Conditional orders include:
a. Market orders.
b. Limit orders.
c. Stop orders.
d. b and c only.
e. All of the above.
Which of the following statements is false?
a. Default is a prepayment.
b. Nonamortizing assets have no prepayment.
c. Prepayments occur due to loan consolidations.
d. Prepayments are affected by the prevailing level of interest rates relative to the
interest rate on the loan.
e. None of the above.
The trade date is the date:
a. The counterparties commit to the swap.
b. The swap begins accruing interest.
c. The swap stops accruing interest.
d. The swap is delivered.
e. None of the above.
Exchange-traded mutual funds have which of the following characteristics?
a. ETFs are traded like stocks on an exchange.
b. ETFs are similar to closed-end funds.
c. ETFs avoid realized capital gains and the taxation thereof due to their low portfolio
turnover.
d. All of the above.
e. None of the above.
Central governments issue their securities through:
a. An ad hoc auction system.
b. A Dutch-style system.
c. The regular calendar auction.
d. The tap system.
e. All of the above.
Commercial rating companies evaluate the credit risk associated with municipal
securities.
a. True.
b. False.
The financial reform, which occurred in England in 1986, is called:
a. The Big Board.
b. The Big Bang.
c. Decimal Monday.
d. The Black Monday.
e. None of the above.
A contract’s open interest is used to measure:
a. The level of trading volume.
b. The liquidity of a contract.
c. The number of contracts that have been entered into but not yet liquidated.
d. b and c only.
e. All of the above.
The Fed has currently set the margin requirement at 20%.
a. True.
b. False.
The cash flows of a mortgage pass-through security consist of:
a. Interest payments.
b. Repayment of principal.
c. Any prepayments.
d. a and b only.
e. All of the above.
The option premium is the:
a. Price of the option.
b. Cost of the option.
c. Value of the option.
d. All of the above.
e. None of the above.
The two fundamentally different types of life insurance are term insurance and:
a. Permanent life insurance.
b. Cash-value life insurance.
c. Investment-type life insurance.
d. Whole life insurance.
e. All of the above.
The shape of the yield curve can be explained by:
a. The expectations theory.
b. The liquidity theory.
c. The preferred habitat theory.
d. The market segmentation theory.
e. All of the above.
An obligation guaranteed by another entity is called a:
a. Collateral trust bond.
b. Subordinated debenture bond.
c. Guaranteed bond.
d. Equipment trust certificate.
e. None of the above.
A high-grade bond is a bond with a quality rating that indicates low credit risk.
a. True.
b. False.
The market segmentation theory proposes that the major reason for the shape of the
yield curve lies in asset/liability management constraints.
a. True.
b. False.
What are the principal objectives of the risk-based capital requirements?
a. Greater consistency in evaluating the capital adequacy of major banks.
b. Capital adequacy standards that consider the risk profile of the bank.
c. Recognize liquidity factors and market price sensitivity to which a bank may be
exposed.
d. a and b only.
e. All of the above.
A wild card option is:
a. The choice of which acceptable Treasury issue to deliver.
b. The choice of when in the delivery month to deliver.
c. The choice to deliver after the closing price of the futures contract is determined.
d. The choice to deliver the cheapest issue.
e. None of the above.
The traditional type of mortgage is characterized by:
a. A fixed rate.
b. Level, nominal, payment.
c. Full amortization.
d. a and b only.
e. All of the above.
If the market price of a bond is less than the par value, then the coupon rate is:
a. Less than the par yield.
b. Greater than the required yield to maturity.
c. Equal to the market interest rate.
d. Below the riskless rate.
e. None of the above.
Asset securitization calls for a financial intermediary to:
a. Originate a loan.
b. Retain the loan in its portfolio of assets.
c. Service the loan.
d. Obtain funds from the public to finance its assets.
e. All of the above.
Which of the following statements is most correct?
a. The development of the FLEX option is a response to the growing OTC market.
b. There is an active secondary market for FLEX options.
c. The FLEX option represents a link between listed options and OTC products.
d. FLEX options can be created for Treasury securities.
e. All of the above.
The risk insured against death is which of the following types of insurance?
a. Life insurance.
b. Health insurance.
c. Property and casualty insurance.
d. Liability insurance.
e. Disability insurance.
Which of the following economic factors have been identified to explain security
returns according to the APT?
a. Unanticipated changes in industrial production.
b. Unanticipated changes in inflation.
c. Unanticipated changes in interest rates.
d. Unanticipated changes in the shape of the yield curve.
e. All of the above.
The lower the correlation between assets:
a. The lower the portfolio variance.
b. The higher the expected return for a given level of risk.
c. The greater the diversification benefits.
d. a and b only.
e. All of the above.
To protect against adverse foreign exchange rate movements, borrowers and investors
can use:
a. Currency forward contracts.
b. Currency futures.
c. Currency options.
d. Currency swaps.
e. All of the above.
For entities that borrow funds using securities as collateral, the most common financial
instrument is:
a. Certificates of deposits.
b. Federal funds borrowing.
c. Repurchase agreements.
d. Bankers acceptance.
e. None of the above.
Swaps are beneficial because:
a. They are more transactionally efficient instruments.
b. They increase the liquidity in the swap market.
c. They offer longer maturities than forward and futures contracts.
d. All of the above.
e. None of the above.
The fixed-rate mortgage is the most common type of mortgage design in the U.S.
a. True.
b. False.
The rate earned on federal government debt instruments is usually characterized as the:
a. Nominal rate.
b. Riskless rate.
c. Real rate of interest.
d. Gross rate.
e. None of the above.