FIN 122 (FIN122) Exam 2; questions and answers | Correct 100% latest 2026/27.

FIN 122 (FIN122) Exam 2; questions and answers | Correct 100% latest 2026/27. Exam 2: • 50 Questions x 2 points each = 100 points • Short Answer Questions = 20 points • Total of 120 points Chapter 4 – The Federal Reserve True or False: 1. The Federal Reserve System (Fed), the central bank of the United States, is responsible for setting monetary policy and regulating the banking system. True 2. The United States was one of the earliest major-industrial nations to adopt a permanent system of central banking. False 3. All commercial banks are members of the Fed. False 4. The Federal Open Market Committee directs open market operations by buying and selling government securities which are the primary instruments of exercising monetary policy. True 5. Also known as the Fed. a. Government National Mortgage Association b. Federal National Mortgage Association c. Federal Home Loan Mortgage Corporation d. Federal Reserve System 6. One of the major weaknesses of the banking system before the Federal Reserve System was set up was a. the arrangement for holding reserves. b. the lack of a deposit insurance system. c. a lack of currency and coin. d. an inadequate supply of government bonds. 7. Before the Federal Reserve System was created, a large part of the reserves ofcommercial banks was a. in the form of state and federal government bonds. b. deposited with the United States Treasury. c. held as deposits with large city banks. d. held as cash in their vaults. 8. Three essential needs of a well-operating financial system include all of the following except a. an efficient national payments system. b. an elastic or flexible money supply. c. a bank insurance system. d. a lending/borrowing mechanism. 9. Under the Federal Reserve Act of 1913, the number of Federal Reserve districts established is a. 8 b. 10 c. 12 d. 25 10. The seven-member board of the Federal Reserve that sets monetary policy is called a. the Federal Reserve Open Market Committee. b. the Federal Reserve Board of Governors. c. the Federal Reserve Advisory Committee. d. the Federal Market Advisory Committee. 11. The chairman of the Federal Reserve System a. is appointed by the Secretary of the Treasury. b. serves a life term.c. is the president of the New York Federal Reserve Bank. d. is appointed by the President of the United States. 12. As of 2019, the Chairman of the Federal Reserve is ________________________. a. Jerome Powell b. Alan Greenspan c. Ben Bernanke d. Janet Yellen 13. The primary function of the Federal Reserve System is to a. issue currency to member banks. b. regulate the growth of the money supply. c. serve as a fiscal agent for the U.S. government. d. regulate and conduct bank examinations. 14. The Federal Reserve Banks are owned by a. commercial banks. b. the U.S. Treasury. c. national member banks of the Federal Reserve System. d. member banks of the Federal Reserve System. 15. The five components of the Federal Reserve System include: a. Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Monetary Committees. b. Nonmember banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Advisory committees. c. Member banks, Federal Reserve District Banks, Board of Governors, Federal Open Market Committee, Advisory committees. d. Member banks, Federal Reserve District Banks, Board of Governors,Federal Closed Market Committee, Advisory committees. 16. Open market operations a. are used infrequently b. are a prime source of income for the U.S. economy c. are used by the Fed to alter bank reserves d. are used by the Fed to issue securities 17. During the past several years a. the discount rate has been lower than the prime rate. b. the discount rate has been higher than the prime rate. c. the discount rate has been unrelated to the prime rate. d. has been the same as the prime rate. 18. The basic policy instruments that the Fed uses to execute monetary policy include all of the following except a. changing reserve requirements. b. changing the lending/discount rate. c. conducting closed market operations. d. conducting open market operations. 19. Which of the following is not a method by which the Federal Reserve establishes monetary policy? a. setting reserve requirements b. altering the discount rate c. through federal open market operations d. setting bank profitability ratios 20.A central bank serves the nation a. as a source of consumer credit when otherwise not available.b. by regulating money supply growth. c. as a secondary source of funds for home financing. d. as the strong right arm of the U.S. Treasury. 21. The percentage of deposits that must be held as reserves is called a. the bank reserve percentage b. the required reserve ratio c. the excess reserve ratio d. the fractional reserve percentage 22.Vault cash and deposits held at Federal Reserve Banks. a. Excess reserves b. Required reserves ratio c. Fractional reserve system d. Bank reserves 23.Reserves must be held equal to a certain percentage of bank deposits. a. Excess reserves b. Required reserves ratio c. Fractional reserve system d. Bank reserves 24.The amount by which total reserves are greater than required reserves. a. Excess reservesb. Required reserves c. Fractional reserve system d. Bank reserves 25.All Federal Reserve Banks have a. check clearance facilities. b. branch banks. c. directors who are elected for 14-year terms. d. directors who are appointed by the President of the United States. 26.The Fed controls the _____ supply. a. credit b. mortgage c. money d. credit card balances 27. The interest rate that a bank must pay to borrow from its regional federal reserve bank is called a. the National Discount Rate. b. the Prime Rate. c. the Federal Discount Rate. d. Fed Funds rate. Chapter 11: 28.The primary market is a market in which securities are traded among investors. False 29. All public offerings are regulated by the Securities and Exchange Commission (SEC). True30.In a financial context, due diligence refers to the detailed study of a corporation. True 31. An underwriting agreement is a contract in which the investment banker agrees to buy securities at a predetermined price and then resell them to investors. True 32.A syndicate is a group of several investment banking firms that participate in underwriting and distributing a security issue. True 33.Newly created securities are sold in the: a. primary market b. secondary market c. third market d. fourth market 34.Existing securities are sold in the: a. primary market b. secondary market c. third market d. fourth market 35.___________________ is a highly regulated document which details the issuers operations and finances and must be provided to each buyer of a newly issued security. a. A prospectus b. An underwriting agreement c. A best efforts agreement d. none of the above 36.An agreement whereby an investment banker tries to sell securities of an issuing corporation, but assumes no risk if the flotation is unsuccessful is called a:a. due diligence agreement b. best-effort agreement c. firm commitment price agreement d. shelf registration agreement 37. Which one of the following is not a primary market function of investment bankers? a. originating b. underwriting c. selling d. making loans 38.The lead investment banker: a. is elected by members of the syndicate b. is appointed by the SEC c. originates and handles a flotation d. cannot participate in future offerings by the issuing company 39.Market stabilization is: a. disallowed under the Securities Act of 1934 b. permitted for underwriters if the market price falls below the offering price c. prohibited by the Securities Exchange Commission d. required by the Securities Act of 1948 40.Existing securities are traded: a. in the primary marketsb. in the secondary markets c. only on organized exchanges d. only over-the-counter 41. The purpose of pre-emptive rights is to allow shareholders to: a. buy enough of a new securities offering to maintain their present proportional share of ownership b. buy an unlimited amount of the new issue at a discount c. pre-empt other stockholders from selling securities in a company d. require the issuing company to also sell them bonds 42.The flotation costs of an IPO depend on a. the size of the offering b. current interest rates c. the limits set by the SEC d. the Federal Reserve discount rate 43.Which of the following is not a basic type of member of the New York Stock Exchange? a. independent brokers b. floor brokers c. registered traders d. specialists e. security regulators 44. Floor brokers:a. act as agents to execute customers’ orders for securities purchases and sales b. assist specialists in executing orders c. trade for their own accounts d. are employed by the exchanges 45.Sales of securities that the seller does not own is called a: a. stop-loss order b. short sale c. limit order d. maintenance margin 46.The maximum buying price or the minimum selling price specified by the investor is called a: a. stop-loss order b. market order c. short sale d. limit order 47.An order for immediate purchase or sale at the best possible price is called a: a. market order b. limit order c. stop loss order d. margin order48.If the initial margin requirement is 50% and you have $5,000 in your brokerage account, you may purchase an additional __________ worth of securities on margin. a. $2,000 b. $2,500 c. $10,000 d. $5,000 Formula: TPV= investment/IMR (initial margin requirement) 49.If a Microsoft January 20 call option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $25.62, the price of the call option would have to be __________ to eliminate arbitrage opportunities. a. $0.62 b. $5.62 c. $15.62 d. $25.62 Formula: Intrinsic value = stock price - strike price 50.If a General Electric January 20 call option with a strike price of $45 were about to expire and the market price of the underlying GE stock was $51.17, the price of the call option would have to be __________ to eliminate arbitrage opportunities. a. $11.17 b. $33.83 c. $45.00 d. $51.17E. $6.17 (on exam, adjusted for TVM) Short answer section: