Compare and contrast Treasury bills, commercial paper, and certificates of deposits.
Which of the following statements is most correct?
a. Municipalities are not permitted to tax the interest income from securities issued by
the U.S. Treasury.
b. Municipal bonds are securities issued by the U.S. Treasury.
c. The equivalent taxable yield is the before-tax yield on Treasury securities.
d. The yield on municipal bonds is more than that on Treasuries with the same maturity.
e. None of the above.
Bonds secured by real property or personal property are called:
a. Mortgage bonds.
b. Debentures.
c. Subordinated bonds.
d. Collateral trust bonds.
e. None of the above.
Which of the following statements is false?
a. Default is a prepayment.
b. Nonamortizing assets have no prepayment.
c. Prepayments occur due to loan consolidations.
d. Prepayments are affected by the prevailing level of interest rates relative to the
interest rate on the loan.
e. None of the above.
Mortgage loans tend to be rather illiquid because:
a. There is no secondary market.
b. They are large.
c. They are irreversible.
d. They are indivisible.
e. b and d only.
Any company that publicly offers a security in the U.S. becomes a reporting company
and, as such, is subject to:
a. The Securities Act of 1933.
b. The Securities Exchange Act of 1934.
c. The SEC.
d. The NASD.
e. None of the above.
In contrast to corporate debt, medium-term notes (MTNs) are:
a. Distributed to investors on a best efforts basis.
b. Are sold in large offerings.
c. Are sold on an intermittent basis.
d. a and c only.
e. All 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.
A general obligation bond is said to be double-barreled when it is secured by:
a. The issuer’s general taxing power.
b. Certain identified fees, grants, and special charges provide additional revenues from
outside the general fund.
c. A specified number of fixed assets.
d. a and b only.
e. All of the above.
A statistical index of the sensitivity of an asset’s price change to changes in the value of
the overall market or of assets in general is the:
a. Variance.
b. Standard deviation.
c. Correlation coefficient.
d. Beta.
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%.
If the escrow is properly structured, prerefunded bonds are among the safest of all
municipal securities since they are collateralized by:
a. U.S. government obligations.
b. State general obligation bonds.
c. The general taxing power of the issuer.
d. Insurance policies.
e. None of the above.
The difference between the cash price and the futures price is called:
a. Bid-ask spread.
b. Income spread.
c. Basis.
d. Profit.
e. None of the above.
Municipal bonds are securities issued by:
a. The federal government.
b. State governments.
c. Local governments.
d. Municipalities.
e. b, c, and d only.
When an investment banking firm commits its own funds by either taking an equity
interest or creditor position in companies, this activity is referred to as:
a. Merchant banking.
b. Leveraged buyout.
c. Initial public offering.
d. Private placement.
e. None of the above.
When the theoretical cross rate differs from the actual cross rate quoted by dealers, a
riskless arbitrage opportunity arises called:
a. Index arbitrage.
b. Locational arbitrage.
c. Triangular arbitrage.
d. Credit arbitrage.
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.
Graphically, all the Markowitz efficient portfolios lie:
a. On the boundary of the set of feasible portfolios.
b. Below the efficient frontier.
c. Above the efficient frontier.
d. None of the above.
e. All of the above.
Explain the different types of external and internal credit enhancements.
Compare and contrast the three forms of the expectations theory.
The difference between the execution price of a security and the price that would have
existed in the absence of the trade is referred to as:
a. The bid-ask spread.
b. The execution cost.
c. The market timing costs.
d. Income spread.
e. None of the above.
The foreign exchange market is a(n)
a. Interbank market.
b. Dealer market.
c. Over-the-counter market.
d. All of the above.
e. a and c only.
Which of the following is true concerning a Type-II liability?
a. Amount and timing of cash outlay are known.
b. Amount and timing of cash outlay are unknown.
c. Amount of cash outlay is known while timing of cash outlay is unknown.
d. Amount of cash outlay is unknown while timing of cash outlay is known.
e. None of the above.
On the Tokyo Stock Exchange, a satori:
a. Functions as an intermediary between the dealers and the brokers who are members
of the exchange.
b. Cannot buy or sell for their own accounts.
c. Arrange transactions among dealers.
d. Conduct auctions during the trading day.
e. All of the above.
In which of the following markets are Treasury securities issued when they are traded
prior to the issuance of the Treasury?
a. The primary market.
b. The secondary market.
c. The when-issued market.
d. The wi market.
e. c and d only.
The principal economic functions of financial assets include:
a. The transfer of funds from those with surplus funds to those who need funds.
b. The transfer of ownership from seller to buyer.
c. The transfer of funds so as to redistribute the unavoidable risk associated with the
cash flow generated by tangible assets among those seeking and providing the funds.
d. a and c only.
e. All of the above.
An indirect quote is the:
a. Number of units of foreign currency needed to acquire one unit of the local currency.
b. Number of units of local currency needed to acquire one unit of the foreign currency.
c. Reciprocal of a direct quote.
d. a and c only.
e. None of the above.
With regard to the rating of sovereign bonds, political risk:
a. Is an assessment of the ability of a government to satisfy its obligations.
b. Is an assessment of the willingness of a government to satisfy its obligations.
c. Is assessed based on qualitative analysis of the economic and political factors that
influence a government’s economic policies.
d. a and b only.
e. b and c only.
Government regulation of financial markets takes which of the following forms?
a. Disclosure regulation.
b. Financial activity regulation.
c. Regulation of financial institutions.
d. Regulation of foreign participants.
e. All of the above.
When the futures option is exercised:
a. The futures price for the futures contract will be set equal to the exercise price.
b. The position of the two parties is immediately marked-to-market based on the then
current futures price.
c. The economic benefits from exercising the option are realized by the option holder.
d. a and b only.
e. All of the above.
CMBS can be issued by ________.
A) Ginnie Mac
B) Fannie Mac.
C) Freddie Mae.
D) private entities.
Dynamic hedging is an investment strategy, which:
a. Seeks to insure the value of a portfolio through the use of a synthetic put option.
b. Requires rebalancing.
c. Takes advantage of the mispricing of stock index futures.
d. a and b only.
e. All of the above.
Explain what a preemptive rights offering is and why a standby underwriting
arrangement may be needed.
Explain the differences and similarities between riskless arbitrage and risk arbitrage.
How does it differ from speculation?
The slope of the SML is measured by:
a. Beta.
b. The market risk premium.
c. The risk premium.
d. The riskfree rate.
e. None of the above.