Currency options traded in the over-the-counter market are:
a. Standardized options.
b. Customized options.
c. Liquid options.
d. Common options.
e. None of the above.
The price of a debt instrument must equal the sum of the:
a. Present value of the payments that the debtor is required to make until maturity.
b. Present value of all expected cash dividends.
c. Present value of the maturity value.
d. Future value of all expected future cash flows.
e. None of the above.
The interest rate that banks charge brokers for margin transactions is called:
a. The prime rate.
b. The call money rate.
c. The federal funds rate.
d. The discount rate.
e. None of the above.
Describe the major differences between an asset-backed security and a corporate bond.
If the Swiss franc price of the dollar increases:
a. The Swiss franc appreciated.
b. The dollar appreciated.
c. The Swiss franc depreciated.
d. b and c only.
e. None of the above.
The risk associated with a bond whose proceeds are reinvested at an unknown rate is
referred to as:
a. Reinvestment rate risk.
b. Interest rate risk.
c. Price risk.
d. Default risk.
e. None of the above.
On June 5, 1997, the NYSE voted to adopt a system of trading in:
a. Sixteenth.
b. Decimals.
c. Percent.
d. Pennies.
e. Tennies.
When two parties agree to swap payments based on different currencies, this type of
swap is called:
a. Interest rate swap.
b. Equity swap.
c. Currency swap.
d. Interest rate-equity swap.
e. None of the above.
If an investor wants to purchase a stock at a price less than the prevailing market price:
a. Place a limit order.
b. Write a put option with a strike price near the desired price.
c. Sell a call option.
d. a and b only.
e. None of the above.
The market segmentation theory recognizes that investors have preferred habitats,
which are dictated by:
a. Saving flows.
b. Investment flows.
c. Cash flows.
d. a and b only.
e. All of the above.
Treasury bills have a:
a. Are sold on an auction basis.
b. Maturity of one year or less.
c. Are sold at a discount from par.
d. Zero coupon rate.
e. All of the above.
Which of the following statements is most correct?
a. The stock index options market was initially inefficient.
b. Arbitrage in the stock index options market is difficult.
c. Since 1983, stock index futures are fairly priced.
d. All of the above.
e. None of the above.
Private transactions between institutional investors who deal directly with each other
without an intermediary take place in the:
a. First Market.
b. Second Market.
c. Third Market.
d. Fourth Market.
e. None of the above.
Compare and contrast preferred stock and corporate debt.
________ are predetermined penalties that must be paid by the borrower if the borrower
wishes to refinance.
A) defeasance
B) Prepayment penalty points
C) prepayment lockout
D) None of these
Depository institutions accommodate net withdrawals and loan demand by:
a. Attracting additional deposits.
b. Selling securities it owns.
c. Raising short-term funds in the money market.
d. Using existing securities as collateral for borrowing from a federal agency or other
financial institution.
e. All of the above.
What are the requirements for banks to borrow from the Fed’s discount window?
Which of the following statements is most correct?
a. The development of the FLEX option is a response to the growing OTC market.
b. There is an active secondary market for FLEX options.
c. The FLEX option represents a link between listed options and OTC products.
d. FLEX options can be created for Treasury securities.
e. All of the above.
If there is a default on a commercial mortgage loan, the lender looks to the proceeds
from the ________ for repayment and has ________ to the borrower for any unpaid
balance.
A) sale of the property; no recourse
B) sale of the property; little recourse
C) purchase of the property; no recourse
D) sale of the property; recourse
A stock issue, which is offered simultaneously in several countries by an international
syndicate is called a(n):
a. International equity.
b. Foreign equity.
c. Euroequity.
d. ADR.
e. GDR.
Explain the different ways to classify financial markets and give an example of each.
Corporate senior instruments:
a. Are financial obligations of a corporation.
b. Include debt obligations and preferred stock.
c. Have priority over common stock in the case of bankruptcy.
d. All of the above.
e. None of the above.
Discuss electronic bond trading.
Financial assets that are bought and sold amongst investors are traded in the:
a. Derivatives market.
b. Primary market.
c. Secondary market.
d. Commodities market.
e. None of the above.
A put option can be used to hedge against:
a. An increase in the price of the underlying instrument.
b. A decrease in the price of the underlying instrument.
c. A decrease in interest rates.
d. All of the above.
e. None of the above.
Options may be traded either on organized exchanges, such as the Chicago Board
Options Exchange, or in the:
a. Over-the-counter market.
b. Interbank market.
c. Clearinghouse.
d. a and b only.
e. None of the above.
The market for corporate debt obligations include the:
a. Medium-term note market.
b. Bank loan market.
c. Commercial paper market.
d. a and b only.
e. All of the above.
For all option-free bonds, the approximate percentage price change that is not explained
by duration will have a:
a. Positive value.
b. Negative value.
c. Unchanged value.
d. Changed value.
e. None of the above.
The role of the clearinghouse is to:
a. Interpose itself as the buyer to every sale and the seller to every purchase.
b. Guarantee fulfillment of the futures contract on the settlement date.
c. Make it simple for parties to unwind their positions prior to the settlement date.
d. All of the above.
e. b and c only.
Municipal securities issued for periods up to three years are considered:
a. Long term.
b. Intermediate term.
c. Short term.
d. All of the above.
e. None of the above.
Stock index options are regulated by:
a. The Commodity Futures Trading Commission.
b. The Securities and Exchange Commission.
c. Stock index options are self-regulated.
d. The clearinghouse.
e. None of the above.
The borrowings by S&Ls from the Federal Home Loan Banks are called:
a. Reserves.
b. Advances.
c. Deposits.
d. Contributions.
e. None of the above.
In estimating beta, practical problems arise, which are a function of:
a. The length of time over which the return is calculated.
b. The market index selected.
c. The specific time period used.
d. The number of observations.
e. All of the above.
Which of the following foreign governments issue inflation-indexed securities?
a. Canada.
b. Australia.
c. U.K.
d. Japan.
e. a, b, and c only.
First, prepayment terms for commercial mortgages differ significantly from residential
mortgages.Commercial mortgages impose prepayment penalties or restrictions on
prepayments. Although there are residential mortgages with prepayment penalties, they
are a small fraction of the market.
The second difference in structuring is due to the significant difference between
commercial and residential mortgages with respect to the role of the servicer when there
is a default. With commercial mortgages, the loan can be transferred by the servicer to
the special servicer when the borrower is in default, imminent default, or in violation of
covenants.
The third difference in structuring between CMBS and RMBS has to do with the role
of the buyers when the structure is being created. More specifically, typically potential
buyers of the junior bond classes are first sought by the issuer before the deal is
structured. The potential buyers first review the proposed pool of mortgage loans and in
the review process, depending on market demand for CMBS product, may request the
removal of some loans from the pool.
Which of the below statements is FALSE?
A) Although there are residential mortgages with prepayment penalties, they are a small
fraction of the market.
B) In structuring a CMBS, if there is a defeasance, the credit risk of a CMBS virtually
disappears because it is then backed by U.S. Treasury securities.
C) With commercial mortgages, the loan can be transferred by the servicer to the
special servicer when the borrower is in default, imminent default, or in violation of
covenants.
D) None of these