ANSWER OUTLINE
ECONOMICS 353 (SECTION 2) L. Tesfatsion/Spring 01
EXERCISE SET 2: 5 POINTS TOTAL DUE: Tuesday, Jan 30, 2:10 P.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*NOTE:* Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of a BROWN bubble (answer) sheet and write "353 SECTION 2-EXERCISE SET 2" in
the top margin of Side 1. Use a #2 pencil to MARK YOUR ANSWERS on Side 1 of
the bubble sheet to the following five multiple choice questions:
1-2. Intermediation financial markets and over-the-counter financial markets
SHARE the following characteristics:
A. Transactions in both markets are handled by dealers.
B. Both markets engage in asset transformation.
C C. Both markets facilitate the purchase and sale of financial assets
D. Commissions are the main source of profits in both markets.
E. All of the above
2-2. A dealer's "bid-ask spread" for a financial asset
A. is the bid (buy) price minus the asked (sell) price posted by the
dealer for the financial asset
B. measures the gross profit margin of the dealer on trades in the asset
C. is the asked (sell) price minus the bid (buy) price posted by the
dealer for the financial asset
D D. Both B and C are true
E. Both A and B are true
3-2. Which of the following can be described as SECONDARY market transactions:
A The U.S. Treasury auctions off a new issue of Treasury bills.
B B. A broker facilitates a corporate bond sale from one household to another
C. An investment banker facilitates the sale of newly issued corporate stock
D. A corporation buys commercial paper newly issued by another corporation.
E. None of the above
4-2. Which of the following can be described as involving INDIRECT finance:
A. A corporation purchases stock newly issued by another corporation
B. You buy stock on the New York Stock Exchange
C C. A consumer takes out a loan from a commercial bank.
D. A broker facilitates a corporate bond sale from one household to another
E. None of the above
5-2. A key DISTINCTION between common and preferred stock shares is
A. preferred stock claims are prior to common stock claims if bankruptcy occurs
B. preferred stock holders do not normally have voting rights with regard
to corporate management issues
C. the issuer of preferred stock generally pays the holder a fixed
dividend as a percentage of par value as a contractual obligation
D. the issuer of common stock is not legally or contractually bound to
pay the holders a dividend
E E. all of the above
