The Nikkei 225 Stock Average and the TOPIX are the indexes for the stocks of
established and large companies traded on the:
a. Frankfurt Stock Exchange.
b. London Stock Exchange.
c. Tokyo Stock Exchange.
d. Toronto Stock Exchange.
e. Paris Bourse.
Dealer-created derivative instruments protect investment banking firms against:
a. Capital loss.
b. Adverse price movements.
c. Increases in interest rates.
d. All of the above.
e. None of the above.
Describe the auction method used by the Treasury to market Treasury securities.
Securities with a maturity of less than one year are traded in the:
a. Bond market.
b. Money market.
c. Capital market.
d. Euromarket.
e. None of the above.
Financial institutions provide which of the following services:
a. Exchanging financial assets on behalf of customers.
b. Providing investment advice.
c. Managing portfolios
d. Assisting in the creation of financial assets.
e. All of the above.
The capital asset pricing model assumes that the expected return of a security is
determined by:
a. Multifactor risk.
b. The asset’s beta only.
c. Arbitrage risk.
d. Extra-market sources of risk.
e. None of the above.
Explain the major differences between commercial banks and savings and loan
associations.
The maximum amount that an option buyer can lose is:
a. Unlimited.
b. Limited to the option price.
c. The bid-ask spread.
d. The initial margin.
e. None of the above.
Which of the following terms are associated with insurance companies?
a. Premiums.
b. Risk bearers.
c. Underwriting process.
d. a and b only.
e. All of the above.
Depository institutions acquire the bulk of their funds by offering their liabilities to the
public in the form of deposits. The depository institutions are:
a. Commercial banks.
b. Savings and loan associations.
c. Savings banks.
d. Credit unions.
e. All of the above.
Compare and contrast a warrant and an exchange-traded call option.
Regardless of the property type, the two measures that have been found to be key
indicators of the potential credit performance are the ________.
A) debt-to-equity leverage ratio and the loan-to-value ratio.
B) debt-to-service coverage ratio and the loan-to-value ratio.
C) debt-to-service coverage ratio and the value-to-loan ratio.
D) debt-to-equity leverage ratio and the value-to-loan ratio.
Treasury securities with an original maturity greater than ten years are called:
a. Treasury bills.
b. Treasury bonds.
c. Treasury strips.
d. Cash management bills.
e. None of the above.
The relationship between price and yield for any option-free bond is:
a. Linear.
b. Convex.
c. Concave.
d. Curvilinear.
e. None of the above.
Hedging with futures lets a market participant lock in a price and thereby eliminates:
a. Price risk.
b. Basis risk.
c. Credit risk.
d. Liquidity risk.
e. None of the above.
If the price of a security reflects all information, whether or not it is publicly available,
the market is said to be:
a. Weak form efficient.
b. Semi-strong form efficient.
c. Strong form efficient.
d. Operationally efficient.
e. None of the above.
In a CMBS transaction, there is usually a master servicer and special servicer. The
master servicer is responsible for (1) overseeing the deal, (2) verifying that all servicing
agreements are being maintained, and (3) facilitating the timely payment of interest and
principal.
Basically the objective of the special service is to maximize the recovery of defaulted
loans.
The structure of a CMBS transaction is the same as in a nonagency RMBS ________.
A) in that most structures have a sing bond class (tranch) with the same rating, and
there are regulations for the distribution of interest and principal to the bond class.
B) in that most structures have multiple bond classes (tranches) with the same ratings,
and there are rules for the distribution of interest and principal to the bond classes.
C) in that most structures have multiple bond classes (tranches) with different ratings,
but there are no regulations for the distribution of interest and principal to the bond
classes.
D) in that most structures have multiple bond classes (tranches) with different ratings,
and there are rules for the distribution of interest and principal to the bond classes.
The coupon rate on a floating-rate note may be:
a. LIBOR.
b. A stated margin.
c. The bid on LIBOR.
d. A spread over LIBID.
e. The arithmetic average of LIBOR and LIBID.
To take advantage of an anticipated increase in the stock price while, at the same time,
limiting the maximum loss to the option, the investor will use a:
a. Short call strategy.
b. Long call strategy.
c. Cash-secured put writing strategy.
d. Long-call paper buying strategy.
e. None of the above.
When an issuer sells a new financial asset to the public, it is sold in the:
a. Primary market.
b. Intermediate market.
c. Secondary market.
d. Commodities market.
e. None of the above.
Investors in commercial paper include:
a. Pension funds.
b. Money market mutual funds.
c. Commercial bank trust departments.
d. State and local governments.
e. All of the above.
Non-U.S. companies, which publicly offer a security in the U.S., must file financial
statements based on:
a. Their home country’s GAAP.
b. U.S. GAAP.
c. International accounting standards.
d. Foreign accounting rules.
e. None of the above.
Banks are highly leveraged financial institutions, which means that most of their funds
come from:
a. Deposits.
b. Borrowing from the Federal Reserve through the discount window.
c. Capital gains from the sale of securities.
d. a and b only.
e. All of the above.
The cash flows of a mortgage pass-through security consist of:
a. Interest payments.
b. Repayment of principal.
c. Any prepayments.
d. a and b only.
e. All of the above.
The agency charged with the responsibility to create a liquid secondary market for
FHA- and VA-insured mortgages is:
a. Ginnie Mae.
b. Fannie Mae.
c. Freddie Mac.
d. FHLB.
e. None of the above.
The basic economic function of futures markets is to provide an opportunity for market
participants:
a. To hedge against the risk of adverse price movements.
b. To hedge against the risk of adverse interest rate changes.
c. To hedge against the risk of adverse exchange rate changes.
d. b and c only.
e. All of the above.
The theory which adopts the view that the term structure reflects the future path of
interest rates as well as a risk premium is the:
a. The liquidity theory.
b. The pure expectations theory.
c. The preferred habitat theory.
d. The market segmentation theory.
e. None of the above.
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.
When the entire principal can be repaid at the maturity date, the debt contract is said to
have a:
a. Maturity.
b. Bullet maturity.
c. Par value.
d. Face value.
e. None of the above.
A type of preferred stock in which the dividend payment accrues until it is fully paid is
called:
a. Perpetual preferred stock.
b. Cumulative preferred stock.
c. Convertible preferred stock.
d. Noncumulative preferred stock.
e. None of the above.
In a tap system:
a. There is a regular calendar auction.
b. Winning bidders are allocated securities at the highest yield accepted by the
government.
c. Additional bonds of a previously outstanding bond issue are auctioned.
d. Auctions are announced when market conditions appear favorable.
e. Winning bidders are allocated securities at the yield they bid.
In the presence of inflation-driven high interest rates, mortgage repayment in real terms
is no longer level, but instead starts high and ends low, shutting off many
would-be-borrowers. This problem is referred to as:
a. Pipeline risk.
b. Mismatch problem.
c. Tilt problem.
d. Maturity problem.
e. Inflation problem.
Commercial paper provides short-term funds for:
a. Seasonal needs.
b. Working capital needs.
c. Bridge financing.
d. A and b only.
e. All of the above.