Exercise 1 – True or False
Name:
___________________________________________
Score: ________
Section: ________________________________
Instruction: Write T if the answer is True and F if the answer is False on the space provided for each
number.
_________ 1. Financial markets help the users of funds to create products or services and provides a return
for those who have excess funds.
Answer: True
_________ 2. A financial system is a group of financial institutions and financial markets that creates
financial instruments and financial services.
Answer: True
_________ 3. Investing in the financial market is considered to be high risk and yet provides low return.
Answer: False
_________4. Economists view that the highly developed and dynamic economic system would be possible
without an equally sophisticated financial system.
Answer: False
_________5. Commercial bank has the highest capitalization and has the powers of an investment house
and the power to invest in non-allied enterprises.
Answer: False
_________6. Cooperative banking, just like a thrift bank, accepts deposits and provides loans to individuals
to undertake ventures in aby principles of the cooperative.
Answer: True
_________7. Investment bank provides planning, consultancy, fund management, and raising funds
through equity financing and borrowings.
Answer: True
_________8. Securities brokers are individual or firm engaged in the buying and selling of stocks for the
purpose of commission.
Answer: True
_________9. Financial markets are generally characterized by having formal regulations, transparent
pricing, basic regulations on trading, costs, and fees, and market forces determining the prices of the
securities that are being traded.
Answer: True
_________10. Commercial paper is a money-market security issued by high credit rating companies to
raise money to meet sshort-term obligations. They are normally secured by sinking funds. Answer: False
_________11. A repurchase Agreement (Repo) is a financial instrument wherein one party sells a financial
instrument to another party at a specified price with a commitment to repurchase the financial instrument
at a fixed amount agreed at a specific date.
Answer: True
_________12. Banker’s acceptances is less risky compared to other instruments because the payment of
which is guaranteed by the exporter’s bank.
Answer: False
_________13. The money market is for short-term financial instruments while the capital market is more
on long-term financial instruments.
Answer: True
_________14. The Philippine Stock Exchange, Inc. ("PSEi" or the "Exchange") is a government
organization that provides and ensures a fair, efficient, transparent, and orderly market for the buying and
selling of securities.
Answer: False
_________15. The over-the-counter market is the result of an intangible relationship among sellers and
purchasers of securities, who are linked by a telecommunications network.
Answer: True
_________16. Many companies prefer to have an initial public offering in the form of stocks rather than
bonds due to lower risk.
Answer: False
_________17. If the company that would like to raise money in the financial market is more certain to
succeed in their projects, they would rather issue bonds than stocks.
Answer: True
_________18. The issuer of the initial public offering also benefits from the secondary market by getting
commissions from the sale of stocks.
Answer: False
_________19. Like stocks, bonds also have a secondary market.
Answer: True
_________20. To avoid any risk in investing or issuance of financial securities, firms normally do hedging.
Answer: True
Exercise 2 – True or False
Name:
___________________________________________
Score: ________
Section: ________________________________
Instruction: Write T if the answer is True and F if the answer is False on the space provided for each
number.
_________1. An investment bank accepts deposits, makes loans, issues checking accounts, and trades in
the stock market.
Answer: False
_________2. All deposits such as savings, current and time deposits are assets of the accepting banks.
Answer: False
_________3. Brokerage firms sell shares in their firms to individuals and invest the pooled proceeds in
corporate and government securities.
Answer: False
_________4. Firms who would like to issue stocks or bonds in the capital market may approach any banks
in their localities.
Answer: False
_________5. Valuing debt securities is easier than valuing stocks because stocks promise to provide
investors with specific payments at regular intervals.
Answer: True
_________6. Unlike physical location exchanges, dealer-based markets or over-the-counter markets
include infrequently traded stocks that are not listed in the organized exchanges and involve few dealers
who maintain inventory, make a market, and earn profit known as the bid-ask spread.
Answer: True
_________ 7. Individuals are often savers because they wish to save for things such as a down payment
on a home or graduate school.
Answer: True
_________ 8. Capital markets are markets for short-term debt instruments maturing in less than one year,
and money markets are markets for long-term debt instruments maturing in more than one year.
Answer: False
_________ 9. Hedge funds are somewhat similar to mutual funds. The primary differences are that hedge
funds are less highly regulated, have more flexibility regarding what they can buy, and restrict their
investors to wealthy, sophisticated individuals and institutions.
Answer: True
_________ 10. Most businesses are considered to be savers.
Answer: False
_________ 11. Organized security exchanges do not physically occupy space.
Answer: False
_________ 12. Financial institutions are more diversified today than they were in the past when federal
laws kept investment banks, commercial banks, insurance companies, and similar organizations quite
separate. Today the larger financial services corporations offer a variety of services, ranging from checking
accounts to insurance, to underwriting securities, to stock brokerage.
Answer: True
_________ 13. If you decide to buy 100 shares of TEL, you would probably do so by calling your broker
and asking him or her to execute the trade for you. This would be defined as a secondary market transaction,
not a primary market transaction.
Answer: True
_________ 14. XYZ Corporation issued and sold 100 shares of stock to an investor, a private individual.
This represents a secondary market transaction.
Answer: False
_________ 15. Under the weak form of the EMH, technical analysis that relies on past history of price
information is of little or no value.
Answer: True
_________ 16. The secondary markets provide pricing information and liquidity to investors.
Answer: True
_________17. Existing securities are traded in the primary market.
Answer: False
_________18. Primary markets are markets in which users of funds raise cash by selling financial
securities to providers of funds.
Answer: True
________ 19. The Philippine Stock Exchange, Inc. (PSEi) is an example of a primary market.
Answer: False
_________ 20. Derivatives market provides instruments to manage financial risk.
Answer: True
Exercise 3– Multiple Choice Concepts
Name:
___________________________________________
Score: ________
Section: ________________________________
Instruction: Write the answer in the space provided for each number.
1. A universal bank is an example of
a. Commercial bank
b. Thrift bank
c. Cooperative bank
d. Islamic bank
2. Which of the following financial institutions is a government non-bank financial institution?
a. Investment bank
b. Credit union
c. Pawnshops
d. Social Security System
3. All of the following are thrift banks, except
a. Savings and mortgage bank
b. Cooperative bank
c. Stocks savings and loan association
d. Private development bank
4. Philippine National Bank is an example of
a. Government bank
b. Private-owned bank
c. Non-bank financial institution
d. Non-profit organization
5. Allied Savings Bank is an example of
a. Government bank
b. Private-owned bank
c. Thrift bank
d. Non-bank financial institution
6. This company is engaged in the buying and selling of securities. Most often, the trust is
engaged in the business of investing the pooled capital of investors in financial securities.
a. Investment bank
b. Investment companies
c. Securities dealers
d. Securities brokers
7. It is a financial institution that caters to financing to relatively low-income individuals uses rings,
necklaces, earrings, gadgets, and any small valuable items as collateral.
a. Thrift banks
b. Credit unions
c. Pawnshops
d. Stock savings and loan association
8. ABC Corporation is about to finance a project that will help them to improve profitability in the coming
years. They think of issuing stocks or corporate bonds amounting to P1 billion. In this regard, they may
seek the assistance of which of the following?
a. Investment companies
b. Commercial bank
c. Securities dealers
d. Investment house
9. Which of the following statement/s is/are true about financial intermediaries?
I. Financial intermediaries hire people who are highly qualified to assess risky investments.
II. It has a cost advantage or economies of scale.
III. It is difficult to reconcile conflicting interests of the users and lenders of funds.
a.
b.
c.
d.
I and II are True
II and III are True
I and III are True
All are True
10. It is an obligation by the national government that matures in 91, 181, or 360 days. The interest is
normally higher than the savings and time deposit.
a.
b.
c.
d.
Treasury bonds
Treasury notes
Treasury bills
Treasury gold
11. A financial instrument that transpired from export and import transactions. It is less risky compared to
other instruments because the payment of which is guaranteed by the importer’s bank.
a.
b.
c.
d.
Stocks
Repurchase agreement
Commercial papers
Banker’s acceptance
12. An investor who bought an initial public offering of stocks can later sell in which of the
following market?
a. Primary market
b. Secondary market
c. Over-the-counter market
d. Derivatives market
Exercise 4– Multiple Choice Concepts
Name:
___________________________________________
Score: ________
Section: ________________________________
Instruction: Write the answer in the space provided for each number.
1. When capital flows thru financial intermediaries,
a.
b.
c.
d.
new capital is formed.
facilitation of the issuance of securities occurs.
passing thru of securities happens.
risk is shouldered by the investment banker.
2. Financial institutions and markets
a.
b.
c.
d.
are the organized financial intermediaries and the forums that promote the cycle of money.
compose the set of financial activities that support the operations of a business.
are the activities centered on the purchase and sale of financial assets.
are concerned only with the addition of a multinational element to all finance activities.
3. According to the Efficient Market Hypothesis (EMH), the weak form of the market can be beaten by
a.
b.
c.
d.
past information.
publicly available information
both a and b.
none of the above.
4. You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion,
your brother gave you a check for the stock and you gave your brother the stock certificates. Which of
the following best describes this transaction?
a. This is an example of a direct transfer of capital.
b. This is an example of a primary market transaction.
c. This is an example of an exchange of physical assets.
d. This is an example of a money market transaction.
5. Which of the following statements is NOT CORRECT?
a. When a corporation's shares are owned by a few individuals, we say that the firm is “closely, or
privately, held.”
b. “Going public” establishes a firm's true intrinsic value and ensures that a liquid market will
always exist for the firm's shares.
c. The stock of publicly owned companies must generally be registered with and reported to a
regulatory agency such as the SEC.
d. It is possible for a firm to go public and yet not raise any additional new capital for the firm itself.
6. All of the following are true about insurance companies EXCEPT:
a.
b.
c.
d.
They invest their reserves.
They may guarantee to reimburse lenders should lenders' loans go into default.
They participate in equipment leasing.
They may only invest their reserves in interest-paying bank accounts under the government
law.
7. If a market is inefficient, as new information is received about security:
a.
b.
c.
d.
nothing will happen.
the stock price will fall at first and then later rise.
there will be a lag in the adjustment of the stock price
there will be negative demand for the stock.
8. All of the following conditions must occur for a market to be considered efficient except:
a. Information is costless and widely available to market participants at approximately the same time.
b. Information is generated in a specific fashion such that announcements are dependent on
each other.
c. There are a large number of rational, profit-maximizing investors who actively participate in the
market.
d. Investors react quickly and fully to the new information, causing stock prices to adjust accordingly.
9. Which of the following is a primary market transactioA n?
a. You sell 200 shares of SCC stock on the PSEi through your broker.
b. You buy 200 shares of SCC stock from your brother. The trade is not made through a broker--you
just give him cash and he gives you the stock.
c. SCC issues 2,000,000 shares of new stock and sells them to the public through an investment
banker.
d. One financial institution buys 200,000 shares of SCC stock from another institution. An investment
banker arranges the transaction.
10. Which of the following is an example of a capital market instrument?
a.
b.
c.
d.
Commercial paper.
Preferred stock.
Banker's acceptances.
Money market mutual funds.
11. Money markets are markets for
a.
b.
c.
d.
Foreign currencies.
Common stocks.
Long-term bonds.
Short-term debt securities such as Treasury bills and commercial paper.
12. You recently sold 200 shares of LTG stock, and the transfer was made through a broker. This is an
example of:
a. A money market transaction.
b. A primary market transaction.
c. A secondary market transaction.
d. An over-the-counter market transaction.
Exercise 5– Multiple Choice Concepts
Name:
___________________________________________
Score: ________
Section: ________________________________
Instruction: Write the answer in the space provided for each number.
1. A syndicate is a:
a.
b.
c.
d.
firm that assists in specialist transactions
an organization of market makers
the largest group of members on the PSE
none of the above
2. The lead investment banker:
a.
b.
c.
d.
is elected by members of the syndicate
is appointed by the SEC
originates and handles a flotation
none of the above
3. Commission brokers:
a.
b.
c.
d.
act as agents to execute customers’ orders for securities purchases and sales
assist specialists in executing orders
trade for their accounts
all the above
4. Which of the following underwrites securities of another person or enterprise, including
securities of government and private companies?
a. investment companies
b. investment bank
c. commercial bank
d. rural bank
5. Financial institutions include:
a.
b.
c.
d.
banks
pension funds
insurance companies
all of the above
6. It is an unsecured promissory note with a fixed maturity of 1 to 270 days.
a.
b.
c.
d.
Treasury bill
Repurchase agreement
Commercial paper
Certificate of deposit
7. The placement made by Petra amounts to P50,000. It was placed for 30 days earning a fixed rate of 2%
per annum. The money was placed in which of the following securities?
a. Treasury bill
b. Repurchase agreement
c. Commercial paper
d. Certificate of deposit
8. It is a place where long-term debt instruments are issued by government agencies and private firms to
raise money.
a. Commodity market
b. Stock market
c. Bond market
d. Derivatives market
9. Aklan Corporation is a publicly listed corporation. If Jose wants to invest to in Aklan Corporation, he
can buy this in
a. Commodity market
b. Stock market
c. Bond market
d. Derivatives market
10. Money market as compared to the capital market is more on investing in the
a.
b.
c.
d.
foreign exchange market.
stock market.
bond market.
initial public offering.
11. Maria bought an IPO (Initial Public Offering) stock. If she wants to sell the stock, she will go to the
a.
b.
c.
d.
account officer of the bank.
stockbroker.
foreign exchange dealer.
mutual fund agent.
12. Which of the following investment securities does not have a maturity?
a.
b.
c.
d.
Corporate bonds
Time deposit
Common stock
Commercial paper