Continual bank borrowing at the Fed for long periods and in large amounts is viewed as
a sign of:
a. A bank’s financial weakness.
b. Exploitation of the interest differential for profit.
c. Financial health due to increased loan demand at the bank.
d. a and b only.
e. All of the above.
Member banks can borrow from the Fed in order to:
a. Meet short-term liquidity needs.
b. Increase their earnings.
c. Meet required reserves.
d. a and c only.
e. All of the above.
Prior to February 2001, the Chinese stock market was divided into:
a. A shares.
b. B shares.
c. H shares.
d. a and b only.
e. All of the above.
The risk of a portfolio can be quantified by:
a. Specifying the probability associated with each possible future outcome.
b. The dispersion of the possible returns below the expected value.
c. The variance of the portfolio returns.
d. The standard deviation of portfolio returns.
e. All of the above.
All federally-related institutions are exempt from SEC registration.
a. True.
b. False.
Which of the following statements is false?
a. For a given yield and coupon rate, the longer the maturity, the greater the price
volatility.
b. Fore a given yield and maturity, price volatility is greater, the higher the coupon rate.
c. A bond’s price volatility is affected by its maturity and coupon rate.
d. There is an inverse relationship between the price and yield of a bond.
e. None of the above.
The price of a Treasury security is forced to trade near its theoretical value based on
spot rates through the process of:
a. Coupon stripping.
b. Repurchasing.
c. Reconstituting.
d. a and c only.
e. None of the above.
Interest rate caps and floors can be combined to create a(n):
a. Spread.
b. Interest rate collar.
c. Interest rate agreement.
d. Caption.
e. None of the above.
Strong-form market efficiency is easy to test empirically.
a. True.
b. False.
Credit default swaps are used by an investor to shift credit exposure to a credit
protection seller.
a. True.
b. False.
A block trade is defined by the NYSE as an order of:
a. 10,000 shares of a given stock.
b. Less than a round lot.
c. Shares with a total market value of $200,000 or more.
d. a and c only.
e. All of the above.
The investment return can be measured in terms of:
a. An arithmetic average rate of return.
b. A time-weighted rate of return.
c. A dollar-weighted rate of return.
d. All of the above.
e. None of the above.
The dollar amount of the payments exchanged in a swap agreement is based on some
predetermined dollar principal, which is called:
a. The principal.
b. The notional amount.
c. The maturity value.
d. The par value.
e. None of the above.
Pension plan sponsors often purchase which of the following as a pension investment?
a. Property and casualty insurance.
b. Structured settlements.
c. “Own occ” disability insurance.
d. Guaranteed investment contracts.
e. None of the above.
Forward exchange rates are determined by:
a. The spot exchange rate.
b. The interest rate in two countries.
c. The income growth rate.
d. a and b only.
e. All of the above.
In an interest rate agreement, the predetermined interest rate level is called the:
a. Reference rate.
b. Strike rate.
c. Implied rate.
d. Basis rate.
e. None of the above.
The promises of corporate bond issuers and the rights of investors who buy them are set
forth in great detail in the:
a. Bond coupon.
b. Bond indenture.
b. Corporate charter.
d. Fiduciary.
e. None of the above.
The Garn-St. Germain Act of 1982 expanded the types of assets in which S&Ls could
invest. The acceptable list now includes:
a. Consumer loans.
b. Commercial loans.
c. Municipal securities.
d. a and c only.
e. All of the above.
Trading costs can be decomposed into:
a. Explicit costs.
b. Implicit costs.
c. Soft dollars.
d. a and b only.*
e. All of the above.
Defining liabilities for an insurance company is complicated because the insurance
company commits to make payments at some time in the future, which are recorded as
contingent liabilities on its financial statement.
a. True.
b. False.
The difference in yield between tax-exempt securities and Treasury securities is
typically measured not in percentage terms, but in basis points.
a. True.
b. False.
By investing in mortgage loans, investors face:
a. Credit risk.
b. Liquidity risk.
c. Price risk.
d. Prepayment risk.
e. All of the above.
The theory which adopts the view that the term structure reflects the future path of
interest rates as well as a risk premium is the:
a. The liquidity theory.
b. The pure expectations theory.
c. The preferred habitat theory.
d. The market segmentation theory.
e. None of the above.
To evaluate general obligation bonds, commercial rating companies assess:
a. Information on the issuer’s debt structure and overall debt burden.
b. The issuer’s ability and political discipline to maintain sound budgetary policy.
c. The issuer’s overall socioeconomic environment.
d. Local taxes and intergovernmental revenues available to the issuer.
e. All of the above.
Non-agency mortgage pass-through securities are supported by credit enhancements
such as:
a. Corporate guarantees.
b. Pool insurance from a mortgage insurance company.
c. A bank letter of credit.
d. Senior/subordinated interests.
e. All of the above.
Private placement requires more disclosure.
a. True.
b. False.
If the price of a call option in the market is higher than that derived from the
Black-Scholes option pricing model, an investor could:
a. Sell the call option and buy a certain number of shares in the underlying stock.
b. Buy the call option and buy a certain number of shares in the underlying stock.
c. Buy the call option and sell short a certain number of shares in the underlying stock.
d. Sell the call option and sell short a certain number of shares in the underlying stock
e. None of the above.
Manufactured housing-backed securities, which are backed by loans for manufactured
homes, are issued by:
a. Fannie Mae.
b. Ginnie Mae.
c. Private entities.
d. b and c only.
e. All of the above.
The activities of underwriters are regulated by:
a. The Securities Act of 1933.
b. The Securities and Exchange Commission.
c. The Securities Exchange Act of 1934.
d. The Investment Bankers Association.
e. None of the above.
An odd lot is defined as:
a. 100 shares of stock.
b. Less than a round lot.
c. A block trade.
d. Less than 100 shares of stock.
e. b and d only.
An agreement between two parties whereby one party, for an upfront premium, agrees
to compensate the other if a designated interest rate, called the reference rate, is
different from a predetermined level is known as a(n):
a. Forward rate agreement.
b. Interest rate swap.
c. Interest rate agreement.
d. Swaption.
e. None of the above.
In constructing a portfolio of assets, investors seek to maximize the expected return
from their investment given some level of risk they are willing to accept. Portfolios that
satisfy this requirement are called:
a. Efficient portfolios.
b. Optimal portfolios.
c. Markowitz efficient portfolios.
d. a and c.
e. All of the above.
Revenue bonds have a security structure where the bond issuer:
a. Pledges to the bondholders the revenues generated by the operating projects financed.
b. Secures the bonds by its unlimited taxing power.
c. Collateralizes the bonds with specific assets.
d. All of the above.
e. None of the above.