. Direct financing is a situation

1. Direct financing is a situation where:


Deficit units raise funds from surplus units.

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B) Surplus units raise funds from deficit units.

C) Deficit units raise funds from financial intermediaries.

D) Financial intermediaries obtain funds from surplus units.

E) None of these.

2. In the Australian financial system, financing is provided by:

A) Derivative and securities markets.

B) Securities markets and financial intermediaries.

C) Governments and financial intermediaries.

D) Derivative markets and financial intermediaries.

E) Derivative markets, securities markets and financial intermediaries.

3. The credit ratings provided by ratings agencies:

A) Play a role in overcoming information asymmetry in the financial markets.

B) Are an informed opinion on the credit standing of a debt issue.

C) Are paid for by the security’s issuer.

D) Were found to be unreliable (in relation to mortgage-related securities) during the GFC.

E) All of these.

4. Brokers:

A) Earn a spread by buying securities at a low price and selling them at a higher price.

B) Operate in over-the-counter markets.

C) Charge a commission on the trades they perform.

D) Can be described as “market makers”.

E) All of these.

5. Active secondary markets do NOT:

A) Provide investors with liquidity.

B) Raise funds for the issuers of securities.

C) Perform price discovery.

D) Perform maturity transformation.

E) Assist the operation of primary markets.

6. IPOs have a number of disadvantages. These do NOT include:

A) The expense of conducting the IPO.

B) The dilution of ownership for continuing owners.

C) A greater capacity to remunerate management and employees.

D) The risk of incurring agency costs associated with the separation of ownership and control.

E) A short-term bias to management decision making.

7. Which of the following is NOT an explanation advanced for the phenomenon of underpricing of an IPO?

A) Providing the initial buyers with a capital gain in an effort to create goodwill.

B) The desire of the seller in the primary market to achieve a successful float.

C) The wish to raise smaller amounts of capital.

D) Compensation for the risk accepted by buyers in IPOs, given that underpricing is not guaranteed.

E) The superior negotiating power of the investment bank over the seller.

8. A listed company:

A) Can generally raise as much new equity as it wishes through a private placement.

B) Can expect its share price to rise if it conducts a rights issue.

C) Will successfully conduct a rights issue if the subscription price is set above the current share price.

D) Can rapidly increase its equity capital through dividend reinvestment schemes.

E) None of these are correct.

9. The functions of the share market do NOT include:

A) Performing price discovery by revealing the value of shares.

B) Endowing listed securities with liquidity.

C) Setting the price for IPOs.

D) Disciplining the behaviour of a company’s top management.

E) Developing a pool of investors.

10. If you put $310 in a savings account at the end of each year for 10 years, how much money will be in the account at the end of the 10th year? Assume that the account earns 5.5% per annum and round to the nearest dollar.

A) $3,991

B) $3,100

C) $2,336

D) $529

E) None of the above

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