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.
The different types of pension plans include:
a. Defined benefit plans.
b. Defined contribution plans.
c. Cash balance plans.
d. a and b only.
e. All of the above.
Prepayments for auto loan-backed securities are measured in terms of:
a. Conditional prepayment rate (CPR).
b. Absolute prepayment speed (ABS).
c. Prospectus prepayment curve (PPC).
d. Shifting interest.
e. None of the above.
Forward rates exclusively represent the expected future rates according to the:
a. Market segmentation theory.
b. Pure expectations theory.
c. The liquidity theory.
d. The preferred habitat theory.
e. None of the above.
Prior to February 2001, the Chinese stock market was divided into:
a. A shares.
b. B shares.
c. H shares.
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.
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.
Describe the differences between direct and indirect investment and provide an example
of each.
A loan in which a group of banks provides funds to the borrower is known as a:
a. Senior bank loan.
b. Syndicated bank loan.
c. Domestic bank loan.
d. Participation loan.
e. None of the above.
The activities of underwriters are regulated by:
a. The Securities Act of 1933.
b. The Securities and Exchange Commission.
c. The Securities Exchange Act of 1934.
d. The Investment Bankers Association.
e. None of the above.
What are the major differences between a futures contract and an options contract?
The futures price will trade at a premium to the cash price if:
a. The yield curve is normal, and the cost of carry is positive.
b. The yield curve is normal, and the cost of carry is negative.
c. The yield curve is inverted, and the cost of carry is negative.
d. The yield curve is flat, and the cost of carry is zero.
e. None of the above.
The option of when in the delivery month of a CBT Treasury bond futures contract to
deliver is referred to as:
a. Quality option.
b. Timing option.
c. Wild card option.
d. Swap option.
e. None of the above.
Discuss the differences between covered bonds and residential mortgage-backed
securities (RMBS), commercial mortgage-backed securities (CMBS), and other
asset-backed securities (ABS).
LEAPS are:
a. Short-term options.
b. Long-term options.
c. Nearby options.
d. Perpetual options.
e. None of the above.
A cap is equivalent to:
a. A package of forwards.
b. A package of call options.
c. A package of put options.
d. Complex options.
e. None of the above.
Investment banking activities are performed by:
a. Commercial banks.
b. Securities firms.
c. Government agencies.
d. a and b only.
e. All of the above.
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.
The price at which the asset may be bought or sold is called the:
a. Option price.
b. Option premium
c. Exercise price.
d. Strike price.
e. c and d only.
An investment banking firm will typically put together a group of firms in order to:
a. Reduce the risk of capital loss.
b. Reduce the risk of default.
c. Increase the revenues generated from the underwriting process.
d. Reduce the risk of pricing the issue.
e. None of the above.
In a swap, two parties are exchanging payments. The risk that one party will fail to meet
its obligation to make payments is called:
a. Default risk.
b. Counterparty risk.
c. Credit risk.
d. Price risk.
e. None of the above.
The decline in the share of Brady bonds is due to:
a. The fact that many countries have not been able to improve their financial condition
so as to raise more money by issuing global bonds and Eurobonds.
b. The lesser liquidity of past-due interest bonds.
c. The decline in emerging markets bond issues.
d. The retirement of these bonds by their issuers.
e. All of the above.
The goals of the Big Bang reforms for the Japanese financial markets were to develop
a:
a. Free market, which employs market principles.
b. Fair and transparent market.
c. Global market.
d. A market, which is less susceptible to domestic political pressures.
e. All 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.
A mortgage design that is created for senior homeowners who want to convert their
home equity into cash is the.
a. Convertible mortgage.
b. Reverse mortgage.
c. Traditional mortgage.
d. Growing-equity mortgage.
e. Subprime loans.
Pension equity and floor-offset plans are examples of:
a. Defined contribution plans.
b. Defined benefit plans.
c. Cash balance plans.
d. Hybrid plans.
e. Exchange traded plans.
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.
Senior bank loans:
a. Have a priority position over subordinated lenders with respect to interest and
principal.
b. Have first claim to the earnings and assets of the firm.
c. Have a fixed term.
d. a and c only.
e. All of the above.
Treasury securities that adjust for inflation are referred to as:
a. Inflation indexed bonds.
b. Real return bonds.
c. TIPS.
d. LEAPS.
e. None of the above.
Explain the relationship between a swap and a forward contract.
The shape of the yield curve also influences when the short will choose to deliver. Thus,
if the carry is negative, the short will:
a. Delay delivery until the last permissible settlement date.
b. Deliver on the first permissible settlement date.
c. Will not do anything.
d. Will wait until the shape of the yield curve has changed.
e. None of the above.