Midterm Practice Questions Flashcards
(261 cards)
1
Q
A negotiated OTC agreement to exchange currencies at a fixed date in the future but at an exchange rate specified today is a:
forward foreign exchange transaction.
spot foreign exchange transaction.
currency swap agreement.
currency options contract.
currency futures contract.
A
forward foreign exchange transaction.
2
Q
American options can only be exercised at maturity.
A
False
3
Q
The real risk-free rate is the increment to purchasing power that the lender earns in order to induce him or her to forego current consumption.
A
True
4
Q
T-notes and T-bonds are issued in minimum denominations of $100, or multiples of $100.
A
true
5
Q
The type of swap most closely linked to the subprime mortgage crisis is the ____________.
A
credit default swap
6
Q
For the purposes for which they are used, money market securities should have which of the following characteristics?
1. I. Low trading costs
2. II. Little price risk
3. III. High rate of return
4. IV. Life greater than one year
A
I and II
7
Q
A higher level of wealth causes the demand for loanable funds to increase and interest rates to fall.
A
False
8
Q
SEC Rule 144 A does which of the following?
Determines the limits of responsibility of bond covenants
None of these choices are correct.
Allows privately placed investments to be traded on a limited basis
Allows bond issuers to call their bonds when desired
Requires that bonds traded on the NYSE bond market utilize the ABS system
A
Allows privately placed investments to be traded on a limited basis
9
Q
The monetary base is the amount of coin and currency in circulation plus reserves.
A
True
10
Q
A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice requires payment in Hong Kong dollars. The U.S. importer could hedge this currency risk by buying the Hong Kong dollar forward.
A
True
11
Q
If interest rates increase, the value of a fixed-income contract decreases and vice versa.
A
True
12
Q
In the United States, the SEC provides deposit insurance for $250,000 per person per bank.
A
False
13
Q
The major monetary policy-making arm of the Federal Reserve is the:
None of these choices are correct.
Office of the Comptroller of the Currency.
Federal Reserve Bank of New York.
Board of Governors.
Council of Federal Reserve Bank presidents.
A
None of these choices are correct
14
Q
The discount rate is the rate that:
A
the Federal Reserve charges on loans to commercial banks.
15
Q
Private mortgage insurance (and hence, that part of the homeowner’s monthly payment) is automatically removed from a mortgage when the loan-to-value ratio on the mortgage falls below 80 percent
A
False
16
Q
Which of the following is/are true about specialists?
1. I. Investment banks generally cannot be specialists.
2. II. Specialists are used by the NASDAQ system.
3. III. Market and limit orders are transacted at specialist posts, but the specialist’s own account orders are executed elsewhere.
4. IV. Specialists help maintain continuous trading.
A
I and IV only
17
Q
Central governments sometimes indirectly intervene in foreign exchange markets by affecting foreign exchange rates through raising or lowering interest rates.
A
True
18
Q
The major asset of the Federal Reserve is:
A
U.S. Treasury securities.
19
Q
A negotiated non-standardized agreement between a buyer and seller (with no third-party involvement) to exchange an asset for cash at some future date with the price set today is called a forward agreement.
A
True
20
Q
In 2019, the U.S. imported goods and services worth about _____________ and exported about _________ leading to a current account ____________.
A
$2.5 trillion; $1.7 trillion; deficit
21
Q
A contract that gives the holder the right to sell a security at a preset price only immediately before contract expiration is a(n):
A
European put option.
22
Q
The lower the level of interest rates, the greater a bond’s price sensitivity to interest rate changes.
A
True
23
Q
What is the major monetary policy-making body of the U.S. Federal Reserve System?
A
FOMC
24
Q
A four-year maturity, zero-coupon corporate bond with a required rate of return of 12 percent has an annual duration of ________ years.
A
4
25
As of 2019, which one of the following derivatives instruments had the greatest amount of notional principal outstanding?
Swaps
26
The least used form of mortgage securitization is the ______________________.
mortgage-backed bond
27
The ongoing accumulation of foreign currency reserves by foreign monetary authorities contributed to the dollar's drop in 2006.
false
28
A larger portion of the mortgage payment goes towards the principal during the early life of a mortgage loan versus the later life of the loan.
false
29
Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.
false
30
The ________________ measures the net flows of imports and exports of goods, services, income payments, and unilateral transfers.
current account
31
With TIPS, the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.
false
32
A type of absentee ballot that allows a representative to vote on behalf of the stockholder is called a proxy.
true
33
The interest rate used to find the present value of a financial security is the:
required rate of return.
34
The most active and important participant in the U.S. money market:
is the Federal Reserve.
35
In synthetic securitization, the transfer of risk on a pool of assets is achieved by the use of credit derivatives or guarantees to a third party.
true
36
According to the unbiased expectations theory:
a. the term structure will most often be upward sloping.
b. forward rates are less than the expected future spot rates.
c. markets are segmented and buyers stay in their own segment.
d. liquidity premiums are negative and time varying.
e. the long-term spot rate is an average of the current and expected future short-term interest rates.
e. the long-term spot rate is an average of the current and expected future short-term interest rates.
37
A Treasury security in which periodic coupon interest payments can be separated from each other and from the principal payment is called a:
STRIP
38
According to the FOMC regarding actions taken in 2012, inflation targeting promotes maximum employment.
True
39
Given all other factors are unchanged, households generally supply more funds to the markets as their income and wealth increase.
True
40
The seven members of the Board of Governors of the Federal Reserve System serve 14-year nonrenewable terms. Each Board member is appointed by the president and confirmed by the Senate.
True
41
Pass-through mortgage securities are for primary market investors.
False
42
A time draft payable to a seller of goods with payment guaranteed by a bank is a:
banker's acceptance
43
In general, the federal funds rate is slightly lower than the LIBOR.
true
44
During much of the 1800s, developed nations employed what came to be known as the Bretton Woods international monetary system to manage exchange rates.
false
45
The age group that held the least stock from 2009 through 2017 was the ____________ group.
18-29
46
All else held constant, the higher the interest rate is the higher the duration.
False
47
At equilibrium, a security's required rate of return will be less than its expected rate of return.
False
48
Mortgage fees paid by the homeowner at, or prior to, closing on the purchase of a house typically include all but which one of the following?
Prepayment penalty
Appraisal fee
Title insurance fee
Application fee
Title search fee
Prepayment Penalty
49
The unbiased expectations hypothesis of the term structure posits that long-term interest rates are unrelated to expected future short-term rates.
False
50
The following formula is used to calculate the _____________ of a money market investment.
single-payment yield
51
The diagram below is a diagram of the:
primary markets.
52
360/ n times the difference between the face value and the current value divided by the face value gives you the discount yield on an instrument.
True
53
The borrower of an amortized mortgage makes most of the payment during the early life of the mortgage:
equally towards the principal and interest.
mostly towards the principal rather than interest.
towards the interest.
towards the principal.
None of these choices are correct.
towards the interest.
54
A bond with an 11 percent coupon and a 9 percent required return will sell at a premium to par.
True
55
A current account deficit implies that:
the value of the dollar will rise.
more goods and services are imported than are exported.
more goods and services are exported than are imported.
there is excessive consumption of foreign financial assets.
the country is going bankrupt.
more goods and services are imported than are exported.
56
An investor requires a 3 percent increase in purchasing power in order to induce her to lend. She expects inflation to be 2 percent next year. The nominal rate she must charge is about:
5 percent.
57
A repo is, in essence, a collateralized:
Fed funds loan.
58
Primary markets are markets in which users of funds raise cash by selling securities to funds suppliers.
True
59
The largest category of mortgages by dollar volume is commercial mortgages.
False
60
A negotiable CD is a:
marketable bank-issued time deposit that specifies the interest rate earned and a fixed maturity date.
61
If the stock markets are semi-strong efficient, stock prices reflect all historic and current public information about a firm but prices do not reflect inside information.
True
62
Foreign exchange trading in 2019 averaged about _____________ per day.
$8.3 trillion
63
Everything else equal, the interest rate required on a callable bond will be less than the interest rate on a convertible bond.
False
64
As of 2018, the largest holder of U.S. municipal bonds was ________.
Financial firms
65
The major liability of the Federal Reserve is:
Currency outside banks
66
Which one of the following statements about commercial paper is not true? Commercial paper issued in the United States:
carries an interest rate above the prime rate
67
What is a negotiable CD?
is a bank-issued time deposit.
68
The Federal Reserve System is charged with:
conducting monetary policy and providing payment and other services to a variety of institutions.
69
You purchase a $1,000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?
$6.50
70
A corporate bond has a coupon rate of 10 percent and a required return of 10 percent. This bond's price is:
$1,000
71
Corporate security issuers are always directly involved in funds transfers in the secondary market.
False
72
As of December 2005, trading licenses are required to conduct trades on the floor of the NYSE. Which of the following statements about these trading licenses is/are correct?
I. Licenses are auctioned off in a special type of auction called a Dutch auction.
II. Only a member organization of the NYSE is eligible to bid for a trading license.
III. The SEC determines the maximum bid price.
IV. Trading licenses are good for 10 years.
I and II only
73
TIPS are a Treasury offering that protects investors from unexpected increases in inflation.
True
74
Revenue bonds are backed by the full revenue of the municipality.
False
75
Futures or option exchange members who take positions on contracts for only a few moments are called scalpers.
True
76
The largest capital market security outstanding in 2019 measured by market value was:
corporate stocks
77
The relationship between maturity and yield to maturity is called the __________________.
term structure
78
Individuals and households indirectly invest in corporate stock through investments in mutual funds and pension funds.
true
79
Simple interest calculations assume that interest earned is never reinvested.
true
80
Marking to market of futures contracts is the process of realizing gains and losses each day as the futures contract changes in price.
True
81
The FHA charges the homeowner __________________ to insure an FHA mortgage.
0.5 percent of the loan amount
82
A fairly-priced bond with a coupon less than the expected return must sell at a discount from par.
True
83
A shelf registration allows firms the opportunity to avoid the normal ______________ day waiting period by allowing preregistration of securities for up to ______________ years.
20; two
84
The largest center for trading in foreign exchange is:
London
85
A collateralized mortgage obligation (CMO) has:
a high degree of interest rate risk
86
The market in which firms sell new securities to raise cash is called the secondary market.
False
87
With ____________ voting, all directors up for election are voted on by the shareholders at the same time in one general election.
cumulative
88
An agreement between two parties to exchange a series of specified periodic cash flows in the future based on some underlying instrument or price is a(n):
swap contract
89
Sovereign bonds have high risk because the repayment cannot be forced by creditors.
true
90
Nationally chartered banks are required to become members of the Federal Reserve System.
true
91
The term structure of interest rates is the relationship between interest rates on bonds that are similar in all terms except for maturity.
True
92
In a futures contract, if funds in the margin account fall below the maintenance margin requirement, a margin call is issued.
True
93
An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.
True
94
Writing a put option results in a potentially limited gain and a potentially unlimited loss.
True
95
If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid, the preferred stock is called _____________ preferred stock.
cumulative
96
The Volcker Rule prohibits U.S. depository institutions from engaging in proprietary trading.
true
97
Money markets are the markets for securities with an original maturity of one year or less.
true
98
A drop in value of the dollar hurts U.S. importers and helps U.S. exporters, all else held constant.
true
99
Forward contracts are marked to market daily.
false
100
By convention, a swap buyer on an interest rate swap agrees to:
periodically pay a floating rate of interest and receive a fixed rate of interest.
back both sides of the swap agreement.
periodically pay a fixed rate of interest and receive a floating rate of interest.
swap both principal and interest at contract maturity.
act as the dealer in the swap agreement.
periodically pay a fixed rate of interest and receive a floating rate of interest.
101
A credit forward is a forward agreement that hedges against an increase in default risk on a loan after the loan has been created by a lender.
True
102
An in-the-money American call option increases in value as expiration approaches, but an out of-the-money American call option decreases in value as expiration approaches.
False
103
Of the following, the most recent derivative security innovations are:
foreign currency futures.
stock index futures.
credit derivatives.
interest rate futures.
stock options.
credit derivatives.
104
U.S. markets and currencies dominate global derivative securities markets.
True
105
Which of the following is true?
Futures contracts require an initial margin requirement be paid.
Futures contracts are only traded over the counter.
Forward contracts are marked to market daily.
Forward contracts have no default risk.
Forward contract buyers and sellers do not know who the counterparty is.
Futures contracts require an initial margin requirement be paid.
106
Futures or option exchange members who take positions on contracts for only a few moments are called scalpers.
True
107
Two competing fully electronic derivatives markets in the United States are:
NYSE and ABS.
CME and Pacific Exchange.
D-Trade and IMM.
Philadelphia Exchange and AMEX.
CME Globex and Eurex.
CME Globex and Eurex.
108
An interest rate collar is:
writing a floor and writing a cap.
None of these choices are correct.
an option on a futures contract.
buying a cap and writing a floor.
buying a cap and buying a floor.
buying a cap and writing a floor.
109
A contract wherein the buyer agrees to pay a specified interest rate on a loan that will be originated at some future time is called a(n):
futures loan.
option on a futures contract.
currency swap contract.
forward rate agreement.
interest rate swap contract.
forward rate agreement.
110
An agreement between two parties to exchange a series of specified periodic cash flows in the future based on some underlying instrument or price is a(n):
interest rate collar.
swap contract.
futures contract.
forward agreement.
option contract.
swap contract.
111
Measured by the amount outstanding, the largest type of derivative market in the world is the:
swap market.
options market.
credit forward market.
futures market.
forward market.
swap market.
112
A negotiated non-standardized agreement between a buyer and seller (with no third-party involvement) to exchange an asset for cash at some future date with the price set today is called a forward agreement.
True
113
Writing a put option results in a potentially limited gain and a potentially unlimited loss.
True
114
A clearinghouse backs the buyer's and seller's positions in a forward contract.
False
115
An Enterprise Risk Management (ERM) system is responsible for managing the totality of a firm’s risk exposures.
True
116
Commercial paper is a:
a. time draft payable to a seller of goods, with payment guaranteed by a bank.
b. short-term fund transferred between financial institutions usually for no more than one day.
c. short-term unsecured promissory note issued by a company to raise funds for a short time period.
d. loan to an individual or business to purchase a home, land, or other real property.
e. marketable bank-issued time deposit that specifies the interest rate earned and a fixed maturity date.
c. short-term unsecured promissory note issued by a company to raise funds for a short time period.
117
Financial intermediaries rather than financial systems are the most common agents to channel funds from the suppliers to the users of funds.
True
118
As of 2019, which one of the following derivatives instruments had the greatest amount of notional principal outstanding?
a. Forwards
b. Bonds
c. Swaps
d. Futures
e. Options
c. swaps
119
Which of the following are capital market instruments?
10-year corporate bonds
15-year U.S. government agency bonds
All of these choices are correct.
30-year mortgages
20-year Treasury bonds
All of these choices are correct
120
One of the factors responsible for globalization of financial markets and institutions is deregulation.
True
121
Asset transformation by financial intermediaries involves increasing the risk attributes of securities such as mortgages, bonds, and stocks.
False
122
Central governments sometimes indirectly intervene in foreign exchange markets by affecting foreign exchange rates through raising or lowering interest rates.
True
123
Which of the following is/are money market instrument(s)?
Negotiable CDs, common stock, and T-bonds
Common stock
T-bonds
4-year maturity corporate bond
Negotiable CDs
Negotiable CDs
124
Money markets are the markets for securities with an original maturity of one year or less.
True
125
A negotiable CD is a:
short-term unsecured promissory note issued by a company to raise funds for a short time period.
short-term fund transferred between financial institutions usually for no more than one day.
marketable bank-issued time deposit that specifies the interest rate earned and a fixed maturity date.
loan to an individual or business to purchase a home, land, or other real property.
time draft payable to a seller of goods, with payment guaranteed by a bank.
marketable bank-issued time deposit that specifies the interest rate earned and a fixed maturity date.
126
Corporate security issuers are always directly involved in funds transfers in the secondary market.
False
127
The average cost incurred by financial institutions to collect information is larger than that of individuals.
False
128
In the United States, the SEC provides deposit insurance for $250,000 per person per bank.
False
129
The term structure of interest rates is the relationship between interest rates on bonds that are similar in all terms except for maturity.
True
130
Simple interest calculations assume that interest earned is never reinvested.
True
131
The risk that a security cannot be sold at a predictable price with low transaction costs at short notice is called liquidity risk.
True
132
According to the liquidity premium theory, investors preferring long-term bonds over short-term bonds would require lower liquidity premium.
False
133
A higher level of wealth causes the demand for loanable funds to increase and interest rates to fall.
False
134
Everything else equal, the interest rate required on a callable bond will be less than the interest rate on a convertible bond.
False
135
According to the unbiased expectations theory:
the long-term spot rate is an average of the current and expected future short-term interest rates.
the term structure will most often be upward sloping.
liquidity premiums are negative and time varying.
forward rates are less than the expected future spot rates.
markets are segmented and buyers stay in their own segment
the long-term spot rate is an average of the current and expected future short-term interest rates.
136
As the liquidity of corporate bonds decreases, the risk premium required on those bonds decreases as well.
False
137
The real risk-free rate is the increment to purchasing power that the lender earns in order to induce him or her to forego current consumption.
True
138
The traditional liquidity premium theory states that long-term interest rates are greater than the average of current and expected future short-term interest rates.
True
139
The unbiased expectations hypothesis of the term structure posits that long-term interest rates are unrelated to expected future short-term rates.
False
140
Given all other factors are unchanged, households generally supply more funds to the markets as their income and wealth increase.
True
141
A corporate bond has a coupon rate of 10 percent and a required return of 10 percent. This bond's price is:
$1,000.00
142
A bond with an 11 percent coupon and a 9 percent required return will sell at a premium to par.
True
143
Duration is:
the second derivative of the bond price formula with respect to the yield to maturity.
the time until the investor recovers the price of the bond in today's dollars.
the weighted average time to maturity of the bond's cash flows.
greater than maturity for deep discount bonds and less than maturity for premium bonds.
the elasticity of a security's value to small coupon changes.
the weighted average time to maturity of the bond's cash flows.
144
The duration of a four-year maturity, 10 percent coupon bond is less than four years.
True
145
Any security that returns a greater percentage of the price sooner is less price volatile.
True
146
If interest rates increase, the value of a fixed-income contract decreases and vice versa.
True
147
The basic principle of valuation states that the value of any asset is:
the degree of cash flow riskiness is not a relevant factor in valuation.
the present value of all future cash flows generated by the asset.
None of these choices are correct.
the present value of next year’s cash flow only.
the sum of all future cash flows generated by the asset.
the present value of all future cash flows generated by the asset.
148
All else held constant, the higher the interest rate is the higher the duration.
False
149
The required rate of return on a bond is:
inversely related to a bond's risk and coupon.
less than the expected return for discount bonds and greater than the expected return for premium bonds.
the interest rate that equates the current market price of the bond with the present value of all future cash flows received.
equivalent to the current yield for nonpar bonds.
None of these choices are correct
None of these choices are correct.
150
The higher a bond's coupon, the lower the bond's price volatility.
True
151
A fairly-priced bond with a coupon less than the expected return must sell at a discount from par.
True
152
The interest rate used to find the present value of a financial security is the:
Required rate of return
153
During the 2010–2014 period, the Federal Reserve purchased long-term treasury securities as part of the Quantitative Easing program.
True
154
In the aftermath of the 2007 financial crisis, the Fed used several programs to increase liquidity, including ________.
setting up the Term Auction Facility
expansion of the discount window
purchase of long-term treasury bonds
All of these choices are correct.
lending to investment banks
All of these choices are correct.
155
In the area of bank supervision, which of the following are functions of the Federal Reserve Banks?
I. Examinations of state member banks
II. Approval of member bank and bank holding company acquisitions
III. Deposit insurance
I and II only
156
The primary policy tool used by the Fed to meet its monetary policy goals is:
open market operations.
157
Which of the following is not a program initiated by the world’s major central banks during the financial crisis of 2007 to avoid a deep worldwide recession?
Debt guarantees
Purchase of U.S. dollars
Capital injections
Expansion of retail deposit insurance
Asset purchases/guarantees
Purchase of U.S. dollars
158
The monetary base is the amount of coin and currency in circulation plus reserves.
True
159
Federal Reserve interest rate decisions can be vetoed by the U.S. president or the Congress.
False
160
Countries with independent central banks are subject to political pressure to conduct monetary policies with short-term expectations.
False
161
The major monetary policy-making arm of the Federal Reserve is the:
Federal Reserve Bank of New York.
Board of Governors.
Office of the Comptroller of the Currency.
Council of Federal Reserve Bank presidents.
None of these choices are correct
None of these choices are correct
162
The Federal Reserve does all but which one of the following?
Supervises and regulates bank activities
Insures deposits
Operates check clearing and wire transfer facilities
Serves as the commercial bank for the U.S. Treasury
Conducts monetary policy
Insures deposits
163
According to the FOMC regarding actions taken in 2012, inflation targeting promotes maximum employment.
True
164
The discount rate is the rate that:
the Federal Reserve charges on loans to commercial banks.
165
The major asset of the Federal Reserve is:
U.S. Treasury securities.
vault cash of commercial banks.
currency outside banks.
depository institution reserves.
gold and foreign exchange.
U.S. Treasury securities.
166
Currently the Fed sets monetary policy by targeting:
the level of borrowed reserves.
the Fed funds rate.
the stock market.
the prime rate.
the level of nonborrowed reserves
the Fed funds rate.
167
The largest asset of the Federal Reserve are U.S. Treasury securities and the largest liability is Currency outside banks.
False
168
The Quantitative Easing program initiated by the Federal Reserve during the 2010–2014 period, involved the purchase of long-term corporate bonds.
False
169
Federal Reserve Board members are appointed by the U.S. president and confirmed by the Senate for a nonrenewable 10-year term.
False
170
Nationally chartered banks are required to become members of the Federal Reserve System.
True
171
About 38 percent of all U.S. banks are members of the Federal Reserve System.
True
172
Four seats on the FOMC are allocated to Federal Reserve Bank presidents on an annual rotating basis.
True
173
For the purposes for which they are used, money market securities should have which of the following characteristics?
I. Low trading costs
II. Little price risk
III. High rate of return
IV. Life greater than one year
I and II
174
The largest secondary money market in the United States is the secondary market for T-bills.
True
175
From 1990 to 2019, which one of the following money market securities actually declined in terms of dollar amount outstanding?
Banker's acceptances
Treasury bills
Negotiable CDs
Commercial paper
Federal funds and repos
Banker's acceptances
176
A negotiable CD:
is a bank-issued transactions deposit.
pays discount interest.
is a registered instrument.
has denominations ranging from $50,000 to $10 million
is a bank-issued time deposit.
is a bank-issued time deposit.
177
Money markets exist to help reduce the opportunity cost of holding cash balances.
True
178
The most liquid of the money market securities are:
banker's acceptances.
repurchase agreements.
T-bills.
Commercial Paper
Fed funds.
T-bills
179
Maturities on Eurodollar CDs are usually more than one year.
True
180
Money market securities exhibit which of the following?
I. Large denomination
II. Maturity greater than one year
III. Low default risk
IV. Contractually determined cash flows
I, III, and IV
181
The most significant borrower in the U.S. money markets is(are):
the U.S. Treasury.
large corporations.
the investment banks.
commercial banks.
the insurance companies
the U.S. Treasury
182
The majority of money market securities are low-denomination, low-risk investments designed to appeal to individual investors with excess cash.
False
183
Which one of the following statements about commercial paper is not true? Commercial paper issued in the United States:
has no active secondary market.
is virtually always rated by at least one ratings agency.
has a maximum maturity of 270 days.
carries an interest rate above the prime rate.
is an unsecured short-term promissory not
carries an interest rate above the prime rate.
184
The most active and important participant in the U.S. money market:
are the insurance companies.
are the investment banks.
is the Federal Reserve.
are the large banks.
is the U.S. Treasury.
is the Federal Reserve.
185
The bond equivalent yield times 365/360 is equal to the single payment yield.
False
186
Commercial paper is a short-term obligation of the U.S. government issued to cover government budget deficits and to refinance maturing government debt.
False
187
A repo is, in essence, a collateralized:
certificate of deposit.
banker's acceptance.
commercial paper loan.
Fed funds loan.
Eurodollar deposit.
Fed funds loan.
188
Rates on federal funds and repurchase agreements are stated:
on a bond equivalent basis with a 360-day year.
on a bond equivalent basis with a 365-day year.
as a discount yield with a 365-day year.
as a discount yield with a 360-day year.
as an EAR
on a bond equivalent basis with a 360-day year.
189
A banker's acceptance is:
a method to help importers evaluate the creditworthiness of exporters.
an add-on instrument.
for a maturity of greater than one year.
a time draft drawn on the exporter's bank.
a liability of the importer and the importer's bank.
a liability of the importer and the importer's bank.
190
A short-term unsecured promissory note issued by a company is:
commercial paper.
a negotiable CD.
a repurchase agreement.
a T-bill.
a banker's acceptance
commercial paper.
191
Euro commercial paper is a short-term obligation of the European Central Bank.
False
192
"On the run" Treasury notes and bonds are newly issued securities and "off the run" Treasuries are securities that have been previously issued.
True
193
T-notes and T-bonds are issued in minimum denominations of $100, or multiples of $100.
True
194
SEC Rule 144 A does which of the following?
Allows bond issuers to call their bonds when desired
None of these choices are correct.
Determines the limits of responsibility of bond covenants
Requires that bonds traded on the NYSE bond market utilize the ABS system
Allows privately placed investments to be traded on a limited basis
Allows privately placed investments to be traded on a limited basis
195
Which of the following statements about Eurobonds is/are true?
I. The issuer chooses the currency of denomination.
II. Spreads on firm commitment offers are lower for Eurobonds than for U.S. bonds.
III. Eurobonds typically have denomination of $5,000 and $10,000.
IV. Eurobonds are bearer bonds.
I, III, and IV only
196
As of 2018, the largest holder of U.S. municipal bonds was ________.
financial firms
nonfinancial businesses
the government
foreign investors
household
financial firms
197
Accrued interest owed to the bond seller increases as the next coupon payment date approaches.
True
198
Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.
True
199
Sovereign bonds are long-term debt issued by governments of foreign countries.
True
200
With TIPS, the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.
False
201
When an investment banker purchases an offering from a bond issuer and then resells it to the public, this is known as a:
rights offering.
firm commitment.
best efforts.
private placement.
standby offering.
firm commitment
202
Sovereign bonds have high risk because the repayment cannot be forced by creditors.
True
203
TIPS are a Treasury offering that protects investors from unexpected increases in inflation.
True
204
An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.
True
205
Debt securities with maturities of one year or less are traded in capital markets.
False
206
A callable bond is one where the issuer is required to retire a certain amount of the outstanding bonds each year to ensure that all the bond principal is paid by final maturity.
False
207
Discount points are paid to reduce the down payment required.
False
208
The process of mortgage securitization results in a separation between mortgage origination and mortgage financing.
True
209
For CMOs, prepayment risk is the risk that a borrower may prepay the mortgage before maturity when interest rates decrease.
True
210
Federally insured mortgages are called conventional mortgages.
False
211
The schedule showing how monthly mortgage payments are split into principal and interest is called a(n):
Amortization schedule
212
The borrower of an amortized mortgage makes most of the payment during the early life of the mortgage:
towards the interest.
213
You want to buy a $250,000 house and you will use a conventional mortgage. What is the minimum down payment you have to make to avoid having to purchase mortgage insurance?
$50,000
214
Private mortgage insurance (and hence, that part of the homeowner's monthly payment) is automatically removed from a mortgage when the loan-to-value ratio on the mortgage falls below 80 percent.
False
215
A(n) ___________________ is used to help retired people receive monthly income in exchange for the equity in their home.
RAM
GEM
PLAM
SAM
Equity Participation Mortgag
RAM
216
Pass-through mortgage securities are for primary market investors.
False
217
In synthetic securitization, the transfer of risk on a pool of assets is achieved by the use of credit derivatives or guarantees to a third party.
True
218
On a fixed-rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding.
True
219
The role of GNMA is to provide insurance to pass-through mortgage securities.
True
220
A larger portion of the mortgage payment goes towards the principal during the early life of a mortgage loan versus the later life of the loan.
False
221
A collateralized mortgage obligation (CMO) has:
Correct answer:
a high degree of interest rate risk.
no default, no prepayment, and no interest rate risks.
no default risk.
no prepayment risk.
no interest rate risk.
a high degree of interest rate risk.
222
The process of packaging and/or selling mortgages that are then used to back publicly traded debt securities is called:
Securitization
223
Which one of the following entities is an actual government-owned enterprise dealing with mortgages?
PIP
CMO
FNMA
GNMA
FHLMC
GNMA
224
A long-term investor in a high marginal tax bracket will normally prefer a dollar of capital gain to a dollar of dividend yield.
True
225
The electronic-based market for less actively traded U.S. securities is the:
OTC bulletin board
226
In the event of bankruptcy, a firm's janitor must be paid all of the salary owed to him before stockholders receive anything.
True
227
Which of the following is/are true about specialists?
I. Investment banks generally cannot be specialists.
II. Specialists are used by the NASDAQ system.
III. Market and limit orders are transacted at specialist posts, but the specialist's own account orders are executed elsewhere.
IV. Specialists help maintain continuous trading.
I and IV only
228
On the NASDAQ system, the inside quotes are the:
highest bid and highest ask.
lowest bid and highest ask.
lowest ask and lowest bid.
highest bid and lowest ask.
None of these choices are correct.
highest bid and lowest ask.
229
The NYSE specialists are charged with:
I. trading for their own account.
II. ensuring public limit orders are executed.
III. facilitating the processing of public market orders.
I, II, and III
230
As of December 2005, trading licenses are required to conduct trades on the floor of the NYSE. Which of the following statements about these trading licenses is/are correct?
I. Licenses are auctioned off in a special type of auction called a Dutch auction.
II. Only a member organization of the NYSE is eligible to bid for a trading license.
III. The SEC determines the maximum bid price.
IV. Trading licenses are good for 10 years.
I and II only
231
Preferred stockholders have a claim senior to common stock but junior to bond holders.
True
232
In terms of volume of trading and market value of firms traded, the _____________ is the largest U.S. stock market. In terms of number of firms traded, the ___________ is the largest in the United States.
NYSE; NASDAQ
233
Individuals and households indirectly invest in corporate stock through investments in mutual funds and pension funds.
True
234
The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called the:
red herring
235
In a ____________ the firm preregisters with the SEC any securities it wishes to sell over the next two years.
shelf registration
236
Common stocks typically have which of the following that bonds do not have?
I. Voting rights
II. Fixed cash flows
III. Set maturity date
IV. Tax deductibility of cash flows to investors
I only
237
Computerized markets that automatically match orders between buyers and sellers and are used primarily by institutional traders are called:
ECNs
238
International stock markets provide the potential of diversification to the investor.
True
239
The market in which firms sell new securities to raise cash is called the secondary market.
False
240
The NASDAQ automatic order execution system for individual traders placing buy or sell orders of 1,000 or fewer shares is called the:
SOES
241
The preliminary version of a security offer that is circulated to potential buyers before SEC approval (registration) is obtained is called a:
red herring prospectus
242
In 2007 the NYSE merged with _________________.
Euronext
243
With ____________ voting, all directors up for election are voted on by the shareholders at the same time in one general election.
cumulative
244
Dual class stock refers to firms with both common and preferred stock outstanding.
False
245
If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid, the preferred stock is called _____________ preferred stock.
cumulative
246
Which of the following information is not usually found in a Wall Street Journal stock quote?
Dividend yield
Closing price of the stock
Stock rating
Ticker symbol
Price-earnings ratio
Stock rating
247
If the stock markets are semi-strong efficient, stock prices reflect all historic and current public information about a firm but prices do not reflect inside information.
True
248
A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice requires payment in Hong Kong dollars. The U.S. importer could hedge this currency risk by buying the Hong Kong dollar forward.
True
249
The concept underlying purchasing power parity is the:
law of one price
250
In 1973, the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.
True
251
The ________________ measures the net flows of imports and exports of goods, services, income payments, and unilateral transfers.
current account
252
The ongoing accumulation of foreign currency reserves by foreign monetary authorities contributed to the dollar's drop in 2006.
false
253
If the United States has inflation of 3 percent and Europe has inflation of 5 percent, the value of the euro should increase, all else held constant.
False
254
During much of the 1800s, developed nations employed what came to be known as the Bretton Woods international monetary system to manage exchange rates.
False
255
The dollar's value increased when the Fed cut interest rates in late 2007.
False
256
The agreement that ended the era of fixed exchange rates for the major economies was called the:
Smithsonian Agreement II.
257
The levels of foreign currency assets and liabilities at banks have ___________ in recent years, and the level of foreign currency trading has ____________.
increased; increased
258
Banks’ net foreign exposure is equal to:
net foreign assets + net FX bought.
259
According to FOMC regarding actions taken in 2012, inflation targeting promotes maximum employment
True
260
According to the market segmentation theory, short-term investors will not normally switch to intermediate or long-term investments
True
261
