FIN 534 Midterm Exam Part 1& 2

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FIN 534MIDTERM EXAM_PART 1& 2PART 1Question 1Which of the following statements is CORRECT?AnswerThe New York Stock Exchange is an auction market with a physical location.Capital market transactions involve only the purchase and sale of equity securities, i.e., commonstocks.If an investor sells shares of stock through a broker, then this would be a primary markettransaction.Consumer automobile loans are evidenced by legal documents called "promissory notes," andthese individual notes are traded in the money market.While the distinctions are blurring as investment banks are today buying commercial banks, andvice versa, investment banks generally specialize in lending money, whereas commercial banksgenerally help companies raise capital from other parties.Question 2Which of the following statements is CORRECT?AnswerCapital market instruments include both long-term debt and common stocks.An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift.The NYSE does not exist as a physical location; rather, it represents a loose collection of dealerswho trade stocks electronically.If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in LosAngeles, this would be a primary market transaction.While the two frequently perform similar functions, investment banks generally specialize inlending money, whereas commercial banks generally help companies raise large blocks ofcapital from investors.Question 3You recently sold 100 shares of your new company, XYZ Corporation, to your brother at afamily reunion. At the reunion your brother gave you a check for the stock and you gave yourbrother the stock certificates. Which of the following statements best describes this transaction?AnswerThis is an example of an exchange of physical assets.This is an example of a primary market transaction.This is an example of a direct transfer of capital.This is an example of a money market transaction.This is an example of a derivatives market transactionQuestion 4Which of the following statements is CORRECT?AnswerWhile the distinctions are blurring, investment banks generally specialize in lending money,whereas commercial banks generally help companies raise capital from other parties.A security whose value is derived from the price of some other "underlying" asset is called aliquid security.

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