Leasing is a way by which tax benefits can be transferred from the lessee to the lessor.
a. True.
b. False.
The relationship between price and yield for any option-free bond is:
a. Linear.
b. Convex.
c. Concave.
d. Curvilinear.
e. None of the above.
Options may be traded either on organized exchanges, such as the Chicago Board
Options Exchange, or in the:
a. Over-the-counter market.
b. Interbank market.
c. Clearinghouse.
d. a and b only.
e. None of the above.
Currency values changes in response to economic developments or political events.
a. True.
b. False.
A provision in a bond issue that grants the issuer the right to retire the debt, fully or
partially, before the scheduled maturity date is called:
a. A tax provision.
b. A call provision.
c. A put provision.
d. A conversion provision.
e. None of the above.
The initial margin requirement is set by:
a. The broker.
b. The NASD.
c. The Federal Reserve.
d. The Commodity Futures Trading Commission.
e. None of the above.
A large endowment of the current commodity relative to the future will make people:
a. More eager to lend.
b. Raise the supply curve for loans.
c. Reduce R.
d. All of the above.
e. a and b only.
Financial markets are not frictionless because of:
a. Commissions charged by brokers.
b. Bid-ask spreads charged by dealers.
c. Trading restrictions.
d. Costs of acquiring information about financial assets.
e. All of the above.
Which of the following is not a market index?
a. DAX.
b. FTSE 100.
c. EAFE.
d. CAC 40.
e. All of the above are stock market indexes.
The most common type of order submitted to the stock market is the:
a. Market order.
b. Stop order.
c. Limit order.
d. Conditional order.
e. None of the above.
Swaps can be used for asset/liability management and the creation of securities.
a. True.
b. False.
Bond issues assigned a rating in the top four categories are referred to as high-yield
bonds.
a. True.
b. False.
A “basket” or “bundle” consists of a certain quantity of currency consumption and a
certain quantity of future consumption.
a. True.
b. False
The writer of a call option is said to be in a:
a. Long call position.
b. Short call position.
c. Long put position.
d. Short put position.
e. None of the above.
In a swap, two parties are exchanging payments. The risk that one party will fail to meet
its obligation to make payments is called:
a. Default risk.
b. Counterparty risk.
c. Credit risk.
d. Price risk.
e. None of the above.
If there is a default on a commercial mortgage loan, the lender looks to the proceeds
from the ________ for repayment and has ________ to the borrower for any unpaid
balance.
A) sale of the property; no recourse
B) sale of the property; little recourse
C) purchase of the property; no recourse
D) sale of the property; recourse
Regarding the default risk associated with municipal bonds:
a. Over the past 30 years there have been relatively few defaults.
b. From 1940 to the present they have demonstrated very little default risk.
c. They historically had little default risk but it has increased dramatically in the past
three decades.
d. Their default risk is constantly fluctuating.
e. None of the above.
Unlike a mutual fund, a closed-end fund does not provide risk reduction via
diversification.
a. True.
b. False.
Money center banks are more active in global banking.
a. True.
b. False.
Which of the below statements is FALSE?
A) Although there are residential mortgages with prepayment penalties, they are a small
fraction of the market.
B) In structuring a CMBS, if there is a defeasance, the credit risk of a CMBS virtually
disappears because it is then backed by U.S. Treasury securities.
C) With commercial 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) None of these
The principal economic functions of financial assets include:
a. The transfer of funds from those with surplus funds to those who need funds.
b. The transfer of ownership from seller to buyer.
c. The transfer of funds so as to redistribute the unavoidable risk associated with the
cash flow generated by tangible assets among those seeking and providing the funds.
d. a and c only.
e. All of the above.
The total risk of a portfolio consists of:
a. Diversifiable risk.
b. Nondiversifiable risk.
c. Statistical risk.
d. a and b only.
e. All of the above.
The factors that affect the yield spread between a non-Treasury security and a
comparable Treasury security are:
a. The type of issuer.
b. The issuer’s perceived creditworthiness.
c. The maturity of the instrument.
d. The expected liquidity of the issue.
e. All of the above.
That creditors are less informed about the true economic operating conditions of the
firm
than is management is espoused in:
a. The absolute priority rule.
b. The incentive hypothesis.
c. The recontracting process hypothesis.
d. The stockholders’ influence on reorganization plan hypothesis.
e. The strategic bargaining process hypothesis.
A long/call paper buying strategy involves:
a. Purchasing a call option.
b. Investing in a riskfree security.
c. Buying a put option.
d. a and b only.
e. None of the above.
To protect the value of a stock held in a portfolio against the risk of a decline in the
market value, an investor would follow:
a. A covered call writing strategy.
b. A protective put buying strategy.
c. A butterfly spread.
d. A short call strategy.
e. None of the above.
A stock insurance company:
a. Is similar in structure to a corporation.
b. Issues shares that are traded publicly
c. Answers to only one constituency because its policyholders and its owners are
the same.
d. a and b only
e. a and c only.
Bonds secured by real property or personal property are called:
a. Mortgage bonds.
b. Debentures.
c. Subordinated bonds.
d. Collateral trust bonds.
e. None of the above.
Loans made by offshore banks are referred to as:
a. Eurocurrency loans.
b. Euro medium-term notes.
c. Eurobonds.
d. Euroloans.
e. None of the above.
The use of an interest rate swap to change the cash flow nature of liabilities is known
as:
a. Asset swap.
b. Liability swap.
c. Amortizing swap.
d. Bullet swap.
e. None of the above.
Companies that provide insurance for both life and health and property and casualty are
called:
a. Life insurance companies.
b. Property and casualty insurance companies.
c. Multi-line insurance companies.
d. Health insurance companies.
e. None of the above.
Monetary policy for member countries of the European Union is administered by the:
a. Bundesbank.
b. European Central Bank.
c. Federal Reserve.
d. Bank of England.
e. None of the above.
The risk resulting from a decline in mortgage rates that will shorten the life of a
mortgage is called:
a. Prepayment risk.
b. Contraction risk.
c. Extension risk.
d. Price risk.
e. None of the above.