If actual reserves exceed required reserves, the difference is referred to as:
a. Spread income.
b. Secondary reserves.
c. Excess reserves.
d. Total reserves.
e. None of the above.
Warrants differ from exchange-traded call options in that:
a. Warrants have much shorter expiration dates.
b. The issuer of the warrant is the company itself.
c. The exercise of warrants results in a dilution of earnings.
d. b and c only.
e. All of the above.
Examples of conditional orders include:
a. Limit order.
b. Stop order.
c. Market order.
d. a and b only.
e. All of the above.
Insurance companies have increasingly sold products that have a significant investment
component in addition to their insurance component. Major investment oriented
products include:
a. Guaranteed investment contracts.
b. Annuities.
c. Insurance wrappers.
d. a and b only.
e. All of the above.
SEC regulation, which exempts some issues from registration, is the:
a. Regulation Q.
b. Regulation M.
c. Regulation D.
d. Regulation A.
e. None of the above.
Compare and contrast the structure of the NYSE and the NASDAQ.
The spread between Treasury securities and non-Treasury securities that are identical in
all respects except for quality is referred to as:
a. Risk premium.
b. Quality spread.
c. Income spread.
d. Credit spread.
e. b and d only.
In the U.S., currency futures contracts are traded on the:
a. New York Stock Exchange.
b. Big Board.
c. International Monetary Market.
d. Chicago Board of Trade.
e. None of the above.
Distinguish between block trades and program trades.
Firms seek to list their shares on the exchanges of several countries because:
a. They seek to diversify their sources of capital across national boundaries.
b. It diminishes the prospect of takeover by other domestic concerns.
c. It boosts their name awareness.
d. It helps increase their sales revenues.
e. All of the above.
Loans to nonfinancial corporations, financial corporations and government entities fall
into the category of:
a. Individual banking.
b. Institutional banking.
c. Global banking.
d. None of the above.
e. All of the above.
The two elements of a forward rate are:
a. The length of time for the rate.
b. The implicit rate.
c. When in the future the rate begins.
d. a and c only.
e. a and b only.
A collateralized mortgage obligation (CMO):
a. Cannot eliminate prepayment risk.
b. Redistributes the cash flows of pools of mortgage pass-through securities to different
bond classes.
c. Distributes the various forms of prepayment risk among different classes of
bondholders.
d. b and c only.
e. All of the above.
Which of the following is not a market index?
a. DAX.
b. FTSE 100.
c. EAFE.
d. CAC 40.
e. All of the above are stock market indexes.
Amortizing assets are loans, which:
a. Have a schedule of principal and interest payments over the life of the loan.
b. Do not have a schedule for the periodic payments that the individual borrower must
make.
c. Require the borrower to make a minimum periodic payment.
d. b and c only.
e. All of the above.
Interest rate caps and floors can be combined to create a(n):
a. Spread.
b. Interest rate collar.
c. Interest rate agreement.
d. Caption.
e. None of the above.
The ultimate causes of financial innovations include:
a. Increased volatility of interest rates, inflation, equity prices, and exchange rates.
b. Advances in computer and telecommunication technologies.
c. Financial intermediary competition.
d. Changing global patterns of financial wealth.
e. All of the above.
When prices of securities are determined continuously throughout the trading day as
buyers and sellers submit orders, the market is called:
a. A call market.
b. A bid market.
c. A continuous market.
d. An auction market.
e. None of the above.
Asset securitization calls for a financial intermediary to:
a. Originate a loan.
b. Retain the loan in its portfolio of assets.
c. Service the loan.
d. Obtain funds from the public to finance its assets.
e. All of the above.
Explain why banks cannot invest $1 for every $1 it obtains in deposits.
Explain Fisher’s Law.
The secondary market is the market for the trading of:
a. Newly issued securities.
b. Previously issued securities.
c. Seasoned securities.
d. b and c only.
e. None of the above.
The financial instruments traded in the Federal agency securities market include:
a. Federally related institutions’ securities.
b. Government-sponsored agency securities.
c. Federal funds.
d. a and b only.
e. All of the above.
Financial assets are referred to as debt instruments in the case of:
U.S. Treasury bonds.
a. Corporate bonds.
b. Corporate stock.
c. Municipal bonds.
d. a, b, and d only.
Home equity loans are typically:
a. First lien on property.
b. Second lien on property.
c. Unsecured.
d. Secured by auto loans.
e. None of the above.
When counterparties agree to exchange the return on some stock index for an interest
rate, the arrangement is called:
a. Equity swap.
b. Interest rate swap.
c. Currency swap.
d. Credit swap.
e. None of the above.
Fallout risk is the risk that:
a. The value of the pipeline will be adversely affected if mortgage rates rise.
b. Applicants will not complete the transaction by purchasing the property with the
funds borrowed from the mortgage originator.
c. Those who were issued commitment letters will not close.
d. b and c only.
e. All of the above.
Securities of issuers not domiciled in the country are traded in which market(s)?
a. Domestic market.
b. Foreign market.
c. International market.
d. Euromarket.
e. None of the above.
Discuss the principles of hedging and explain the risks associated with hedging.
Explain the difference between reinvestment risk and interest rate risk.
The yield spread between a non-Treasury security and a Treasury security of
comparable maturity is called a:
a. Risk premium.
b. Treasury spread.
c. Income spread.
d. Government option spread.
e. None of the above.
When the yield rises steadily as the maturity increases, the yield curve is said to be:
a. Positive.
b. Upward sloping.
c. Normal.
d. All of the above.
e. None of the above.
At the end of each trading day, futures contracts are:
a. Delivered.
b. Marked-to-market.
c. Liquidated.
d. Closed out.
e. None of the above.
Discuss the impact of diversification on total risk.