For Social Security purposes, fully insured status implies that the worker will receive
the maximum dollar amount of benefits allowable.€
True
False
The majority of money market securities are low-denomination, low-risk investments
designed to appeal to individual investors with excess cash.
New York is the global center of foreign exchange trading with the largest daily volume
of currency trading.
Central governments sometimes intervene in foreign exchange markets by affecting
foreign exchange rates indirectly through raising or lowering interest rates.
An investor earned a 5 percent nominal risk-free rate over the year. However, over the
year, prices increased by 2 percent. The investor’s real risk-free rate was less than his
nominal rate of return.
The process of mortgage securitization results in a separation between mortgage
origination and mortgage financing.
An increase in the perceived riskiness of investments would cause a movement up
along the supply curve.
T-notes and T-bonds are issued in minimum denominations of $100, or multiples of
$100.
A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice
requires payment in Hong Kong dollars. The U.S. importer could hedge this currency
risk by buying the HK dollar forward.
The dollar’s value increased when the Fed cut interest rates in late 2007.
In 1973, the Smithsonian Agreement II eliminated fixed exchange rates for the major
economies.
On a fixed-rate mortgage the dollars of interest the homeowner pays falls each year the
mortgage is outstanding.
If the euro per yen ratio falls, the value of the yen has risen.
Employers are least likely to help pay for at least a portion of which of the following
employment benefits?
a.Long-term disability income insurance
b.Short-term disability income insurance
c.Traditional health insurance
d.Workers’ Compensation insurance
Nationally chartered banks receive chartering and merger approval from the
A.Federal Deposit Insurance Corporation.
B.Office of Comptroller of the Currency.
C.Federal Reserve System.
D.Office of Thrift Supervision.
E.Any of the options may grant a charter and approve a merger.
Suppose that over the last 10 to 15 years significantly large numbers of investors have
been able to earn abnormal returns from using the firm’s publicly available financial
information to forecast growth in earnings and dividends. This would be evidence that
the markets are not
I. weak form efficient.
II. semi-strong form efficient.
III. strong form efficient.
A.I only
B.I and II only
C.III only
D.II and III only
E.I, II, and III
A(n) ____ order must be monitored very carefully.A(n) ____ order must be monitored
very carefully.
a.day
b.good-til-cancelled
c.fill-or-kill
d.week
An annual payment bond has a 9 percent required return. Interest rates are projected to
fall 25 basis points. The bond’s duration is 12 years. What is the predicted price change?
-12 x (-0.0025/1.09)
A.-2.75 percent
B.33.33 percent
C.1.95 percent
D.-1.95 percent
E.2.75 percent
A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a
valued corporate customer when the exchange rate was 1.2 francs per dollar. The
borrower agreed to repay the principal plus 5 percent interest in one year. The borrower
repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate
was 1.3 francs per dollar. What was the bank’s dollar rate of return?
A.26.00 percent
B.-2.69 percent
C.7.14 percent
D.-3.08 percent
E.5.00 percent
Funds in a flexible spending account (FSA) can be accessed via an FSA debit card.
a.True
b.False
Refer to Figure 4-1. What is the maximum number of personal exemptions Tony and
Liz can take this year?
a.Four
b.Three
c.Two
d.One
A bank is earning 6 percent on its $150 million in earning assets and is paying 4.75
percent on its liabilities. The bank’s interest rate spread is __________.
A.6.00 percent
B.4.75 percent
C.1.25 percent
D.10.75 percent
E.1.26 percent
Most non-financial firms would never hold as much of their assets in safe liquid
securities as banks do. Why do banks maintain such a high percentage of investment in
securities?
Suppose a stock is priced at $50. You are bullish on the stock and are considering
buying March calls with an exercise price of $45 and $55, respectively. The 45 call is
priced at $8.50 and the 55 call is quoted at $2.75. What should you consider in deciding
which to purchase if you do not plan on exercising prior to maturity? Be specific.
The ROA for financial institutions such as banks is typically quite low as compared to
nonfinancial firms. Why? With such a low ROA, how can banks attract stockholders?
Discuss the benefits to funds’ suppliers of using a financial intermediary asset
transformer in place of directly purchasing claims such as stocks or bonds. What is the
major disadvantage?
What is convexity? How does convexity affect duration-based predicted price changes
for interest rates changes?
Buying a call at the money call option and writing a put at the money put option are two
ways to make money when prices rise. When would each be the preferable strategy?
What are the major sources of funds for banks? Provide a breakdown of all the major
sources of funds at a bank and briefly describe the different types of
deposits/non-deposit sources.
A foreign investor placing money in dollar-denominated assets desires a 4 percent real
rate of return. Global inflation is running about 3 percent, and the dollar is expected to
decline against her home currency by 1.5 percent over the investment period. What is
her minimum required rate of return? Explain.