Lesson #11 Quiz :Financial Markets (Financial Markets) answer 2025

Question 1

Why might companies like the idea of regulation?

❌ Regulation could be used to give them a legal monopoly over a particular sector.
❌ It helps them ensure they are representing the interests of their customers.
❌ Companies have enough money to bribe government officials to create regulation that favors them.
✅ It allows them to compete on a level at which they do not have to use (potentially unethical or unfair) special tricks to avoid letting their competitors gain a competitive advantage.

Explanation:
Regulation can create a level playing field, preventing firms from needing unethical or unfair practices just to stay competitive.

Question 2

What is tunneling?

❌ When a board member fires an employee to replace them with a family member.
❌ When management transfers company cash to a personal account.
✅ When a small group of majority shareholders allow the company to be bought out cheaply by another company in which they are also majority shareholders.
❌ Any trick somebody uses to steal money from the company.

Explanation:
Tunneling refers specifically to expropriation of value by controlling shareholders, often through unfair related-party transactions.

Question 3

Ideally, who must the board of directors be loyal to?

❌ The government
✅ The shareholders
❌ The general public
❌ The CEO

Explanation:
The board has a fiduciary duty to shareholders, acting in their best financial interests.

Question 4

What is a fixed commission?

❌ The opposite of dividends.
✅ A fixed rate charged by brokerages to buy or sell shares on the stock market.
❌ Fixed taxes imposed on brokerages.
❌ The rate charged to join trade groups.

Explanation:
A fixed commission is a set fee per trade, regardless of transaction size.

Question 5

Which describes federal vs state regulation in the US?

✅ Securities are primarily regulated by the federal government, while corporate regulation is primarily by state governments.
❌ Securities by states, corporate by federal
❌ Both federally controlled
❌ Both state controlled

Explanation:
Securities markets fall under federal regulation, whereas corporate governance is mainly handled at the state level.

Question 6

What is the SEC NOT responsible for doing?

❌ Providing reliable and timely information on securities
✅ Authorizing companies to be traded publicly on the stock market
❌ Managing the EDGAR database
❌ Forcing financial transparency

Explanation:
The SEC does not authorize companies to go public—it regulates disclosure and compliance.

Question 7

Which is NOT an example of insider trading?

❌ Leah short sells and creates a fake press release
❌ Martha trades on private broker information
❌ Mohammed trades using takeover information
✅ Chenxiang deploys software written by his brother

Explanation:
This last case is nepotism or conflict of interest, not insider trading related to securities trading.

Question 8

What happened when Goodbody and Company failed?

❌ Clients lost most or all of their stocks
❌ Stocks were mailed back before failure
✅ None of the retail investors lost any money
❌ People withdrew money from stocks

Explanation:
Client assets were protected, so retail investors did not lose money when the brokerage failed.

Question 9

Which describes the Bank for International Settlements (BIS)?

❌ A retail bank for citizens
❌ A former institution replaced by the G20
❌ The Swiss national bank
✅ A bank for central banks that intermediates between them

Explanation:
The BIS acts as a bank for central banks, facilitating coordination and financial stability.

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