The buyer of a floor benefits if the designated reference:
a. Stays the same.
b. Rises above the strike rate.
c. Falls below the strike rate.
d. None of the above.
A cap is equivalent to:
a. A package of forwards.
b. A package of call options.
c. A package of put options.
d. Complex options.
e. None of the above.
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.
Investment returns for an insurance company may vary considerably with the
performance of the financial markets.
a. True.
b. False.
According to Fisher’s Law, the nominal gross rate is equal to:
a. The product of the gross real rate and one plus the inflation rate.
b. The sum of the gross real rate and the inflation rate.
c. The difference between the real gross rate and the inflation rate.
d. a and b only.
e. None of the above.
Since credit unions are owned by their members, member deposits are called:
a. Contributions.
b. NOW accounts.
c. Shares.
d. Certificates of membership.
e. None of the above.
The longer the time to expiration, the:
a. Greater the option price.
b. Lower the option price.
c. Lower the option’s time value.
d. b and c only.
e. None of the above.
________ is a security backed by one or more commercial mortgage loans.
A) A CMBS
B) An RMBS
C) An FHA
D) A COM
The arbitrage-free option-pricing models can incorporate different volatility
assumptions along the yield curve.
a. True.
b. False.
Pension funds are financed by contributions from:
a. The tax system.
b. The employer.
c. The employees.
d. a and b only.
e. b and c only.
In a bankers’ acceptance:
a. The bank accepts the ultimate responsibility to repay the loan to its holder.
b. The bank has no responsibility to the parties involved.
c. The importer and the exporter share equally in the responsibility to repay the loan to
the bank.
d. The government guarantees the repayment of the loan to its holder.
e. None of the above.
Shares selling below the net asset value (NAV) are said to be trading at:
a. A premium.
b. A discount.
c. Par.
d. Liability
e. Leverage.
The arithmetic average can be thought of the mean value of the withdrawals that can be
made at the end of each interval while maintaining the initial portfolio value intact.
a. True.
b. False.
Speculation in interest rate futures differs from speculating with interest rate options in
that interest rate options:
a. Limit downside risk.
b. Reduce the upside potential by the amount of the option price.
c. Offers unlimited gains.
d. a and b only.
e. None 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.
For an amortization asset, the amortization is based on the:
a. Gross weighted average coupon.
b. Straight coupon rate.
c. Weighted average maturity.
d. a and c only.
e. None of the above.
Rule 144A will contribute to the growth of the private placement market by:
a. Improving the liquidity of securities issued.
b. Reducing the cost of raising funds.
c. Attracting new large institutional investors into the market.
d. a and b only.
e. All of the above.
Coupon stripping is the process of:
a. Separating each coupon payment as well as the principal.
b. Selling securities against each coupon payment and the principal.
c. Creating a series of zero-coupon bonds.
d. Discounting each coupon payment as well as the principal.
e. a, b, and c only.
Student loans that are not part of a government guarantee program are called:
a. Term loans.
b. Bank loans.
c. Alternative loans.
d. Subsidized loans.
e. None of the above.
In a preemptive rights offering, the price at which new shares can be purchased is called
the subscription price.
a. True.
b. False.
Congress has specifically exempted municipal securities from:
a. The registration requirements of the Securities Act of 1933.
b. The periodic reporting requirements of the Securities Exchange Act of 1934.
c. Antifraud provisions applicable to municipal securities.
d. a and b only.
e. All of the above.
Investors in financial assets receive several benefits from a secondary market including:
a. Liquidity of their assets.
b. Information about the assets’ fair values.
c. Lower search and transactions costs.
d. a and b only.
e. All of the above.
When an investment banking firm buys the securities from the issuer and accepts the
risk of selling the securities to investors at a lower price, the arrangement is referred to
as:
a. Underwriting.
b. Firm commitment.
c. Best-efforts underwriting.
d. Underwriting syndicate.
e. None of the above.
One reason given for the accelerated demutualization of insurance companies is the:
a. Gramm-Leach-Bliley Act.
b. Glass-Steagall Act.
c. McCarran Ferguson Act.
d. GIC Act.
e. SEC Act.
Credit risk includes default risk, downgrade risk, and credit spread risk.
a. True.
b. False.
The capital asset pricing model states that the expected return of a security is equal to
the riskfree rate of return plus:
a. Beta.
b. A risk premium.
c. The market risk premium.
d. The market price of risk.
e. None of the above.
Dollar-denominated bonds issued by Spanish entities are nicknamed “matador bonds.”
a. True.
b. False.
The portfolio, which consists of all assets, is called:
a. The efficient portfolio.
b. The optimal portfolio.
c. The market portfolio.
d. The efficient frontier.
e. None of the above.
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.
A most important property resulting from the existence of a perfect loan market is that:
a. It separates the current consumption decision from the current income position by
opening the possibility to save and dissave.
b. It frees the investment from the saving decision.
c. a and b only.
d. Borrowing and lending rates are equal.
e. All 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.
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.
The underlying instrument in a currency option is the:
a. Spot currency.
b. Foreign currency futures contract.
c. Currency forward contract.
d. a and b only.
e. All of the above.