Hedging with options by taking a position in the underlying stock allows the investor to
lock in:
a. The riskless arbitrage profit.
b. The abnormal return.
c. The riskfree rate.
d. Price risk.
e. None of the above.
Options traded in the OTC market are known as:
a. Standardized options.
b. Dealer options.
c. Tailor-made options.
d. b and c only.
e. Exchange-traded options.
Futures contracts whose underlying instrument is a short-term debt obligation include:
a. Treasury bill futures.
b. Eurodollar futures.
c. Treasury bond futures.
d. a and b only.
e. All of the above.
Depository institutions are highly regulated at both the state and federal level.
a. True.
b. False.
When financial intermediaries acquire financial resources in the market, they create
liabilities for themselves. They use those resources to create different and more widely
preferred types of securities, which become their assets.
a. True.
b. False.
Under ERISA, when an employee retires the plan sponsor may take the necessary
retirement benefits out of current cash flow.
a. True.
b. False.
A mortgage loan that meets an agency’s underwriting standards is referred to as a:
a. Conforming mortgage.
b. Nonconforming mortgage.
c. Conventional mortgage.
d. Nonconventional mortgage.
e. None of the above.
The secondary market for Treasury securities is a(n):
a. Active market.
b. Over-the-counter market.
c. Exchange-traded market.
d. Trading floor.
e. None of the above.
If an investor wants to purchase a stock at a price less than the prevailing market price:
a. Place a limit order.
b. Write a put option with a strike price near the desired price.
c. Sell a call option.
d. a and b only.
e. None of the above.
The principal originators of residential mortgage loans are:
a. Life insurance companies.
b. Thrifts.
c. Commercial banks.
d. Mortgage bankers.
e. b, c, and d only.
Which of the following transactions is an example of direct investment?
a. An investment company buys a portfolio of stocks and bonds.
b. An individual makes a deposit at a commercial bank.
c. Owning an equity claim against an investment company.
d. a and b only.
e. All of the above.
An in-the-money option is profitable when exercised immediately.
a. True.
b. False.
The creation of a senior-subordinated structure is a means of credit tranching.
a. True.
b. False.
On June 5, 1997, the NYSE voted to adopt a system of trading in:
a. Sixteenth.
b. Decimals.
c. Percent.
d. Pennies.
e. Tennies.
An investment strategy that seeks to insure the value of a portfolio using a synthetic put
option strategy is called:
a. Riskless investing.
b. Dynamic hedging.
c. Program trading.
d. Riskless arbitrage.
e. None of the above.
The major applications of program trades are:
a. Asset allocation.
b. Index arbitrage.
c. Indexing.
d. All of the above.
e. None of the above.
Common stock represents:
a. Ownership interest in a corporation.
b. A liability.
c. Program trading.
d. Arbitrage.
e. None of the above.
In a true securitization, repayment is not dependent on a servicer’s ability to generate
cash flows.
a. True.
b. False.
OTC markets are called multiple market maker systems.
a. True.
b. False.
Equity swaps can be used to create an indexed portfolio to match some U.S. or non U.S.
stock index.
a. True.
b. False.
Effectively, a GIC acts as a zero-coupon bond issued by a life insurance company.
a. True.
b. False.
In response to the Great Depression and its effects on financial markets, the Federal
Reserve provided liquidity for thrifts by the creation of the:
a. Federal Home Loan Banks.
b. Federal Housing Administration.
c. Fannie Mae.
d. Ginnie Mae.
e. Freddie Mac.
The most straightforward option strategy for benefiting from an expected decrease in
the price of some common stock while avoiding the unfavorable consequences should
the price rise is to follow a:
a. Long put strategy.
b. Short put strategy.
c. Long call strategy.
d. Short call strategy.
e. None of the above.
A form of insurance that has no cash value if the insured party does not die within the
set policy period is called:
a. Term insurance.
b. Whole life insurance.
c. Universal life insurance.
d. Variable life insurance.
e. Survivorship insurance.
Depository institutions seek to generate income by:
a. The difference between the return that they earn on assets and the cost of their funds.
b. Selling money for more than it costs to buy money.
c. The bid-ask spread.
d. a and b only.
f. None of the above.
Systematic risk is:
a. The risk that can be eliminated through diversification.
b. The risk that affects all securities.
c. The total risk of a well-diversified portfolio.
d. The risk that cannot be diversified by portfolio combination.
e. b and d only.
In the U.S., options are traded on the:
a. Philadelphia Stock Exchange.
b. CBOE.
c. American Stock Exchange.
d. NYSE.
e. All of the above.
Which of the following is not a factor in the integration of financial markets throughout
the world?
a. Increased institutionalization of financial markets.
b. Advances in telecommunications and computer technologies.
c. Deregulation or liberalization of major financial markets.
d. Expanded role of the World Bank.
e. None of the above.
If the yield to maturity on a Eurodollar bond is 5% then the bond-equivalent yield is:
a. 4.05%.
b. 4.94%.
c. 5.00%.
d. 5.06%.
e. 5.58%.
When the lessor uses only a portion of its own funds to purchase the equipment and
borrows the balance from a bank, the lease is referred to as a:
a. Tax-oriented lease.
b. Leveraged lease.
c. Direct lease.
d. Single-investor lease.
e. None of the above.
Long-term care insurance provides fixed guaranteed periodic payments over a long
period of time, typically resulting from a settlement on a disability or other type of
policy.
a. True.
b. False.
A fund in which the asset manager retains some exposure to systematic risk is:
a. A market directional hedge fund.
b. A corporate restructuring hedge fund.
c. A convergence trading hedge fund.
d. A risk arbitrage hedge fund.
e. An opportunistic hedge fund.
Bankers’ acceptances are sold on a discounted basis just like:
a. Treasury bills.
b. Commercial paper.
c. CDs.
d. a and b only.
e. All of the above.
Because they are created using the securitization process, covered bonds are often
compared to:
a. Residential mortgage-backed securities.
b. Commercial mortgage-backed securities.
c. Asset-backed securities.
d. a and b only.
e. All of the above.
Mortgage originators may generate income from mortgage activity in the form of:
a. Origination fees.
b. Secondary market profits.
c. Servicing fees.
d. a and b only.
e. All of the above.