If actual reserves exceed required reserves, the difference is referred to as:
a. Spread income.
b. Secondary reserves.
c. Excess reserves.
d. Total reserves.
e. None of the above.
The higher the beta, the higher the expected return.
a. True.
b. False.
The security issued by Freddie Mac is called a:
a. Participation certificate.
b. Mortgage-backed security.
c. Non-agency mortgage pass-through security.
d. Stripped mortgage-backed security.
e. None of the above.
A dual-currency issue:
a. Pays coupon interest in one currency and the principal in a second currency.
b. Pays coupon interest in two different currencies.
c. Pays the principal in two different currencies.
d. Is one that is issued in a different currency than the one the investor pays with.
e. None of the above.
There is no single repo rate; rather rates vary from transaction to transaction depending
on:
a. Quality.
b. Term of the repo.
c. Delivery requirement
d. Availability of collateral.
e. All of the above.
Investors can use futures to protect against symmetric risk and options to protect against
asymmetric risk.
a. True.
b. False.
A growing-equity mortgage:
a. Does have negative amortization.
b. Has an adjustable-rate mortgage whose monthly mortgage payments increase over
time..
c. Has a fixed-rate mortgage whose monthly mortgage payments increase over time.
d. Effectively shortens the life of the mortgage.
e. c and d only.
Parties to the futures option will realize a position in a futures contract when the option
is exercised.
a. True.
b. False.
The reference rate on a syndicated loan is typically:
a. The Treasury bill rate.
b. LIBOR.
c. The federal funds rate.
d. The discount rate.
e. None of the above.
Outside of the U.S. inflation-indexed bonds are known as:
a. TIPS.
b. HICPS.
c. Indexers.
d. Linkers.
e. None of the above.
The bid-ask spread:
a. Is the difference between the price the market maker is willing to sell a financial asset
and the price the market maker is willing to buy a financial asset.
b. Reflects the amount of risk the market maker is assuming by making a market.
c. Is affected by the thickness of the market.
d. All of the above are correct.
e. None of the above.
In graphically depicting the model for security returns usually referred to as the market
model, the slope of the line can be thought of as the:
a. Beta factor.
b. Error term.
c. Residual term.
d. Alpha factor.
e. None of the above.
In constructing Markowitz efficient portfolios it is assumed that:
a. An investor’s decision is affected by the expected return and risk.
b. Investors are risk averse.
c. Investors seek to achieve the highest expected return for a given level of risk.
d. a and b only.
e. All of the above.
The provision in a bond indenture that may require the issuer to retire a specified
portion of an issue each year is the:
a. Call provision.
b. Sinking fund provision.
c. Refunding provision.
d. Warrant.
e. None of the above.
When orders are batched or grouped together for simultaneous execution at the same
price, the marked is known as:
a. A call market.
b. A continuous market.
c. An auction market.
d. A clearinghouse.
e. None of the above.
When the seller agrees to pay the buyer if the designated reference exceeds a
predetermined level, the agreement is referred to as:
a. A cap.
b. A floor.
c. The strike.
d. A swap.
e. None of the above.
The largest membership category on the NYSE is that of:
a. A specialist.
b. Commission broker.
c. Independent floor broker.
d. Registered trader.
e. Local.
The risk that a currency’s value may change adversely is called:
a. Volatility.
b. Currency fluctuation.
c. Currency risk.
d. Price risk.
e. None of the above.
Options written on a stock index include:
a. Stock index options.
b. Stock index futures.
c. Equity swaps.
d. Equity options.
e. None of the above.
Institutional investors look for the mispricing of stock index futures to create arbitrage
profits and thereby enhance portfolio returns. This strategy is referred to as:
a. Dynamic hedging.
b. Index arbitrage.
c. Riskless arbitrage.
d. Program trading.
e. None of the above.
Within the corporate market sector, issuers are classified as:
a. Utilities.
b. Industrials.
c. Finance.
d. Banks.
e. All of the above.
Which of the following are considered plan sponsors?
a. Private business entities for their employees.
b. Unions on behalf of their members.
c. Individuals for themselves.
d. a and c only.
e. All of the above.
Noncompetitive tenders may be submitted for up to a $1 million face amount.
a. True.
b. False.
Growth in the cash value of investment-type life insurance is known as reserves.
a. True.
b. False.
“Any occ” disability insurance:
a. Insures against the inability of an employed person to earn an income in his own or
any occupation.
b. Is typically written for professionals.
c. Is typically written for blue-collar workers.
d. a and b only.
e. a and c only.
The risk associated with a bond whose proceeds are reinvested at an unknown rate is
referred to as:
a. Reinvestment rate risk.
b. Interest rate risk.
c. Price risk.
d. Default risk.
e. None of the above.
A futures contract is a firm legal agreement between a buyer and a seller in which:
a. The buyer agrees to take delivery of an asset at a specified price at the end of a
designated period of time.
b. The value of the futures contract is derived from the value of the underlying
instrument.
c. The seller agrees to make delivery of an asset at a specified price at the end of a
designated period of time.
d. a and c only.
e. All of the above.
Chapter 11 bankruptcy deals with the liquidation of a company.
a. True.
b. False.
Tax-backed debt includes airport bonds, public power bonds, and sports complex
bonds.
a. True.
b. False.
The capital structure of banks, like that of all corporations, consists of:
a. Demand deposits.
b. Debt
c. Equity.
d. Time deposits.
e. b and c only.
In the typical pass-through structure of auto loan-backed deals, there is a:
a. Senior tranche.
b. Subordinated tranche.
c. Accrual tranche.
d. a and b only.
e. All of the above.
Which of the following statements is most correct?
a. The price of a bond will approach its par value as it moves toward its maturity.
b. Over time, the price of a discount bond will rise if interest rate do not change.
c. The price of a bond will rise if the perceived credit quality of the issuer deteriorates.
d. a and b only.
e. All of the above.