Chapter 02 Financial Markets and Institutions

1. The reinvestment of cash back into the firm’s
operations is an example of a flow of savings to investment.
True False

2. Smaller businesses are especially dependent upon internally
generated funds.
True False

3. An individual can save and invest in a corporation
only by lending money to it or by purchasing additional shares.
True False

4. Apple Computer is well known for its product
innovations. Access to financing was not vital to Apple’s growth and
profitability.
True False

5. Hedge fund managers, unlike mutual fund managers,
do not receive fund-performance-related fees.
True False

6. In the United States, banks are the most important
source of long-term financing for businesses.
True False

7. A financial intermediary invests in financial
assets rather than real assets.
True False

8. Only small companies can go through financial
markets to obtain financing.
True False

9. Previously issued securities are traded among
investors in the secondary markets.
True False

10. Only the IPOs for large corporations are sold in
primary markets.
True False

11. The markets for long-term debt and equity are
called capital markets.
True False

12. The stocks of major corporations trade in many
markets throughout the world on a continuous or near-continuous basis.
True False

13. The derivative market is also a source of
financing.
True False

14. Households hold more than half of U.S. corporate
equities.
True False

15. The key to the banks’ ability to make illiquid
loans is their ability to pool liquid deposits from thousands of
depositors.
True False

16. For corporate bonds, the higher the credit quality
of an issuer, the higher the interest rate.
True False