If the price of a security reflects all information, whether or not it is publicly available,
the market is said to be:
a. Weak form efficient.
b. Semi-strong form efficient.
c. Strong form efficient.
d. Operationally efficient.
e. None of the above.
An indirect quote is the:
a. Number of units of foreign currency needed to acquire one unit of the local currency.
b. Number of units of local currency needed to acquire one unit of the foreign currency.
c. Reciprocal of a direct quote.
d. a and c only.
e. None of the above.
The most important use of options is to alter return distributions.
a. True.
b. False.
When an investment banker puts together a selling group, the gross spread is divided
among:
a. The lead underwriter.
b. Members of the underwriting syndicate.
c. Members of the selling group.
d. B and c only.
e. All of the above.
To construct an efficient portfolio of risky assets, it is assumed that investors are:
a. Risk lovers.
b. Risk neutral.
c. Risk averse.
d. Riskless.
e. None of the above.
The decline in the share of Brady bonds is due to:
a. The fact that many countries have not been able to improve their financial condition
so as to raise more money by issuing global bonds and Eurobonds.
b. The lesser liquidity of past-due interest bonds.
c. The decline in emerging markets bond issues.
d. The retirement of these bonds by their issuers.
e. All of the above.
Municipal securities secured by some form of tax revenues include:
a. General obligation debt.
b. Appropriation-backed obligations.
c. Moral obligation bonds.
d. Debt obligations supported by public credit enhancement programs.
e. All of the above.
Which of the following foreign governments issue inflation-indexed securities?
a. Canada.
b. Australia.
c. U.K.
d. Japan.
e. a, b, and c only.
A daily price limit sets the minimum and maximum price at which the futures contract
may trade during its life.
a. True.
b. False.
Ginnie Mae ________.
A) issues securities that are not backed by FHA-insured multifamily housing loans.
B) does not create project loan pass-through securities.
C) purchase multifamily loans from approved lenders and either retain them in their
portfolio or use them for collateral for a security.
D) creates securities that can be backed by a single project loan on a completed project
or one or more project loans.
When world capital markets are mildly segmented, there are opportunities to:
a. Raise funds at a lower cost in capital markets of another country.
b. Reduce the risks of doing business in foreign markets.
c. Earn the same required rate of return on securities of comparable risk.
d. All of the above.
e. None of the above.
Amortizing assets are loans, which:
a. Have a schedule of principal and interest payments over the life of the loan.
b. Do not have a schedule for the periodic payments that the individual borrower must
make.
c. Require the borrower to make a minimum periodic payment.
d. b and c only.
e. All of the above.
The marginal rate of substitution between current and future consumption is the slope
of the:
a. Security market line.
b. Capital market line.
c. Indifference curve.
d. Efficient frontier.
e. None of the above.
A ________ is a contractual agreement that prohibits any prepayments during a
specified period of time, called the lockout period.
A) defeasance
B) yield maintenance charges
C) prepayment lockout
D) prepayment penalty points
Insurance policies are legally binding policies for which the policyholder pays
insurance premiums.
a. True.
b. False.
When a loan is based solely on the credit of the borrower and on the collateral for the
mortgage, the mortgage is said to be a:
a. Fixed-rate mortgage.
b. Adjustable rate mortgage.
c. Conventional mortgage.
d. Guarantee.
e. None of the above.
Riskless arbitrage calls for a trader to find a security or package of securities trading at
different prices.
a. True.
b. False.
Futures contracts are traded:
a. In the interbank market.
b. In the OTC market.
c. On an organized exchange.
d. Electronically.
e. None of the above.
The initial motivation for the interest rate swap market was borrower exploitation of
what was perceived to be:
a. Index arbitrage opportunities.
b. Credit arbitrage opportunities.
c. Currency arbitrage opportunities.
d. Risky arbitrage opportunities.
e. None of the above.
Mortgage designs, which have been offered to solve the tilt problem include the:
a. Graduated-payment mortgage.
b. Price-level-adjusted mortgage.
c. Dual-rate mortgage.
d. All of the above.
e. None of the above.
The different types of pension plans include:
a. Defined benefit plans.
b. Defined contribution plans.
c. Cash balance plans.
d. a and b only.
e. All of the above.
A serial maturity structure requires that a portion of the debt obligation be retired each
year.
a. True.
b. False.
By far the fastest growing sector of the defined contribution plans is the:
a. 401(k) plan.
b. 403(b) plan.
c. 457 plan.
d. All of the above.
e. None of the above.
Interdealer systems, also called client-to-dealer systems, typically display to customers
the best bid or offer price of those posted by all dealers.
a. True.
b. False.
Investors who place their funds in an investment company, which in turn invests the
funds received in the stock of a large number of companies benefit from:
a. Diversification.
b. Reduced risk.
c. Lower cost.
d. All of the above.
e. a and b only.
A stripped mortgage-backed security is a type of derivative mortgage-backed security.
a. True.
b. False.
For a closed-end fund, the share price is always the NAV of the fund.
a. True.
b. False.
An instrument, which gives the buyer the right to buy from or sell to the writer a
designated futures contract at a designated price at anytime during the life of the
instruments is called a:
a. Stock option.
b. Futures option.
c. Delayed option.
d. Timing option.
e. None of the above.
Options offer:
a. Substantial upside return potential.
b. Substantial downside risk protection.
c. Unlimited gains and losses.
d. a and b only.
e. All of the above.
Eurocommerical paper:
a. Is issued and placed outside the jurisdiction of the currency of the denomination.
b. Has considerably longer maturity than domestic commercial paper.
c. Is almost always dealer placed.
d. Has an active secondary market.
e. All of the above.
In the U.S., secondary trading of common stock occurs on:
a. Major national stock exchanges.
b. Regional stock exchanges.
c. The OTC market.
d. All of the above.
e. a and b only.
The relationship among the spot exchange rate, the interest rates in two countries. And
the forward rate is called purchasing power parity.
a. True.
b. False.
Preferred stock is classified as a senior instrument in that holders of these securities:
a. Have priority over debtholders in the case of liquidation.
b. Have priority over common stockholders in the case of bankruptcy.
c. Have first claim to the earnings and assets of the firm.
d. Have no risk.
e. None of the above.