Which of the following terms are associated with insurance companies?
a. Premiums.
b. Risk bearers.
c. Underwriting process.
d. a and b only.
e. All of the above.
The difference between the cash price and the futures price is called:
a. Bid-ask spread.
b. Income spread.
c. Basis.
d. Profit.
e. None of the above.
With regard to the rating of sovereign bonds, political risk:
a. Is an assessment of the ability of a government to satisfy its obligations.
b. Is an assessment of the willingness of a government to satisfy its obligations.
c. Is assessed based on qualitative analysis of the economic and political factors that
influence a government’s economic policies.
d. a and b only.
e. b and c only.
Impact costs, timing costs, and opportunity costs are examples of:
a. Explicit costs.
b. Implicit costs.
c. Soft dollars.
d. Hard dollars.
e. None of the above.
A FLEX option is a contract whereby the terms of the contract can be customized with
respect to:
a. Strike price.
b. Expiration date.
c. Settlement style.
d. Underlying instrument.
e. All of the above.
Corporate bond issuers use the proceeds from a bond sale for:
a. Working capital.
b. Expansion of facilities.
c. Refinancing of outstanding debt.
d. Financing takeovers.
e. All of the above.
Asset-backed securities and corporate bonds differ in terms of:
a. Credit risk.
b. Operational risk.
c. Investment risk.
d. a and b only.
e. None of the above.
Banks use secondary reserves to meet the Fed’s reserve requirements.
a. True.
b. False.
Which of the following statements is false?
a. Stock index futures contracts are cash settlement contracts.
b. There are margin requirements for futures contracts.
c. Futures positions are marked-to-market daily.
d. Margins for speculators are less than for hedgers.
e. None of the above.
Which of the following is true concerning a Type-II liability?
a. Amount and timing of cash outlay are known.
b. Amount and timing of cash outlay are unknown.
c. Amount of cash outlay is known while timing of cash outlay is unknown.
d. Amount of cash outlay is unknown while timing of cash outlay is known.
e. None of the above.
The relationship between the call option price, the put option price, and the price of the
underlying asset is knows as:
a. Risk/return relationship.
b. Put-call parity relationship.
c. Binomial relationship.
d. Arbitrage relationship.
e. None of the above.
The cost of a seat on an exchange is determined by supply and demand.
a. True.
b. False.
Pension plans are regulated under which of the following acts?
a. Employee Retirement Income Security Act.
b. Pension Benefit Guaranty Act.
c. Pension Funding Equity Act.
d. Pension Protection Act.
e. Investment Company Act.
Usually, state and local governments require a competitive sale to be announced in a
recognized financial publication, such as:
a. Barron’s.
b. The Bond Buyer.
c. Institutional Investor.
d. Financial Analyst Journal.
e. None of the above.
When an option has intrinsic value, it is said to be:
a. In the money.
b. Out-of-the money.
c. At-the-money.
d. Time dependent.
e. None of the above.
The Pension Funding Equity Act:
a. Set funding standards for the minimum contributions that a plan sponsor must make
to the pension plan to satisfy the actuarially projected benefit payments.
b. Established fiduciary standards for pension fund trustees, managers, or advisors.
c. Gave corporate sponsors of DB plans some relief from burdensome
pension contributions.
d. a and b only.
e. All of the above.
Forward rates are also referred to as:
a. Futures rates.
b. Hedgeable rates.
c. Implicit rates.
d. Future oriented rates.
e. None of the above.
To purchase student loans in the secondary market and to securitize pools of student
loans, Congress created a government-sponsored enterprise commonly known as:
a. Fannie Mae.
b. Sallie Mae.
c. Freddie Mac.
d. Ginnie Mae.
e. None of the above.
When a futures contract is used to hedge a position where either the portfolio or the
individual financial instrument is not identical to the instrument underlying the futures,
it is called a:
a. Cross-hedge.
b. Long hedge.
c. Short hedge.
d. Perfect hedge.
e. None of the above.
As a result of the amount of funds managed by financial intermediaries, there are
economies of scale in contracting and processing information about financial assets.
a. True.
c. False.
The price discovery process is an economic function, which refers to:
a. Financial markets that reduce the search and information costs.
b. Financial markets that signal how funds in the economy should be allocated among
financial assets.
c. Financial markets that provide a mechanisms for an investor to sell a financial asset.
d. Financial markets that offer liquidity.
e. None of the above.
The Black-Scholes option pricing model:
a. Computes a fair option price.
b. Derives the price for a European call option.
c. Prices options written on a nondividend-paying stock.
d. b and c only.
e. All of the above.
Rule 415, which permits certain issuers to file a single registration document indicating
that it intends to sell a certain amount of a certain class of securities at one or more
times within the next two years, is popularly referred to as:
a. Private placement.
b. Shelf registration.
c. Red herring.
d. Security liquidity.
e. None of the above.
Participants in financial markets use interest rate swaps to:
a. Alter the cash flow characteristics of their assets.
b. Capitalize on perceived capital market inefficiencies.
c. Change the risk by altering the cash flow characteristics of their liabilities.
d. a and b only.
e. All of the above.
In general, less than 2% of futures contracts are settled by delivery.
a. True.
b. False.
In an interest rate cap or floor agreement, the predetermined level of the reference rate
that is used to determine when and how much the seller must compensate the buyer is
known as:
a. The strike rate.
b. Caption.
c. Flotion.
d. The swap rate.
e. None of the above.
For a corporation, an asset-backed security:
a. Is an alternative means of raising funds.
b. Provides an opportunity to reduce funding costs by separating the credit rating of the
issuer from the credit quality of the pool of loans or receivables.
c. Is a high return investment.
d. a and b only.
e. All of the above.
The buyer of a cap benefits if the designated reference:
a. Rises above the strike rate.
b. Falls below the strike rate.
c. Stays the same.
d. None of the above.
Two basic types of derivative instruments are:
a. Stocks and bonds.
b. Options and futures.
c. Bonds and swaps.
d. Forward contracts and stocks.
e. None of the above.
In the U.S., currency futures contracts are traded on the:
a. New York Stock Exchange.
b. Big Board.
c. International Monetary Market.
d. Chicago Board of Trade.
e. None of the above.
ADRs are denominated in U.S. dollars and pay dividends in U.S. dollars.
a. True.
b. False.
A stop order that designates a price limit is called:
a. Stop order.
b. Limit order.
c. Stop-limit order.
d. Market order.
e. Fill order.