Question

‏____ 21. Which of the following statements is CORRECT?

a. Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.

b. Hedge funds have more in common with commercial banks than with any other type of financial institution.

c. Hedge funds have more in common with investment banks than with any other type of financial institution.

d. Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia.

e. The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.

‏____ 22. Money markets are markets for

a. Foreign stocks.

b. Consumer automobile loans.

c. U.S. stocks.

d. Short-term debt securities.

e. Long-term bonds.

‏____ 23. Which of the following is a primary market transaction?

a. You sell 200 shares of IBM stock on the NYSE through your broker.

b. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.

c. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock.

d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.

e. You invest $10,000 in a mutual fund, which then uses the money to buy $10,000 of IBM shares on the NYSE.

‏____ 24. Which of the following statements is CORRECT?

a. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.

b. If you purchased 100 shares of Disney stock from your brother-in-law, this would be an example of a primary market transaction.

c. The IPO market is a subset of the secondary market.

d. Only institutions, and not individuals, can participate in derivatives market transactions.

e. As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

Answer 1

Answer-21.

Correct Answer-C

Reason-Hedge Funds are not as Highly regulated as other types of Financial institutions and financial assets.The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator..

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Answer-22.

Correct Answer-D

Reason-Money market is a market for short term funds. Money market is a market for short term debt securities such as commercial papaers and T-Bills.

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Answer-23.

Correct Answer-B

Reason-Primary market is a market where a company issues new shares directly to the Public.IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker is a primary market transaction, as the new share are directly issued to the public. Transactions in option A,C,D,E are secondary market transactions where the share issued in the primary market are traded.

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Answer-24.

Correct Answer-E

Reason-

Option-A (Incorrect)-If Disney issues additional shares of common stock through an investment banker, this would be a PRIMARY market transaction.

Option-B(Incorrect)-If you purchased 100 shares of Disney stock from your brother-in-law, this would be an example of a Secondary market transaction.

Option-C(Incorrect)-The IPO market is a subset of the Primary market..

Option-D(Incorrect)- Both institutions, and individuals, can participate in derivatives market transactions.

Option-E(Correct)-As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

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