreign exchange rates changes
Sovereign risk: Institution is not able to pull money out of a country
Transport purchasing power forward - Answers Take a loan out and pay it back later
Transport purchasing power backward - Answers Save money and pull it out later
Enterprise risk management - Answers a process used by a company to identify its risks and develop
responses to them that enable it to be reasonably assured of meeting its goals
The Securities Act of 1933 - Answers Full and fair disclosure and securities registration
The Securities Exchange Act of 1934 - Answers A federal law dealing with securities regulation that
established the Securities and Exchange Commission(SEC) to regulate and oversee the securities
industry.
Which country has the most outstanding debt - Answers US
Which financial market was the biggest in the world - Answers NYSE
Loanable funds theory - Answers suggests that the market interest rate is determined by the factors
that control supply of and demand for loanable funds
Factors that influence interest rates - Answers Higher production opportunities = higher interest rates
higher value of money= higher interest rates
higher risk= higher interest rates
Higher inflation= higher interest rates
Inflation premium - Answers a premium to compensate for anticipated inflation that is equal to the
price change expected to occur over the life of the bond or investment instrument
Debt interest rate equation - Answers R = SUM OF(R∗, IP, DRP, LP, MRP, SPRP)
-R: Real risk-free security (in absence of inflation)
- IP: Inflation Premium
- DRP: Default Risk Premium
- LP: Liquidity Risk Premium
- MRP: Maturity Risk Premium
- SRP: Special Provisions Risk Premium
"I Dont Like Magic Spells"
Classifications of financial market:
Primary market - Answers The investor pays the corporation directly
Classifications of financial market: Secondary Market - Answers Investors pay investors for shares -
NYSE
Classifications of financial market: Spot market - Answers The exchange is happening right now
Classifications of financial market: Futures market - Answers Contractually agreeing to pay a certain
rate in the future: used for currency exchanges or the farmer example
Classifications of financial market: Money Markets - Answers Markets where securities with a
maturity of less then a year are traded. Example: T-bills, CDs
Classifications of financial market: Capital Markets - Answers Markets where capital assets are traded.
Example: bonds, preferred or common stock
Can debt be traded? - Answers Yes, examples of this a T-bills or government bonds
Depository institutions - Answers Financial institutions that accept deposits from individuals and
provide loans. Example commercial banks or credit unions
non-depository institutions - Answers do not handle deposits, but they do act as an intermediary
between savers and borrowers. Examples : insurance companies or pension funds
Fixed income market - Answers The market by which debt is traded
How would the world look without financial intermediaries? - Answers People would not be able to
issue debt or equity, everything would have to be paid in cash
How does a mutual fund work? - Answers This is a portfolio managed by a company in which investors
can buy shares. The managers take a fee then the extra is split between investors.
How does a hedge fund work? - Answers Similar to a mutual fund by using pooled money through
investors but these investments are generally less liquid and riskier. Example: Investment in real
estate
What is an exchange traded fund? - Answers a type of investment fund with various assest that is
traded on a stock exchange
Risks to financial intermediaries - Answers Credit risk: Not being paid back
Foreign exchange rates changes
Sovereign risk: Institution is not able to pull money out of a country
Transport purchasing power forward - Answers Take a loan out and pay it back later
Transport purchasing power backward - Answers Save money and pull it out later
Enterprise risk management - Answers a process used by a company to identify its risks and develop
responses to them that enable it to be reasonably assured of meeting its goals
The Securities Act of 1933 - Answers Full and fair disclosure and securities registration
The Securities Exchange Act of 1934 - Answers A federal law dealing with securities regulation that
established the Securities and Exchange Commission(SEC) to regulate and oversee the securities
industry.
Which country has the most outstanding debt - Answers US
Which financial market was the biggest in the world - Answers NYSE
Loanable funds theory - Answers suggests that the market interest rate is determined by the factors
that control supply of and demand for loanable funds
Factors that influence interest rates - Answers Higher production opportunities = higher interest rates
higher value of money= higher interest rates
higher risk= higher interest rates
Higher inflation= higher interest rates
Inflation premium - Answers a premium to compensate for anticipated inflation that is equal to the
price change expected to occur over the life of the bond or investment instrument
Debt interest rate equation - Answers R = SUM OF(R∗, IP, DRP, LP, MRP, SPRP)
-R: Real risk-free security (in absence of inflation)
- IP: Inflation Premium
- DRP: Default Risk Premium
- LP: Liquidity Risk Premium
- MRP: Maturity Risk Premium
- SRP: Special Provisions Risk Premium
"I Dont Like Magic Spells"
