FI 301 JACKSON MILLS EXAM 1
QUESTIONS & VERIFIED CORRECT
ANSWERS
Financial Market - Correct Answer ✔✔ A market in which financial assets (securities)
such as stocks and bonds can be purchased or sold
Surplus units - Correct Answer ✔✔ participants who receive more money than they
spend, such as investors
Deficit units - Correct Answer ✔✔ participants who spend more money than they
receive, such as borrowers
Securities - Correct Answer ✔✔ All of the investments, including stocks, bonds, mutual
funds, options, and commodities, that are traded.
Debt securities - Correct Answer ✔✔ debt (also called credit, or borrowed funds)
incurred by the issuer
Equity securities - Correct Answer ✔✔ (also called stocks) represent equity or
ownership in the firm.
Role of Financial Markets: Corporate Finance Needs - Correct Answer ✔✔ The financial
markets serves as the mechanism whereby corporations (acting as deficit units) can
obtain funds from investors (acting as surplus units).
Role of Financial Markets: Investment Needs - Correct Answer ✔✔ Financial institutions
serve as intermediaries to connect the investment management activity with the
corporate finance activity.
Primary markets - Correct Answer ✔✔ markets in which corporations raise capital by
issuing new securities
Secondary markets - Correct Answer ✔✔ markets in which securities and other
financial assets are traded among investors after they have been issued by corporations
Liquidity - Correct Answer ✔✔ the ease with which an asset can be converted into cash
Money Market Securities - Correct Answer ✔✔ debt instruments or securities with
maturities of one year or less
, Capital Market Securities - Correct Answer ✔✔ facilitate the sale of long-term securities
by deficit units to surplus units
Bonds - Correct Answer ✔✔ long-term debt securities issued by the Treasury,
government agencies, and corporations to finance their operations.
Mortgages - Correct Answer ✔✔ long-term debt obligations created to finance the
purchase of real estate
Mortgage-backed securities - Correct Answer ✔✔ debt obligations representing claims
on a package of mortgages
Stocks - Correct Answer ✔✔ represent partial ownership in the corporations that issued
them
Derivative Securities - Correct Answer ✔✔ financial contracts whose values are derived
from the values of underlying assets
Speculation - Correct Answer ✔✔ allow an investor to speculate on movements in the
value of the underlying assets without having to purchase those assets
Risk management - Correct Answer ✔✔ financial institutions and other firms can use
derivative securities to adjust the risk of their existing investments in securities
Valuation of Securities - Correct Answer ✔✔ •Estimate future cash flows by obtaining
information that may influence a stock's future cash flows.
•Use economic or industry information to value a security.
•Use published opinions about the firm's management to value a security.
Behavioral Finance - Correct Answer ✔✔ the application of psychology to make
financial decisions
Securities Act of 1933 - Correct Answer ✔✔ The first major federal law regulating the
securities industry. It requires firms issuing new stock in a public offering to file a
registration statement with the SEC.
Securities Exchange Act of 1934 - Correct Answer ✔✔ extended the disclosure
requirements to secondary market issues
Sarbanes-Oxley Act of 2002 - Correct Answer ✔✔ required that firms provide more
complete and accurate financial information
International Integration of Financial Markets - Correct Answer ✔✔ Markets-Under
favorable economic conditions, the international integration of financial markets allows
QUESTIONS & VERIFIED CORRECT
ANSWERS
Financial Market - Correct Answer ✔✔ A market in which financial assets (securities)
such as stocks and bonds can be purchased or sold
Surplus units - Correct Answer ✔✔ participants who receive more money than they
spend, such as investors
Deficit units - Correct Answer ✔✔ participants who spend more money than they
receive, such as borrowers
Securities - Correct Answer ✔✔ All of the investments, including stocks, bonds, mutual
funds, options, and commodities, that are traded.
Debt securities - Correct Answer ✔✔ debt (also called credit, or borrowed funds)
incurred by the issuer
Equity securities - Correct Answer ✔✔ (also called stocks) represent equity or
ownership in the firm.
Role of Financial Markets: Corporate Finance Needs - Correct Answer ✔✔ The financial
markets serves as the mechanism whereby corporations (acting as deficit units) can
obtain funds from investors (acting as surplus units).
Role of Financial Markets: Investment Needs - Correct Answer ✔✔ Financial institutions
serve as intermediaries to connect the investment management activity with the
corporate finance activity.
Primary markets - Correct Answer ✔✔ markets in which corporations raise capital by
issuing new securities
Secondary markets - Correct Answer ✔✔ markets in which securities and other
financial assets are traded among investors after they have been issued by corporations
Liquidity - Correct Answer ✔✔ the ease with which an asset can be converted into cash
Money Market Securities - Correct Answer ✔✔ debt instruments or securities with
maturities of one year or less
, Capital Market Securities - Correct Answer ✔✔ facilitate the sale of long-term securities
by deficit units to surplus units
Bonds - Correct Answer ✔✔ long-term debt securities issued by the Treasury,
government agencies, and corporations to finance their operations.
Mortgages - Correct Answer ✔✔ long-term debt obligations created to finance the
purchase of real estate
Mortgage-backed securities - Correct Answer ✔✔ debt obligations representing claims
on a package of mortgages
Stocks - Correct Answer ✔✔ represent partial ownership in the corporations that issued
them
Derivative Securities - Correct Answer ✔✔ financial contracts whose values are derived
from the values of underlying assets
Speculation - Correct Answer ✔✔ allow an investor to speculate on movements in the
value of the underlying assets without having to purchase those assets
Risk management - Correct Answer ✔✔ financial institutions and other firms can use
derivative securities to adjust the risk of their existing investments in securities
Valuation of Securities - Correct Answer ✔✔ •Estimate future cash flows by obtaining
information that may influence a stock's future cash flows.
•Use economic or industry information to value a security.
•Use published opinions about the firm's management to value a security.
Behavioral Finance - Correct Answer ✔✔ the application of psychology to make
financial decisions
Securities Act of 1933 - Correct Answer ✔✔ The first major federal law regulating the
securities industry. It requires firms issuing new stock in a public offering to file a
registration statement with the SEC.
Securities Exchange Act of 1934 - Correct Answer ✔✔ extended the disclosure
requirements to secondary market issues
Sarbanes-Oxley Act of 2002 - Correct Answer ✔✔ required that firms provide more
complete and accurate financial information
International Integration of Financial Markets - Correct Answer ✔✔ Markets-Under
favorable economic conditions, the international integration of financial markets allows
