The value of an interest rate swap is the:
a. Present value of all expected future cash benefits.
b. Difference between the present value of the cash flow of the two sides of the swap.
c. Discounted value of the floating cash flows.
d. Sum of the cash flows.
e. None of the above.
Which of the following risks are associated with realizing the expected cash flows?
a. Default risk.
b. Purchasing power risk.
c. Foreign-exchange risk.
d. All of the above.
Currency futures do not provide a good vehicle for hedging:
a. Long-dated foreign exchange exposure.
b. Currency exposure in the British pound.
c. Short-term currency exposure.
d. Anticipated currency exposure.
e. None of the above.
Cash reserve funds are:
a. A form of reserve funds.
b. Typically used in conjunction with external credit enhancements.
c. A form of internal credit enhancement.
d. All of the above.
e. None of the above.
A party to a futures contract can liquidate the position by:
a. Taking an offsetting position in the same contract.
b. Waiting until the settlement date.
c. Walking away from the futures contract.
d. a and b only.
e. All of the above.
Commercial paper is rated by nationally recognized statistical rating agencies.
a. True.
b. False.
Maturity intermediation has implications for financial markets in that:
a. Investors have more choices concerning the maturity of their investments.
b. Borrowers have more choices for the length of their debt obligations.
c. Investors will require that long-term borrowers pay a higher interest rate than on
short-term borrowing.
d. a and c only.
e. All of the above.
Options markets have developed in many countries, including:
a. The United Kingdom.
b. Canada.
c. The Netherlands.
d. All of the above.
e. a and b only.
The option price is a reflection of the option’s:
a. Premium.
b. Intrinsic value.
c. Time value.
d. b and c only.
e. None of the above.
In estimating beta, practical problems arise, which are a function of:
a. The length of time over which the return is calculated.
b. The market index selected.
c. The specific time period used.
d. The number of observations.
e. All of the above.
Market participants tend to construct yield curves from observations of prices and
yields in the:
a. Bond market.
b. Treasury market.
c. Agency securities market.
d. Money market.
e. None of the above.
One of the most important duties of an underwriter is to perform “due diligence.”
a. True.
b. False.
Home equity loans are typically:
a. First lien on property.
b. Second lien on property.
c. Unsecured.
d. Secured by auto loans.
e. None of the above.
A stock issue, which is offered simultaneously in several countries by an international
syndicate is called a(n):
a. International equity.
b. Foreign equity.
c. Euroequity.
d. ADR.
e. GDR.
The prices of stocks around the world move together in an exact way.
a. True.
b. False.
The borrowings by S&Ls from the Federal Home Loan Banks are called:
a. Reserves.
b. Advances.
c. Deposits.
d. Contributions.
e. None of the above.
One of the results of the financial innovations, which have occurred since the 1960, has
been the introduction of market-broadening instruments, which increase the liquidity of
markets and the availability of funds by:
a. Attracting new investors.
b. Offering new opportunities for borrowers.
c. Reallocating financial risk to those less adverse to them.
d. a anb b only.
e. All of the above.
In a cap or floor, the only party that is required to perform is the:
a. Buyer.
b. Seller.
c. Asset/liability manager.
d. Depository institution.
e. None of the above.
As the largest and most active bond market, the Treasury market offers the fewest
problems of illiquidity.
a. True.
b. False.
A warrant, which gives the holder the right but not the obligation to buy a designated
number of shares at a specified price before a set date, is equivalent to:
a. A call option.
b. A put option.
c. A straddle.
d. A spread.
e. None of the above.
There is no uniform system for classifying the sectors of the global bond market.
a. True.
b. False.
Non-U.S. companies, which publicly offer a security in the U.S., must file financial
statements based on:
a. Their home country’s GAAP.
b. U.S. GAAP.
c. International accounting standards.
d. Foreign accounting rules.
e. None of the above.
The Pfandbriefe market:
a. Is the second largest covered bonds market.
b. Is the largest asset in the European bond market.
c. Is slightly more than one-half of the German bond market.
d. Collateralizes all its bonds by either commercial or residential mortgages.
e. a and b only.
The basic mortgage-backed security is the:
a. Collateralized mortgage obligation.
b. Stripped mortgage-backed security.
c. Mortgage pass-through security.
d. Derivative mortgage-backed security.
e. None of the above.
Securities with a maturity of less than one year are traded in the:
a. Bond market.
b. Money market.
c. Capital market.
d. Euromarket.
e. None of the above.
Asset pricing models are equilibrium models.
a. True.
b. False.
The two principal factors in determining whether or not to lend funds are the:
a. Loan-to-value ratio.
b. Payment-to-income ratio.
c. Times-interest-earned ratio.
d. a and b only.
e. b and c only.
A transaction in which an investor borrows to buy additional securities using the
securities themselves as collateral is called:
a. Leveraged buyout.
b. Buying on margin.
c. Short selling.
d. All of the above.
e. None of the above.
Medium-term notes are:
a. Corporate debt obligations that are offered continuously to investors.
b. Sold with securities from 9 months to 30 years.
c. Not registered with the SEC.
d. a and b only.
e. All of the above.