Which of the following statements is most correct?
a. The NYSE is called a membership organization.
b. NYSE’s owners are its seat holders.
c. NASDAQ is owned by the NASD.
d. NASDAQ is a for-profit organization.
e. All of the above.
Members of the European Monetary Union are said to be part of:
a. Europe.
b. Euroland.
c. The Euro zone.
d. B and c only.
e. All of the above.
The effect of the prepayment right is that the cash flows from a mortgage is not known
with certainty. This uncertainty is called:
a. Cash flow risk.
b. Prepayment risk.
c. Marketability risk.
d. Price risk.
e. Credit risk.
The construction of stock market indicators differs on the basis of:
a. The relative weights assigned to the stocks included in the index.
b. The method of averaging used across all the stocks.
c. The universe of stocks represented by the sample underlying the index.
d. All of the above.
e. A and b only.
The Eurodollar CD futures contract is a cash settlement contract.
a. True.
b. False.
The pass-through securities issued by Ginnie Mae, Freddie Mac, and Fannie Mae:
a. Are guaranteed by these agencies.
b. Increase the supply of capital to the residential mortgage market.
c. Provide support for an active secondary market.
d. b and c only.
e. All of the above.
The family of funds concept represents the strategy of the mutual fund industry to offer
investors a choice of numerous funds with different investment objectives in the same
fund family. Thus, investors may move their assets among:
a. Money market funds.
b. Global stock and bond funds.
c. Broadly diversified stock funds.
d. Stock funds devoted to particular sectors.
e. All of the above.
For commercial mortgage loans, call protection can take the following forms:
________.
A) prepayment lockout and defeasance.
B) prepayment lockout and prepayment penalty points.
C) defeasance and yield maintenance charges.
D) All of these
The ultimate causes of financial innovations include:
a. Increased volatility of interest rates, inflation, equity prices, and exchange rates.
b. Advances in computer and telecommunication technologies.
c. Financial intermediary competition.
d. Changing global patterns of financial wealth.
e. All of the above.
A cap and a floor can be viewed simply as:
a. A package of forwards.
b. A package of options.
c. A package of futures.
d. A complex contract.
e. None of the above.
The timing and magnitude of the payments for an insurance company is much more
uncertain because of:
a. The actuarial problems in estimating the life expectancy of individuals.
b. The fact that payments are contingent on uncertain future events.
c. The long lag between the receipts and payments for an insurance company.
d. The continued viability of the insurance company.
e. None of the above.
Mortgage insurance to provide a guarantee for the fulfillment of the borrower’s
obligations is provided by the:
a. Federal Housing Administration.
b. Veterans Administration.
c. Rural Housing Service insurance.
d. PMI insurance.
e. a, b, and c only.
The market-clearing interest rate is found:
a. At the intersection of the saving and investment function.
b. At the intersection of supply and demand.
c. At the point where borrowing and saving take place.
d. At the point where the transformation curve has a slope equal to R.
e. None of the above.
Secondary market trading in common stocks occurs:
a. On organized exchanges, such as the NYSE.
b. In the over-the-counter market, such as NASDAQ.
c. In the call market.
d. a and b only.
e. All of the above.
There is not just one interest rate in any economy, rather there is a structure of interest
rates.
a. True.
b. False.
The pure expectations theory postulates that no systematic factors other than expected
future short-term rates affect forward rates.
a. True.
b. False.
Investors who take positions in securities are required to satisfy initial and maintenance
margin requirements.
a. True.
c. False.
Derivative instruments that provide protection against credit risk are referred to as
credit derivatives.
a. True.
b. False.
The risk-return relationship for individual securities is called:
a. The capital market line.
b. The security market line.
c. The market model.
d. The fitted line.
e. None of the above.
The invoice price for the Treasury bond futures contract is the futures price minus
accrued interest.
a. True.
b. False.
Treasury bills are quoted on a bank discount basis, not on a price basis.
a. True.
b. False.
As a general rule, bonds are callable at:
a. Maturity only.
b. A premium above par.
c. The coupon rate.
d. The yield-to-maturity.
e. None of the above.
Historical return distributions for a portfolio of a large number of securities have shown
that the distribution is:
a. Perfect.
b. Symmetric.
c. Asymmetric.
d. Skewed.
e. None of the above.
To settle a stock index option, the exchange-assigned option writer:
a. Delivers all the stocks that make up the index.
b. Pays cash to the option buyer.
c. Takes an offsetting position.
d. Lets the option expire worthless.
e. None of the above.
Interest rate futures can be used by market participants to:
a. Allocate funds between stock and bonds.
b. Provide portfolio insurance.
c. Enhance returns when futures are mispriced.
d. Hedge against adverse interest rate movements.
e. All of the above.
The APT model postulates that a security’s expected return is influenced by:
a. A single market index.
b. A variety of factors.
c. Market and nonmarket risks.
d. All of the above.
e. None of the above.
When a position is first taken in a futures contract, the investor must deposit a
minimum dollar amount per contract as specified by:
a. The Federal Reserve.
b. The pit trader.
c. The exchange.
d. An informal agreement between the parties involved.
e. None of the above.
The largest group of investors in corporate bonds is:
a. Life insurance companies.
b. Pension funds.
c. Foreign investors.
d. Depository institutions.
e. Mutual funds.
The exercise provision of the S&P 100 index option is that:
a. It cannot be exercised until expiration.
b. It can be exercised any time up to and including the expiration date.
c. It cannot be exercised early.
d. a and c only.
e. None of the above.
STAT surplus:
a. Is defined by accountants for their purposes.
b. Is required by monitoring agencies to assure financial stability.
c. Is measured in an identical manner to GAAP, but their purposes are different.
d. a and b only.
e. All of the above.