Chapter 1 Structure role of the financial market
2. The major financial sectors include
(i) banking.
(ii) insurance.
(iii) securities.
(iv) mutual funds.
A. (i) and (iv)
B. (ii), (iii) and (iv)
C. (i), (ii) and (iii)
D. All of the above
4. Which of the following statements about financial market is false?
A. The parties should meet face to face when a trade takes place.
B. It does not necessarily have to have a physical location.
C. It is a network of firms and people in which the trading of financial products is carried out.
D. It allows investors to trade intangible financial products.
9. John Chan owns a chain of restaurants. He is considering applying for a listing on the stock exchange. Which kind of banking services should he use?
A. Private banking
B. Commercial banking
C. Investment banking
D. Retail banking
10. Elaine, owner of a boutique, made a profit of $10 million this year. She wants to invest the money and would like to seek professional advice. Which kind of banking services should she use?
A. Investment banking
B. Commercial banking
C. Private banking
D. Corporate banking
12. The banking sector acts as a ______because it receives deposits from the public and lends the money to borrowers.
A. financial intermediary
B. financial institution
C. financial market
D. financial market regulator
13. Which of the following statements about the insurance sector are correct?
(i) Insurance companies use the insurance premium collected for investment.
(ii) Insurance companies can be institutional investors.
(iii) According to the Banking Ordinance, banks are not allowed to sell insurance policies.
(iv) Insurance can reduce the loss caused by risks to businesses.
A. (i) and (ii) only
B. (ii) and (iii) only
C. (ii), (iii) and (iv) only
D. (i), (ii) and (iv) only
17. A firm plans to purchase a new plant for expansion of production. Which of the following are appropriate ways of financing the purchase?
(i) Obtaining trade credit from suppliers
(ii) Issuing debentures
(iii) Obtaining long-term loans
A. (i) and (ii)
B. (ii) and (iii)
C. (i) and (iii)
D. All of the above
18. From the viewpoint of a listed company, which of the following is an advantage of raising capital by issuing ordinary shares instead of debentures?
A. Ordinary shares are freely transferable in the financial market but debentures are not.
B. Whether or not the company makes a profit, it has the obligation to pay interest to debenture holders but it has no obligation to pay a dividend to ordinary shareholders.
C. The company can raise more capital from issuing ordinary shares than from issuing debentures.
D. The company can enjoy limited liability by issuing ordinary shares but not by issuing debentures.
20. Mrs Lo has bought a type of security which allows her to vote at the annual general meeting of a company, but may not receive dividends if the company underperforms. What kind of security has Mrs Lo bought?
A. Bonds
B. Options
C. Preferred stocks
D. Common stocks
26. In which of the following financial markets will the initial public offering (IPO) of a limited company be launched? (7, sample paper 1A)
A. bond market
B. futures market
C. money market
D. securities market
29. Which of the following statements concerning the primary market and the secondary market is false?
A. The primary market allows new-issue buyers to sell their securities immediately.
B. The primary market is a market where new shares are issued.
C. Government authorities, stock exchanges, financial institutions and the public are involved in both the primary market and the secondary market.
D. The primary market and the secondary market are interdependent.
32. Which of the following are transactions in the secondary market?
(i) All the transactions in the capital market.
(ii) Listed securities traded on the stock exchange.
(iii) The subscription of new shares of a listed company under a rights issue.
(iv) Listed securities traded in the over-the-counter market.
A. (i) and (ii) only
B. (ii) and (iii) only
C. (iii) and (iv) only
D. (ii) and (iv) only
34. Which of the following financial products is traded in the money market?
A. Commercial papers of a listed company
B. Five-year government bonds
C. Shares of a listed company
D. Mutual funds
37. The following are money market instruments except
A. commercial paper issued by well-known corporations.
B. common stocks.
C. certificates of deposit issued by banks.
D. Exchange Fund Bills issued by the Hong Kong Monetary Authority.
38. Sam is a retiree. He is looking for a safe and highly liquid investment vehicle. Which of the following is suitable for him?
A. Common stocks
B. Bonds
C. Certificates of deposits issued by banks
D. Mutual funds
40. Victor is a young professional. He prefers a safe investment and expects to hold it for a long period of time and receive fixed interest. Which of the following is suitable for him?
A. Bonds
B. Common stocks
C. Preferred stocks
D. Mutual funds
45. Which of the following descriptions about the Hong Kong Stock Exchange is incorrect?
A. It provides a channel for any limited companies to raise capital.
B. It helps channel savings into investment.
C. Only members of the Hong Kong Stock Exchange are allowed to trade in the stock market.
D. It provides a secondary market for the trading of stocks.
50. Wealthy Investment Bank issued shares on the stock exchange to raise capital last year. It also purchased shares of Peanut Corporation on the stock exchange. The trade was conducted in the ______.
(i) primary market
(ii) secondary market
(iii) money market
(iv) over-the-counter market
A. (ii) and (iii) only
B. (i) and (ii) only
C. (iii) and (iv) only
D. (i), (ii), (iii) and (iv)
56. Which of the following statements about mutual funds is false?
A. Open-end funds are redeemable while closed-end funds are not redeemable.
B. They can be traded on the OTC market.
C. Only closed-end funds can be traded on an exchange.
D. They cannot be traded on an exchange.
Page 3