Which of the following is most correct?
a. Stock trading by individuals has increased significantly during the last decade.
b. Stock trading commissions have increased both for institutions and individuals.
c. Discount brokers and online brokers offer less service to retail investors and
consequently stock trading commissions have decreased significantly.
d. Because individuals usually transact smaller orders, they will incur higher impact
costs.
e. None of the above.
When making a direct comparison between the yield to maturity on a U.S. fixed-rate
bond and a Eurodollar fixed rate bond:
a. An adjustment must be made because Eurodollar bonds pay annually rather than
semiannually.
b. Given the yield on a Eurodollar fixed-rate bond, the bond-equivalent yield will
always be lower.
c. Given the yield on a U.S. fixed-rate bond, the yield to maturity on an annual basis is
always less than the yield to maturity on a bond-equivalent basis.
d. a and b only.
e. a and c only.
Which of the following is true regarding the income of an insurance company?
a. The income from premiums paid is an unstable type of revenue.
b. The initial underwriting income is the return generated from the investment of the
insurance premiums.
c. An insurance company’s profit is the sum of its insurance premiums and investment
returns.
d. The investment returns from the investment of the insurance premiums accumulate
until the funds are paid out on the policy.
e. c and d only.
Competitive bidding underwriting is mandated for certain securities of:
a. Regulated public utilities.
b. Industrials.
c. Municipal debt obligations.
d. a and c only.
e. All of the above.
In the market for loans, net borrowing is zero.
a. True.
b. False.
Private transactions between institutional investors who deal directly with each other
without an intermediary take place in the:
a. First Market.
b. Second Market.
c. Third Market.
d. Fourth Market.
e. None of the above.
Treasury securities with an original maturity greater than ten years are called:
a. Treasury bills.
b. Treasury bonds.
c. Treasury strips.
d. Cash management bills.
e. None of the above.
The market for corporate debt obligations include the:
a. Medium-term note market.
b. Bank loan market.
c. Commercial paper market.
d. a and b only.
e. All of the above.
Financial institutions provide which of the following services:
a. Exchanging financial assets on behalf of customers.
b. Providing investment advice.
c. Managing portfolios
d. Assisting in the creation of financial assets.
e. All of the above.
The price of one currency in terms of another currency is called:
a. Exchange rate.
b. Currency rate.
c. Conversion rate.
d. Direct quote.
e. Indirect quote.
More complex OTC options are called:
a. Bermuda options.
b. Atlantic options.
c. Exotic options.
d. Plain vanilla options.
e. All of the above.
The commitment letter states that, for a fee, the applicant has the right but not the
obligation to require the lender to provide funds at a certain interest rate and on certain
terms.
a. True.
b. False.
Commercial properties are income-producing properties.
a. True.
b. False.
Which of the below statements is TRUE?
A) One type of RMBS is those backed by large properties such as regional malls or
office buildings.
B) Conveyance deals are created by investment banking firms that establish a conduit
arrangement with mortgage bankers.
C) CMBS deals (that are called fusion deals or hybrid deals) are multiple borrower
CMBS deals that combine loans that are included in conduit deals with a large or
“mega” loan.
D) All of these
Depository institutions include:
a. Savings and loans associations.
b. Savings banks.
c. Credit unions.
d. Commercial banks.
e. All of the above.
An issue that has both a minimum and a maximum coupon rate is said to be:
a. Capped.
b. Floored.
c. Drop-locked.
d. Collared.
e. Restricted.
A swap can be thought of as a:
a. Package of forward contracts.
b. Package of futures contracts.
c. Package of options.
d. a and c only.
e. None of the above.
The price of a futures contract is determined by:
a. Supply and demand conditions.
b. Open outcry of bids and offers in an auction market.
c. The pit trader.
d. Locals.
e. None of the above.
Commercial banks and investment banks customize for their clients interest rate
contracts that are useful for:
a. Index arbitrage.
b. Controlling risk.
c. Taking positions in markets.
d. b and c only.
e. None of the above.
An investor who lends funds to a corporation by purchasing its debt obligation is
exposed to:
a. Credit risk.
b. Default risk.
c. Downgrade risk.
d. a and b only.
e. All of the above.
Standard & Poor’s Corporation, Moody’s Investors Services, and Fitch are companies in
the U.S. that:
a. Offer investment banking advice to corporations.
b. Assign ratings to corporate debt instruments.
c. Provide investment advice to institutional investors.
d. Give legal advice in the case of bankruptcy.
e. All of the above.
A formal corporate bond-rating systems has existed in Japan since the 1940s.
a. True.
b. False.
Investors in mutual funds incur:
a. Fund sales charges.
b. Annual operating expenses.
c. Interest.
d. a and b only.
e. All of the above.
The global bond market can be classified into the national bond market and:
a. The international bond market.
b. The external bond market.
c. The offshore bond market.
d. The Eurobond market.
e. All of the above.
More strongly aligning the interests of management with those of shareholders can
mitigate the likelihood that management will act in its own self-interest.
a. True.
b. False.
The major function of futures markets is to transfer price risk from hedgers to
speculators.
a. True.
b. False.
Freddie Mac and Fannie Mae created mortgage pass-through securities by:
a. Purchasing mortgages.
b. Pooling these mortgages.
c. Issuing securities using the pool of mortgages as collateral.
d. b and c only.
e. All of the above.
Which of the following statements is most correct?
a. Commercial paper may be issues in either a discount form or interest-bearing form.
b. Commercial paper is classified as either direct paper or dealer-placed paper.
c. The secondary market for commercial paper is very active.
d. Commercial paper is more liquid than Treasury bills.
e. a and b only.
For a commercial mortgage, prepayment protection is provided by:
a. Prepayment lockout.
b. Defeasance.
c. Prepayment penalty points.
d. Yield maintenance charges.
e. All of the above.
The current Treasury yield curve can be used to extrapolate the:
a. Theoretical spot rates.
b. The market’s consensus of future interest rates.
c. Discount rate.
d. a and b only.
e. All of the above.
An important structural difference between exchanges and the OTC market with respect
to the activities of dealers is that:
a. On exchanges, there is only one market maker or dealer per stock called the
specialist.
b. In the OTC market, there may be many dealers for a stock depending on the trading
volume.
c. There is not competition among specialists.
d. a and b only.
d. All of the above.
In general, the securities issued by governments of emerging market countries are
denominated in U.S. dollars.
a. True.
b. False.
The date the a swap begins accruing interest is called:
a. Trade date.
b. Effective date.
c. Maturity date.
d. Settlement date.
e. None of the above.
Capital market theory assumes that:
a. Investors have homogeneous expectations.
b. Investors make decisions over a multiple-period investment horizon.
c. Investors are risk averse.
d. a and c only.
e. All of the above.
An option, which may be exercised only at the expiration date, is called:
a. An American option.
b. A European option.
c. An OTC option.
d. An exchange-traded option.
e. None of the above.