Options on interest rate caps are called:
a. Swaptions.
b. Captions.
c. Flotions.
d. Collars.
e. None of the above.
A rating of Ba3 means that a bond is:
a. Very high grade, very high quality.
b. Lower medium grade.
c. Substantial risk, in poor standing.
d. Predominantly speculative.
e. Low grade, speculative.
The management fee structure for hedge funds is:
a. A flat fee per investor or investor group.
b. A fixed fee based on the market value of assets managed.
c. A performance-based incentive fee.
d. b and c only.
e. None of the above.
At the end of each trading day, futures contracts are:
a. Delivered.
b. Marked-to-market.
c. Liquidated.
d. Closed out.
e. None of the above.
Australia is classified within the:
a. Euro zone market bloc.
b. Non-euro zone market bloc.
c. Dollar bloc.
d. United Kingdom bloc.
e. Emerging markets bloc.
The discount rate is the interest rate charged to:
a. Borrow excess reserves.
b. Borrow funds at the discount window.
c. Borrow funds from commercial banks.
d. a and b only.
e. None of the above.
Market participants perceive Treasury securities to carry no default risk because:
a. They are short-term in nature.
b. They are backed by the full faith and credit of the U.S. government.
c. They can be bought and sold easily.
d. They are not affected by changes in interest rates.
e. None of the above.
On the average, approximately 40% of the single-security risk is eliminated by forming
randomly selected portfolios of 5 stocks.
a. True.
b. False.
Certificates of deposits:
a. Are issued by commercial banks.
b. Are interest-bearing financial assets.
c. Can be issued in any denomination.
d. May be negotiable or nonnegotiable.
e. All of the above.
An indirect quote is also referred to as an American term.
a. True.
b. False.
When a mortgage is included in a pool of mortgages that is used as collateral for a
mortgage pass-through security, the mortgage is said to be:
a. Securitized.
b. Collateralized.
c. Guaranteed.
d. Standardized.
e. Stripped.
A plan is said to be underfunded when its funding ratio falls below 100%.
a. True.
b. False.
Business risk analysis involves traditional ratio analysis and other factors affecting the
firm’s financing.
a. True.
b. False.
The Yankee market is the foreign market of the U.S. where the securities of issuers not
domiciled in the U.S. are traded.
a. True.
b. False.
The Third Market is the market for:
a. Trading in the OTC market of stocks not listed on an exchange.
b. Trading in the OTC market of stocks listed on an exchange.
c. Trading on exchanges of stock listed on an exchange.
d. Private transactions between institutional investors without an intermediary.
e. None of the above.
In regards to commercial mortgage loans, which of the below statements is FALSE?
A) Commercial mortgage loans are typically balloon loans requiring substantial
principal payment before the end of the balloon term.
B) If the borrower fails to make the balloon payment, the borrower is in default.
C) The lender may extend the loan and in so doing will typically modify the original
loan terms.
D) Balloon risk is the risk that a borrower will not be able to make the balloon payment
because the borrower either cannot arrange for refinancing at the balloon payment date
or cannot sell the property to generate sufficient funds to pay off the balloon balance.
Real world capital markets are completely segmented.
a. True.
b. False.
A commercial mortgage loan is originated either to ________.
A) finance a commercial purchase or to refinance a prior mortgage obligation.
B) finance a residential purchase or to refinance a prior mortgage obligation.
C) finance a commercial purchase or to refinance a subsequent mortgage obligation.
D) None of these
The risk that the federal income tax rate will be reduced, resulting in a decline in the
value of municipal bonds, is called:
a. Political risk.
b. Tax risk.
c. Government risk.
d. Tax law risk.
e. None of the above.
An annuity is often described as:
a. A stock insurance fund in a mutual company wrapper.
b. An insurance premium in an underwriting wrapper.
c. A mutual fund in an insurance wrapper.
d. Term insurance in a cash-value wrapper.
e. An L&H company in a P&C company wrapper.
The agency charged with the responsibility to create a liquid secondary market for
FHA- and VA-insured mortgages is:
a. Ginnie Mae.
b. Fannie Mae.
c. Freddie Mac.
d. FHLB.
e. None of the above.
The role of the clearinghouse is to:
a. Interpose itself as the buyer to every sale and the seller to every purchase.
b. Guarantee fulfillment of the futures contract on the settlement date.
c. Make it simple for parties to unwind their positions prior to the settlement date.
d. All of the above.
e. b and c only.
Institutional investors employ index-related strategies in order to:
a. Control market risk exposure.
b. Construct an index fund.
c. Enhance returns through index arbitrage.
d. Implement an asset allocation decision.
e. All of the above.
Derivative instruments that are used to control interest rate risk include:
a. Interest rate futures.
b. Interest rate options.
c. Interest rate forwards.
d. a and b only.
e. All of the above.
Strategies that combine two or more options on the same underlying stock, include:
a. Vertical spreads.
b. Butterfly spreads.
c. Diagonal spreads.
d. Straddles.
e. All of the above.
The yield to maturity is the discount rate that makes the present value of the cash flows
of a bond equal to its:
a. Par value.
b. Redeemable value.
c. Market value.
d. Coupon rate.
e. None of the above.
One of the three major differences in the structures of a CMBS transaction and a
nonagency RMBS transaction include: ________.
A) Residential mortgages impose prepayment penalties or restrictions on prepayments.
B) The role of the buyers when the structure is being created is different.
C) With residential mortgages, the loan can be transferred by the servicer to the special
servicer when the borrower is in default, imminent default, or in violation of covenants.
D) All of these
For common stock, an order of 100 shares is called:
a. A round lot.
b. An odd lot.
c. A block trade.
d. An open order.
e. None of the above.
Exchanges impose restrictions as to when a short sale may be executed, which is
referred to as:
a. Trading halts.
b. Circuit breakers.
c. Tick-test rules.
d. Price limits.
e. None of the above.
The spot exchange rate market is:
a. A cash market.
b. Market for immediate settlement.
c. Market for settlement of a foreign exchange transaction within two business days.
d. All of the above.
e. a and b only.