Ans Foundation of Financial Market and Institution Third Edition by Frank J

chapter 1 : introduction
multiple choice
submitted on 06 jun 2007 07:41:08 edt
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1. incorrect which one of the following is a financial asset?

your answer: bank loan
the correct answer: all of the above are examples of financial assets.
incorrect.
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2. incorrect investing in financial assets may expose investors to the following

types of risk.
your answer: inflation risk
the correct answer: a, b, and c
incorrect.
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3. incorrect the principal economic functions of financial assets include

your answer: the transfer of funds from those with surplus funds to those with
deficit funds.
the correct answer: a and b only
incorrect.
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4. incorrect financial markets are important because:

your answer: they provide a mechanism for determining the price of a financial
asset.
the correct answer: all of the above
incorrect.
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5. incorrect longer-maturity financial assets are traded in which financial

market(s)?
your answer: money market
the correct answer: capital market
incorrect. short-term debt securities are traded in the money market.
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6. incorrect participants in the global financial markets include:

your answer: households
incorrect.
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7. incorrect the increased globalization of financial markets throughout the

world can be attributed to the following factor(s):
your answer: deregulation or liberalization of major financial markets.
incorrect.
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8. incorrect securities of issuers not domiciled in the country are traded in

which market(s)?
your answer: domestic market
the correct answer: foreign market
incorrect. securities of issuers domiciled in the country are traded in the
domestic market.
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9. incorrect which of the following statements about a call option is correct?

your answer: a call option is an agreement to buy a financial asset from another
party.
the correct answer: a call option gives the holder the right to buy a financial
asset from another party
incorrect. a forward or futures contract is an agreement between two parties to
buy a financial asset at a predetermined price at a specified date in the future.
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10. incorrect a derivative instrument may perform which of the following major
economic functions?
your answer: protect against adverse interest rate changes.
incorrect.
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11. incorrect what major benefits do derivatives offer to investors?

your answer: lower transactions costs.
incorrect.
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12. incorrect a corporation may raise money outside its home country for which
of the following reasons?
your answer: the domestic market is not fully developed.
incorrect.
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13. incorrect purchasing power risk refers to:

your answer: the risk that the issuer or borrower will default on the obligation.
the correct answer: the risk that the purchasing power of the expected cash flows
will be adversely affected.
incorrect. default risk is the risk that the issuer or borrower will default on
the obligation.
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14. incorrect ibm�s common stock is traded in which type of financial market?
your answer: debt market
the correct answer: secondary market
incorrect. short-term and long-term debt is traded in the debt market.
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15. correct the price discovery system refers to an economic function of:
your answer: financial markets that signal how funds in the economy should be
allocated among financial assets.
correct.
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� 1996-2002 by pearson education.
chapter 1 : introduction
true or false
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1. correct a financial asset is a legal claim to future cash flows.

your answer: true
correct.
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2. incorrect a debt instrument is also called a residual claim.

your answer: true
the correct answer: false
incorrect. payments must be made to holders of debt instruments before any
earnings are distributed to equity holders. an equity instrument has a residual
claim.
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3. correct both tangible and intangible assets are expected to generate future
cash flows to their owners.
your answer: true
correct.
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4. correct financial assets traded for immediate delivery are traded in the spot
(cash) market.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect global markets are classified as foreign markets and international

markets.
your answer: true
incorrect. the global financial market consists of the internal market, which
includes the foreign market, and the external market also called international
market.
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6. correct a derivative instrument derives its value from the underlying asset.
your answer: true
correct.
routing information
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chapter 2 : financial intermediaries and financial innovation

multiple choice

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1. incorrect financial institutions provide which of the following services:

your answer: exchange of financial assets on behalf of their customers.
the correct answer: all of the above are services provided by financial
institutions.
incorrect.
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2. incorrect which of the following transactions is an example of direct

investment?
your answer: an individual opens a savings account at a commercial bank.
the correct answer: a and b only.
incorrect.
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3. incorrect which of the following transactions are examples of indirect

investment?
your answer: buying life insurance policy.
incorrect.
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4. incorrect transforming financial assets that are less desirable into

financial assets that are more widely preferred by the public may involve which
economic function(s)?
your answer: reducing the costs of contracting and information processing.
the correct answer: all of the above.
incorrect.
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5. incorrect depository institutions seek to generate income from which

investment strategy?
your answer: borrowing funds at a higher cost than they are loaned for.
the correct answer: b and c only.
incorrect. borrowing (or buying) funds at a higher cost than they are loaned
(sold) for results in a negative spread (or loss).
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6. incorrect the most important causes of financial innovations include:

your answer: increased volatility in prices and interest rates.
incorrect.
--------------------------------------------------------------------------------
7. incorrect asset securitization offers several advantages to the issuer

including:
your answer: reduced exposure to interest rate volatility.
the correct answer: a and c only.
incorrect.
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8. incorrect which types of financial intermediaries are in the spread business?

your answer: commercial banks.
incorrect.
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9. correct a fixed-rate deposit represents what type of liability to a financial

institution?
your answer: type-i liability.
correct.
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10. incorrect an automobile insurance policy represents what type of liability?

your answer: type-i liability.
the correct answer: type-iv liability.
incorrect. a type-i liability pays a certain amount on a certain date.
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11. incorrect maturity intermediation offers which of the following benefits?

your answer: reduced risk through diversification.
incorrect. reducing risk through diversification is a financial service provided
by financial intermediaries as they transform acquired funds into assets that are
more attractive to the public.
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12. incorrect which of the following is true concerning a type-ii liability?

your answer: amount and timing of cash outlay are known.
the correct answer: amount of cash outlay is known while timing of cash outlay is
unknown.
incorrect. these are features of a type-i liability.
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13. incorrect the economic council of canada classifies financial innovation

into which of the following categories:
your answer: market-broadening instruments.
incorrect.
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14. incorrect the bank of international settlements classifies financial

innovation into which of the following functions?
your answer: price-risk-transferring innovations.
incorrect.
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15. incorrect why does asset securitization provide a more efficient means of
linking borrowers and investors?
your answer: it provides direct financing between borrowers and investors.
incorrect.
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chapter 2 : financial intermediaries and financial innovation

true or false
--------------------------------------------------------------------------------
1. correct when financial intermediaries acquire financial resources in the

market, they create liabilities for themselves. they use those resources to create
different and more widely preferred types of securities, which become their
assets.
your answer: true
correct.
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2. incorrect a financial intermediary can make an indirect investment by making

a loan or issuing securities.
your answer: true
incorrect. a financial intermediary makes direct investments when it makes loans
or issues securities.
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3. correct the nature of a financial institution�s liabilities dictates its

investment strategy.
your answer: true
correct.
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4. incorrect financial innovations provide less efficient means for

redistributing risk.
your answer: true
incorrect. financial innovations provide improved mechanisms for redistributing
risk.
--------------------------------------------------------------------------------
5. correct asset securitization is the process of collecting or pooling loans

and selling securities that are backed by those loans.
your answer: true
correct.
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6. incorrect a three-year floating-rate certificate of deposit can be classified

as a type-i liability.
your answer: true
incorrect. a three-year floating-rate certificate of deposit has a dollar outlay
that is unknown while the timing of the cash outlay is known. this type of
liability is classified as type-iii.
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7. incorrect the investment strategies pursued by financial institutions are not

influenced by regulatory and tax considerations.
your answer: true
incorrect. regulations and tax considerations influence the investment strategies
pursued by financial institutions.
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chapter 3 : the role of the government in financial markets

multiple choice

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1. incorrect governments are more likely to provide new rules and regulations
when markets for goods and services are:
your answer: perfectly competitive.
the correct answer: none of the above.
incorrect. in a perfectly competitive market, goods and services are produced in
an efficient manner and at the lowest cost possible.
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2. incorrect rules and regulations for securities markets are established to

achieve which of the following objectives?
your answer: promote competition and fairness in the trading of financial
securities.
incorrect.
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3. incorrect rules against insider trading are covered under what form of
regulation?
your answer: disclosure regulation
the correct answer: financial activity regulation
incorrect. this is regulation to enforce the disclosure of relevant information to
all investors.
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4. incorrect the roles of foreign firms in domestic markets are regulated by

which form of governmental regulation?
the correct answer: regulation of foreign entities
all investors.
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5. incorrect which type of governmental regulation addresses changes in a

country�s money supply?
the correct answer: banking and monetary regulation
all investors.
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6. incorrect which of the following federal legislation establishes essential
requirements for disclosure?
your answer: the glass-steagall act
the correct answer: b and d only
incorrect. this act provided banks with a set of allowable activities.
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7. incorrect which organization monitors relationships among brokers, firms

issuing securities, and the investing public?
your answer: sec
the correct answer: nasd
incorrect. the sec checks for compliance with rules for disclosure and trading.
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8. incorrect which of the following are restrictions placed on depository

institutions by the federal reserve bank?
your answer: minimum requirements for equity investments
the correct answer: a and b only
incorrect.
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9. incorrect the extensive role of the japanese ministry of finance includes

which of the following powers?
your answer: regulating the securities markets
incorrect.
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10. incorrect which of the following regulations is widely practiced in japan?

incorrect.
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11. incorrect in germany, most of the publically traded securities are owned by:
your answer: households
the correct answer: financial institutions
incorrect. vague accounting rules discourage households from ownership of
publically traded securities.
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12. incorrect a major reason for a smaller and less active bond market in
germany is:
your answer: the heavy use of bank loans by german firms.
incorrect.
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13. incorrect which government agency is responsible for regulating financial

activity in the united kingdom?
your answer: bank of england
the correct answer: department of trade and industry
incorrect. the bank of england regulates financial institutions and manages the
money supply.
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14. incorrect the bank of england�s responsibilities include:

your answer: regulating most banking institutions
the correct answer: a, b, and c only.
incorrect.
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15. incorrect deregulation and regulatory reform are the result of several
forces and developments including:
your answer: financial crisis
incorrect.
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chapter 3 : the role of the government in financial markets

true or false
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1. incorrect a major reason for government regulation of a market is to generate

profits from trading within the market.
your answer: true
incorrect. economists justify government regulation because of market failure.
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2. incorrect disclosure regulation consists of rules governing traders of

securities and trading in financial markets.
your answer: true
incorrect. disclosure regulation requires issuers of securities to make
appropriate financial information available to actual and potential buyers of
securities.
--------------------------------------------------------------------------------
3. correct asymmetric information means that managers and investors have uneven
access to or uneven possession of information.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct banking and monetary regulation is used by authorities to influence

the level of economic activity in a country.
your answer: true
correct.
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5. incorrect the securities and exchange commission (sec) is responsible for

administering securities laws in the united kingdom.
your answer: true
incorrect. the sec is a regulatory body responsible for administering securities
laws in the united states. its counterpart in the u.k. is the securities and
investment board (sib).
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6. incorrect a self-regulatory organization (sro) is a group that has sec

authority to monitor and advise its members so that their behavior meets certain
standards of conduct in issuing securities and selling them to the public.
your answer: true
correct.
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7. correct the ministry of finance (mof) is responsible for regulating

securities markets in japan.
your answer: true
correct.
--------------------------------------------------------------------------------
8. correct universal banks in germany participate in all types of financial

activities.
your answer: true
correct.
--------------------------------------------------------------------------------
9. correct the term �big bang� refers to the sweeping liberalization and
restructuring of the british securities industry.
your answer: true
correct.
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10. incorrect disintermediation takes place when households deposit funds in a

commercial bank.
your answer: true
incorrect. when households withdraw funds from depository institutions and
purchase securities, disintermediation takes place.
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chapter 4 : depository institutions: activities and characteristics

multiple choice
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1. incorrect in generating spread income, depository institutions face several

risks including:
your answer: credit risk.
incorrect.
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2. incorrect depository institutions accommodate net withdrawals and loan demand

by:
your answer: attracting additional deposits.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following is a service provided by commercial banks?

your answer: consumer lending.
incorrect.
--------------------------------------------------------------------------------
4. incorrect what financial products have been developed by banks to manage

risk?
your answer: interest rate and currency swaps.
incorrect.
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5. incorrect non-deposit borrowing includes:

your answer: borrowing from the discount window.
incorrect.
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6. incorrect major regulations concerning the activities of commercial banks

cover:
your answer: interest rate ceilings on deposit accounts.
incorrect.
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7. incorrect what are the principal objectives of the risk-based capital

requirements?
your answer: greater consistency in evaluating the capital adequacy of major
banks.
incorrect
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8. incorrect s&ls have been regulated with respect to:

your answer: maximum interest rates on deposit accounts.
incorrect.
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9. incorrect the principal asset held by savings banks is:

your answer: mortgage-backed securities.
the correct answer: residential mortgages.
incorrect. mortgage-backed securities are the primary assets owned by s&ls.
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10. correct the primary source of funds for credit unions is:
your answer: deposits of their members.
correct.
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11. incorrect the federal law which allowed each state the right to set its own
rules on intrastate branch banking was the:
your answer: riegle-neal interstate banking and branching efficiency act of 1994.
the correct answer: mcfadden act of 1927.
incorrect. this act permitted interstate mergers between adequately capitalized
and managed bank holding companies.
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12. incorrect the primary regulator of s&ls is:

your answer: the federal reserve board.
the correct answer: the office of thrift supervision.
incorrect. the federal reserve board supervises commercial banks.
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13. incorrect how do banks generate income in their roles as dealers?

your answer: the bid-ask spread.
incorrect.
--------------------------------------------------------------------------------
14. incorrect what types of deposits generate funds for banks?

your answer: demand deposits.
incorrect.
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15. incorrect which of the following is not acceptable collateral for funds
borrowed from the discount window?
your answer: treasury securities with less than six months maturity.
the correct answer: commercial and industrial loans with long-term maturities.
incorrect. treasury securities with less than six months maturity are acceptable
collateral at the discount window.
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chapter 4 : depository institutions: activities and characteristics

true or false
--------------------------------------------------------------------------------
1. correct a depository institution seeks to earn income from the positive

spread between the return on assets it invests in and its cost of funds.
your answer: true
correct.
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2. incorrect banks use secondary reserves to meet the fed�s reserve

requirements.
your answer: true
incorrect. secondary reserves refer to a bank�s short-term or money market
securities, which are held for the purpose of satisfying net withdrawals and
customer loan demands.
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3. correct money center banks are more active in global banking.

your answer: true
correct.
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4. incorrect the interest rate charged to borrow funds from the fed at the
discount window is the federal funds rate.
your answer: true
incorrect. the discount rate is the interest rate charged on borrowings from the
fed; the federal funds rate is the interest rate charged on funds borrowed in the
federal funds market.
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5. correct depository institutions are highly regulated at both the state and
federal levels
your answer: true
correct.
--------------------------------------------------------------------------------
6. correct the capital structure of banks, like that of corporations, consists

of debt and equity.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct one of the reasons for the s&l crisis was the mismatch in maturity of
s&l�s assets and liabilities.
your answer: true
correct.
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chapter 5 : central banks and the creation of money

multiple choice
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1. correct the fed is managed by the:

your answer: board of governors
correct.
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2. incorrect the principal tools by which the fed influences the amount of money
in the economy and the general level of interest rates are:
your answer: reserve requirements
incorrect.
--------------------------------------------------------------------------------
3. incorrect when the fed sells treasury securities, it:
your answer: reduces the money supply
incorrect.
--------------------------------------------------------------------------------
4. incorrect the function of money that makes it possible to purchase goods and
services is called:
your answer: unit of account.
the correct answer: medium of exchange.
incorrect. the unit of account, or numeraire, is used to measure wealth.
--------------------------------------------------------------------------------
5. incorrect when the fed raises the required reserve ratio

your answer: the amount of new demand deposits falls.
incorrect.
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6. incorrect high market interest rates will:

your answer: make excess reserves costly.
incorrect.
--------------------------------------------------------------------------------
7. correct the fed influences the value of the dollar in the foreign exchange
market by:
your answer: buying or selling foreign currencies for its own account.
correct.
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8. incorrect the least effective tool at the fed�s disposal in conducting

monetary policy is:
your answer: reserve requirements.
the correct answer: the discount rate.
incorrect. the use of reserve requirements is somewhat constricted by
congressional mandate.
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9. incorrect open market operations are carried out by:
your answer: the board of governors.
the correct answer: the trading desk of the federal reserve bank of new york.
incorrect. the board of governors manages the fed as a whole.
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10. incorrect the discount rate is:

your answer: determined by market forces.
the correct answer: set by the board of governors.
incorrect. the discount rate is set by the board of governors.
--------------------------------------------------------------------------------
11. correct the monetary aggregate that includes currency and demand deposits
is:
your answer: m1
correct.
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12. incorrect in the u.k., the role of managing the government�s debt is
performed by:
your answer: the bank of england.
the correct answer: the debt management office.
incorrect. since april 1, 1998, the debt management office has managed the
government�s debt.
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13. incorrect the bank of japan law, which became effective on april 1, 1998,
was structured to provide which of the following?
your answer: communication and autonomy.
the correct answer: independence and transparency.
incorrect. bank independence, autonomy and communication are required in order to
achieve the goal of independence and transparency.
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14. correct the role of the european central bank is to:

your answer: carry out monetary policy for euroland.
correct.
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15. incorrect global trends affecting many central banks today include:
your answer: relaxation of government controls over central bank operations.
incorrect.
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chapter 5 : central banks and the creation of money

true or false
results reporter
summary: 75% correct
75%
25%
0%
of 8 questions, you answered:

6 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct the federal reserve system is the government agency responsible for
the management of the u.s. monetary and banking systems.
your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect generally, the higher the rate of growth in bank reserves, the
lower the rate of change in the money supply.
your answer: true
incorrect. the higher the growth rate in reserves, the greater the rate of change
in the supply of money.
--------------------------------------------------------------------------------
3. correct a bank�s total reserves consist of its required reserves plus any
excess reserves.
your answer: true
correct.
--------------------------------------------------------------------------------
4. incorrect open market operations refer to the fed�s purchases and sales of
municipal bonds.
your answer: true
incorrect. the fed purchases and sells government securities for its own account,
including u.s. treasury bills, u.s. treasury bonds and government agency
securities to conduct open market operations.
--------------------------------------------------------------------------------
5. correct the discount rate is the interest rate the fed charges on loans made
to member banks.
your answer: true
correct.
--------------------------------------------------------------------------------
6. correct the money multiplier is the multiple of the change in the money
supply that is produced by a change in bank reserves.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct the objective of the bank of england�s monetary policy is price

stability, just like that of the european central bank.
your answer: true
correct.
--------------------------------------------------------------------------------
8. correct the bank of japan uses the official discount rate, open market
operations, and reserve requirements to achieve its monetary policy objectives.
your answer: true
correct.
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chapter 6 : monetary policy

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
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1. incorrect which of the following is a goal of monetary policy?

your answer: price level stability.
incorrect.
--------------------------------------------------------------------------------
2. incorrect open market operations cause which of the following to change in

the financial system?
your answer: reserves of banking the system.
incorrect.
--------------------------------------------------------------------------------
3. incorrect when confronted with a supply shock, which of the following policy
choices is appropriate for the fed?
your answer: increase the money supply.
incorrect.
--------------------------------------------------------------------------------
4. incorrect which of the following is a benefit of frictional unemployment?

your answer: constant reallocation of labor.
incorrect.
--------------------------------------------------------------------------------
5. incorrect the economy�s appropriate rate of growth should:

your answer: generate high employment.
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following economic variables cannot be directly

influenced by the fed?
your answer: prices of goods and services.
incorrect.
--------------------------------------------------------------------------------
7. correct the federal funds rate is an example of which type of target?

your answer: operating target.
correct.
--------------------------------------------------------------------------------
8. incorrect the money supply is an example of which type of target?

your answer: operating target.
the correct answer: intermediate target.
incorrect. a change in an operating target will cause a change in the money
supply, which is an intermediate target.
--------------------------------------------------------------------------------
9. incorrect which of the following has been specified as an operating target?

your answer: short-term interest rates.
incorrect
--------------------------------------------------------------------------------
10. incorrect which of the following has been specified as an intermediate

target?
your answer: exchange rates.
incorrect.
--------------------------------------------------------------------------------
11. incorrect the fed targeted the fed funds rate during which of the following
periods?
your answer: 1970-1979.
the correct answer: a and c.
incorrect.
--------------------------------------------------------------------------------
12. incorrect in october 1979, paul volcker announced a new policy with which of
the following as targets?
your answer: monetary aggregates as intermediate targets.
incorrect.
--------------------------------------------------------------------------------
13. correct the plan for international coordination of monetary policies by the
g-5 is known as:
your answer: plaza agreement.
correct.
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14. incorrect which of the following characterized the fed�s policy during the
period from 1991 to 1995?
your answer: low interest rates.
incorrect.
--------------------------------------------------------------------------------
15. incorrect which of the following describes fed�s "the new paradigm?"
your answer: strong growth.
the correct answer: a and b.
incorrect.
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chapter 6 : monetary policy

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct the goal of stabilizing interest rates is directly related to the

goal of economic growth.
your answer: true
correct.
--------------------------------------------------------------------------------
2. correct when the supply of crucial material is threatened, inflation will

occur.
your answer: true
correct.
--------------------------------------------------------------------------------
3. incorrect the discount rate is one of the fed�s operating targets.

your answer: true
incorrect. the fed�s operating targets include the fed funds rate.
--------------------------------------------------------------------------------
4. correct the fed cannot precisely predict the public�s demand for money.
your answer: true
correct.
--------------------------------------------------------------------------------
5. correct in october 1979, the fed began to target the non-borrowed reserves in
the banking system.
your answer: true
correct.
--------------------------------------------------------------------------------
6. incorrect the fed became increasingly concerned about the level and stability
of the u.s. dollar in the 1990s.
your answer: true
incorrect. in the mid-1980s, the fed became increasingly concerned about the level
and stability of the u.s. dollar.
--------------------------------------------------------------------------------
7. correct capital deepening increased labor productivity.

your answer: true
correct.
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chapter 7 : insurance companies

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
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1. incorrect which of the following terms are associated with insurance

companies?
your answer: risk bearers.
incorrect.
--------------------------------------------------------------------------------
2. correct insurance against death is obtained with which of the following types
of insurance?
your answer: life insurance.
correct.
--------------------------------------------------------------------------------
3. incorrect the risk of lawsuits against the insured is covered by:

your answer: life insurance.
the correct answer: liability insurance.
incorrect. life insurance is insurance against death.
--------------------------------------------------------------------------------
4. incorrect companies, which provide insurance for both life and health and
property and casualty are called:
your answer: life insurance companies.
the correct answer: multi-line insurance companies.
incorrect. life insurance companies insure against death.
--------------------------------------------------------------------------------
5. incorrect which of the following insurance companies sell investment

products?
your answer: property and casualty insurance companies.
the correct answer: life insurance companies.
incorrect. property and casualty insurance companies do not sell investment
products.
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6. incorrect which of the following is characteristic of the insurance industry?

your answer: premium income is collected initially.
incorrect.
--------------------------------------------------------------------------------
7. correct insurance companies are regulated primarily by which of the

following?
your answer: state agencies.
correct.
--------------------------------------------------------------------------------
8. incorrect which of the following are ways to distribute insurance products?

your answer: agents.
incorrect.
--------------------------------------------------------------------------------
9. incorrect an insurance company may have which of the following components?

your answer: home office.
incorrect.
--------------------------------------------------------------------------------
10. incorrect insurance companies which have both stockholders and policyholders
are called:
your answer: mutual insurance companies.
the correct answer: stock insurance companies.
incorrect. mutual insurance companies have policyholders only.
--------------------------------------------------------------------------------
11. incorrect which of the following is an advantage of the mutual holding

company?
your answer: creating common stock.
incorrect.
--------------------------------------------------------------------------------
12. incorrect an insurance policy that provides guaranteed protection over the
term of the policy but at an increasing premium is what type of life insurance?
your answer: term insurance.
the correct answer: annual renewable term.
incorrect. term insurance provides guaranteed protection over the term of the
policy at a constant premium.
--------------------------------------------------------------------------------
13. incorrect which of the following types of life insurance accumulate a cash
value?
your answer: whole life insurance.
incorrect.
--------------------------------------------------------------------------------
14. incorrect which of the following helps to distinguish between the various
types of insurance policies?
your answer: duration of payments.
incorrect.
--------------------------------------------------------------------------------
15. incorrect which of the following are major changes in the insurance
industry?
your answer: deregulation of the financial system.
incorrect.
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chapter 7 : insurance companies

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
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1. correct an insurance company is defined by the type of risks it insures

against.
your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect mutual insurance companies have stock and shareholders.

your answer: true
incorrect. mutual insurance companies have no stock and no external owners.
--------------------------------------------------------------------------------
3. correct access to external funds is an advantage of a mutual holding company.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct a variable life insurance policy may have little or no buildup of

cash value.
your answer: true
correct.
--------------------------------------------------------------------------------
5. correct a change from mutual to stock insurance company is called

demutualization.
your answer: true
correct.
--------------------------------------------------------------------------------
6. incorrect according to the sec, qualified plans are tax deferred plans set up
by employers for employees.
your answer: true
incorrect. under the irs rules of 1954, qualified plans are tax deferred plans set
up by employers for employees.
--------------------------------------------------------------------------------
7. correct the most common types of iras are personal tax-deferred retirement
plans.
your answer: true
correct.
routing information
my name is:

chapter 8 : investment companies and exchange-traded funds

multiple choice
results reporter
summary: 7% correct
7%
93%
0%

1 correct
14 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following are investment companies?

your answer: open-end funds.
incorrect.
--------------------------------------------------------------------------------
2. incorrect the costs of trading closed-end funds include which of the

following?
your answer: bid-ask spread.
incorrect.
--------------------------------------------------------------------------------
3. correct which of the following is the most important factor in the growth of
mutual funds?
your answer: tax-deferred investing for retirement through defined contribution
pension plans.
correct.
--------------------------------------------------------------------------------
4. incorrect which of the following costs are borne by investors in mutual

funds?
your answer: sales charge.
incorrect.
--------------------------------------------------------------------------------
5. incorrect which of the following statements is true?

your answer: the vanguard fund is directly distributed and a front-end load fund.
the correct answer: the american fund is sales-force distributed and is a front-
end load fund.
incorrect. the vanguard fund is directly distributed and is a pure no-load fund.
--------------------------------------------------------------------------------
6. incorrect financial intermediaries provide which of the following economic

functions?
your answer: risk reduction via diversification.
incorrect.
--------------------------------------------------------------------------------
7. incorrect stock funds can be differentiated based on which of the following?

your answer: average market capitalization.
incorrect.
--------------------------------------------------------------------------------
8. incorrect which of the following organizations provide data on mutual funds?

your answer: lipper.
incorrect.
--------------------------------------------------------------------------------
9. incorrect which of the following are included in large fund families?

your answer: money market funds.
incorrect.
--------------------------------------------------------------------------------
10. incorrect which of the following statements concerning mutual funds is true?
your answer: capital gains distributions must occur monthly.
incorrect. capital gains distributions must occur annually.
--------------------------------------------------------------------------------
11. incorrect which of the following laws relate either directly or indirectly
to mutual funds?
your answer: securities act of 1933.
incorrect.
--------------------------------------------------------------------------------
12. incorrect which of the following are recent changes in the mutual fund
industry?
your answer: changes in the distribution channels.
incorrect.
--------------------------------------------------------------------------------
13. incorrect which of the following is a non-traditional distribution channel?

your answer: supermarkets.
incorrect.
--------------------------------------------------------------------------------
14. incorrect which of the following characteristics describes exchange-traded

mutual funds?
your answer: etfs are traded like stocks on an exchange.
incorrect.
--------------------------------------------------------------------------------
15. incorrect mutual fund investment per capita in germany is still far below
levels of which of the following countries?
your answer: u.s.
incorrect.
routing information
my name is:


chapter 8 : investment companies and exchange-traded funds
true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct open-end funds are commonly referred to as mutual funds.

your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect a mutual fund that charges no sales commission is called a front-

end load fund.
your answer: true
incorrect. funds with no sales charges are called no-load mutual funds
--------------------------------------------------------------------------------
3. correct a mutual fund can reduce risk through portfolio diversification.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct a group of funds offered by one investment company is called a family

of funds.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect taxes are paid on distributions at both the investor and the fund
level.
your answer: true
incorrect. distributions are taxed only at the investor level, not the fund level.
--------------------------------------------------------------------------------
6. correct the board of directors represents the shareholders who are the owners
of the mutual fund.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct exchange-traded funds have lower expenses than their corresponding

index mutual funds.
your answer: true
correct.
routing information
my name is:


chapter 9 : pension funds
multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following may be pension plan sponsors?

your answer: private business entities.
incorrect.
--------------------------------------------------------------------------------
2. incorrect which of the following manage the largest corporate pension funds?
your answer: general motors.
incorrect.
--------------------------------------------------------------------------------
3. incorrect a plan whose sponsor is responsible only for making specified

contributions into the plan on behalf of qualifying participants is a:
your answer: defined benefit plan.
the correct answer: defined contribution plan.
incorrect. in a defined benefit plan, the sponsor is responsible for providing
specified payments (benefits) to the qualifying participants when they retire.
--------------------------------------------------------------------------------
4. incorrect a plan that combines some features of the defined benefit approach
and some aspects of the defined contribution method is the:
your answer: defined benefit plan.
the correct answer: cash balance plan.
incorrect. in a defined benefit plan, the sponsor is responsible for providing
specified payments (benefits) to the qualifying participants when they retire.
--------------------------------------------------------------------------------
5. incorrect which of the following is a defined contribution plan?

your answer: 401(k) plan.
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following is a characteristic of a defined benefit

plan?
your answer: guarantee of retirement benefits by plan sponsor.
incorrect.
--------------------------------------------------------------------------------
7. incorrect which of the following are hybrid plans?

your answer: pension equity.
incorrect.
--------------------------------------------------------------------------------
8. correct the major feature that distinguishes union plans from corporate and
public defined benefit plans is which of the following?
your answer: small weight placed in international investments.
correct.
--------------------------------------------------------------------------------
9. correct pension plans are regulated under which of the following acts?
your answer: erisa.
correct.
--------------------------------------------------------------------------------
10. incorrect all parties responsible for the management of a pension fund are
guided by which of the following?
your answer: judgement.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following is among the largest institutional managers
of defined benefit pension funds?
your answer: vanguard group.
incorrect.
--------------------------------------------------------------------------------
12. incorrect which of the following is not a service that consultants provide
to plan sponsors?
your answer: providing actuarial advice.
the correct answer: creating new financial instruments.
incorrect. consultants provide actuarial advice to plan sponsors.
--------------------------------------------------------------------------------
13. incorrect which of the following is true about social security?

your answer: social security revenues are based on payroll taxes of employed
individuals.
incorrect.
--------------------------------------------------------------------------------
14. incorrect corporations in which of the following countries offer defined

benefit plans?
your answer: germany.
incorrect. germany does not currently offer a defined benefit plan.
--------------------------------------------------------------------------------
15. incorrect which of the following is true about foundations?

your answer: qualified foundations are exempt from taxation.
incorrect.
routing information
my name is:

chapter 9 : pension funds

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct pension plans are financed by contributions made by employers.

your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect defined contribution pension plans put the investment choices and
investment risk on the employer.
your answer: true
incorrect. in a defined contribution pension plan, the investment choices and
investment risk are put on the employee.
--------------------------------------------------------------------------------
3. correct qualified pension funds are exempt from federal income taxes.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct fidelity is one of the largest institutional managers of defined

benefit pension plans.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect the u.s. plan calling for retirement planning was established in
august of 1935.
your answer: true
incorrect. social security was founded in august 1935.
--------------------------------------------------------------------------------
6. correct the pension retirement system in germany is primarily a public "pay

as you go" pension system.
your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect public confidence in social security has strengthened.

your answer: true
incorrect. public confidence in social security has lessened.
routing information
my name is:

chapter 10 : properties and pricing of financial assets

multiple choice
results reporter
20%
80%
0%

3 correct
12 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct an asset that can be transformed into cash while incurring little
cost or risk has which of the following properties?
your answer: moneyness.
correct.
--------------------------------------------------------------------------------
2. incorrect liquidity depends on which of the following?

your answer: contractual arrangements.
incorrect.
--------------------------------------------------------------------------------
3. incorrect a financial asset that provides an option for the issuer or the
investor has which of the following properties?
your answer: divisibility.
the correct answer: complexity.
incorrect. divisibility relates to the minimum size in which the financial asset
can be exchanged for money.
--------------------------------------------------------------------------------
4. incorrect which of the following is associated with term-to-maturity?

your answer: perpetual.
incorrect.
--------------------------------------------------------------------------------
5. incorrect which of the following is a key property of financial assets?

your answer: cash flow and return.
incorrect.
--------------------------------------------------------------------------------
6. incorrect the discount rate may include which of the following?

your answer: real rate of interest.
incorrect.
--------------------------------------------------------------------------------
7. correct the true or intrinsic value of a financial asset is computed by:

your answer: discounting all expected future cash flows at the appropriate
discount rate.
correct.
--------------------------------------------------------------------------------
8. incorrect as the liquidity of a financial asset declines, which of the

following is true?
your answer: the liquidity premium rises.
incorrect.
--------------------------------------------------------------------------------
9. incorrect an increase in the volatility of a currency results in which of the

following?
your answer: an increase in the exchange rate risk premium.
incorrect.
--------------------------------------------------------------------------------
10. incorrect which of the following affects the price sensitivity of a

financial asset?
your answer: maturity.
incorrect.
--------------------------------------------------------------------------------
11. incorrect a reduction in the required yield increases the price sensitivity
of a financial asset with which of the following characteristics?
your answer: zero coupon rate.
the correct answer: a, b, and c.
incorrect.
--------------------------------------------------------------------------------
12. correct which of the following is a measure of the sensitivity of a

financial asset�s price to changes in interest rates?
your answer: duration.
correct.
--------------------------------------------------------------------------------
13. incorrect which of the following terms is associated with measuring the
price sensitivity of a financial asset to changes in interest rates?
your answer: effective duration.
incorrect.
--------------------------------------------------------------------------------
14. incorrect which of the following statements is correct?

your answer: the lower its initial discount rate, the greater the price
sensitivity of an asset to a change in that rate.
incorrect.
--------------------------------------------------------------------------------
15. incorrect a decrease in the risk of default causes which of the following?
your answer: decreases the default risk premium.
incorrect.
routing information
my name is:

chapter 10 : properties and pricing of financial assets

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect the cost of buying and selling a financial asset and turning it
back into cash is referred to as transaction cost.
your answer: true
incorrect. reversibility refers to the cost of investing in a financial asset and
then getting out of it and back into cash.
--------------------------------------------------------------------------------
2. correct a financial instrument that has no maturity is called a perpetual.

your answer: true
correct.
--------------------------------------------------------------------------------
3. correct the conversion feature gives the investor the right to convert an
issuer�s financial asset into another security.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct the appropriate discount rate is the rate of return that the market
requires on an asset.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect the price of an asset is positively related to the discount rate.

your answer: true
incorrect. the price of an asset moves in the opposite direction of a change in
the discount rate.
--------------------------------------------------------------------------------
6. correct the lower an asset�s coupon rate, the more sensitive is its price to
a change in the required rate of return.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct duration measures the price sensitivity of an asset to a change in

interest rates.
your answer: true
correct.
routing information
my name is:

chapter 11 : the level and structure of interest rates

multiple choice
results reporter
summary: 7% correct
7%
93%
0%

1 correct
14 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect the rate that would prevail in the economy if the average prices
for goods and services were expected to remain constant during the life of a loan
is called:
your answer: risk-free rate.
the correct answer: real rate.
incorrect. the risk-free rate is the rate that would prevail in the economy if
there were no risk.
--------------------------------------------------------------------------------
2. incorrect fisher�s theory emphasizes that the long-run interest rate and the
amount of investment depend on which of the following?
your answer: propensity to save.
incorrect.
--------------------------------------------------------------------------------
3. correct the relationship between inflation and interest rates is known as:
your answer: fisher�s law.
correct.
--------------------------------------------------------------------------------
4. incorrect in the loanable funds theory of interest rates, shifts in demand

and supply occur for which of the following reasons?
your answer: changes in the money supply.
incorrect.
--------------------------------------------------------------------------------
5. incorrect keynes assumes that the public holds money for which of the
following reasons?
your answer: transactions demand.
incorrect.
--------------------------------------------------------------------------------
6. incorrect in keynes� view, changes in the money supply have which of the
following effects?
your answer: the liquidity effect.
incorrect.
--------------------------------------------------------------------------------
7. incorrect the equilibrium situation in the loanable funds theory means that
all agents are:
your answer: borrowing to the desired extent.
incorrect.
--------------------------------------------------------------------------------
8. incorrect the liquidity effect of an increase in the money supply is:

your answer: an increase in interest rates.
the correct answer: a decrease in interest rates.
incorrect. an increase in the supply of money relative to the demand for money
causes interest rates to fall.
--------------------------------------------------------------------------------
9. incorrect which of the following terms is associated with bonds?

your answer: term to maturity.
the correct answer: a, b, and d only.
incorrect.
--------------------------------------------------------------------------------
10. incorrect if a bond�s yield-to-maturity is greater than its coupon rate:

your answer: the market price of the bond is equal to the par value.
the correct answer: the market price of the bond is less than the par value.
incorrect. if the yield-to-maturity is equal to the coupon rate, the market price
of the bond is equal to the par value.
--------------------------------------------------------------------------------
11. incorrect which of the following interest rates serves as a benchmark rate
throughout the u.s. economy?
your answer: libor.
the correct answer: rates on treasury securities.
incorrect. libor is a benchmark rate throughout europe.
--------------------------------------------------------------------------------
12. incorrect which of the following factors affects the risk premium or spread
on a non-treasury security?
your answer: type of issuer.
incorrect.
--------------------------------------------------------------------------------
13. incorrect bond issues that carry a rating below the top four categories are
referred to as:
your answer: non-investment grade bonds.
incorrect.
--------------------------------------------------------------------------------
14. incorrect which of the following is an important factor that affects the
liquidity of a security issue?
your answer: the issuer�s creditworthiness.
the correct answer: the size of the issue.
incorrect.
--------------------------------------------------------------------------------
15. incorrect the greater the possibility of default, the:

your answer: the higher the yield required by investors.
incorrect.
routing information
my name is:

chapter 11 : the level and structure of interest rates

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct an interest rate is the price of loanable funds.

your answer: true
correct.
--------------------------------------------------------------------------------
2. correct according to fisher�s law, higher inflation expectations drive the

nominal rate above the real rate.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct to keynes, the supply of money is fully under the control of the
central bank.
your answer: true
correct.
--------------------------------------------------------------------------------
4. incorrect the price expectations effect moves interest rates in the same
direction as the liquidity effect.
your answer: true
incorrect. the price expectations effect moves interest rates in the opposite
direction from the liquidity effect.
--------------------------------------------------------------------------------
5. incorrect the coupon rate is the rate of return received by the bondholder
over the investment horizon.
your answer: true
incorrect. the coupon rate is the annual interest rate the issuer of the bond
agrees to pay each year.
--------------------------------------------------------------------------------
6. correct bonds trade with different degrees of liquidity.

your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect an embedded option, which benefits the issuer reduces the spread to
treasuries.
your answer: true
incorrect. if an embedded option benefits the issuer, the spread to treasuries
increases.
routing information
my name is:

chapter 12 : the term structure of interest rates

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect for which of the following reasons is the yield curve constructed
from the treasury market?
your answer: treasury securities are free of default risk.
incorrect.
--------------------------------------------------------------------------------
2. incorrect yield curves can take which of the following shapes?
your answer: normal.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following statistical procedures can be used to create

a theoretical spot rate curve?
your answer: regression analysis.
the correct answer: bootstrapping.
incorrect. regression analysis is not used to create a theoretical spot rate
curve.
--------------------------------------------------------------------------------
4. incorrect using spot rates, the theoretical value of a bond can be calculated
by:
your answer: discounting the cash flows from the bond by a single spot rate.
the correct answer: discounting the cash flow for a given period by the
corresponding spot rate for that period.
incorrect. given spot rates, the theoretical value of a bond is not found by
discounting the cash flows from a bond by a single spot rate.
--------------------------------------------------------------------------------
5. incorrect which of the following influences the forward rate?

your answer: when the rate begins in the future.
incorrect.
--------------------------------------------------------------------------------
6. incorrect the current spot rate is related to which of the following?

your answer: the current six-month spot rate.
incorrect.
--------------------------------------------------------------------------------
7. incorrect knowledge of the forward rates implicit in a long-term rate is

relevant in formulating which of the following?
your answer: investment strategies.
incorrect.
--------------------------------------------------------------------------------
8. incorrect forward rates can be calculated for which of the following

maturities?
your answer: the two-year implied forward rate five years from now.
incorrect.
--------------------------------------------------------------------------------
9. incorrect a forward rate is also referred to as:

your answer: implied forward rate.
incorrect.
--------------------------------------------------------------------------------
10. incorrect which of the following theories has evolved as a major model
explaining the term structure of interest rates?
your answer: expectations hypothesis.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following is a form of the expectations theory?

your answer: pure expectations theory.
incorrect.
--------------------------------------------------------------------------------
12. correct the link between the spot and forward rates is most closely
associated with which one of the following theories of the term structure of
interest rates.
your answer: expectations theory.
correct.
--------------------------------------------------------------------------------
13. incorrect the liquidity theory assumes which of the following about forward
rates?
your answer: forward rates equal expected future rates.
the correct answer: forward rates are equal to the sum of expected future rates
and a maturity risk premium.
incorrect. the forward rate is greater than the expected future spot rate.
--------------------------------------------------------------------------------
14. incorrect which of the following risks is associated with bond investing?
your answer: price risk.
incorrect.
--------------------------------------------------------------------------------
15. correct if investors expect the return will be the same on all investments
over a short-term investment horizon that starts today, which of the following
interpretations of the pure expectations theory apply?
your answer: local expectations.
correct.
routing information
my name is:

chapter 12 : the term structure of interest rates

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect the relationship between yield and maturity is called the yield
curve.
your answer: true
incorrect. the relationship between yield and maturity is referred to as the term
structure of interest rates.
--------------------------------------------------------------------------------
2. correct the treasury yield curve functions as a benchmark for pricing bonds
and setting yields.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct the rate on a zero-coupon bond is called the spot rate.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct a forward rate can be derived from the yield curve.

your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect forward rates are good predictors of future interest rates.

your answer: true
incorrect. forward rates have been found to not do a good job predicting future
interest rates.
--------------------------------------------------------------------------------
6. correct according to the pure expectations theory, the term structure

reflects only expectations of future short-term rates.
your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect according to the market segmentation theory, the shape of the yield
curve is a function of the supply and demand for loanable funds.
your answer: true
incorrect. for the segmentation theory, the shape of the yield curve is determined
by the supply and demand for securities within each maturity sector.
routing information
my name is:

chapter 13 : risk/return and asset pricing models

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect the return on an investor�s portfolio during a given interval is

equal to:
your answer: capital gains plus interest income.
incorrect.
--------------------------------------------------------------------------------
2. incorrect which of the following measure the total variability of returns?

your answer: standard deviation of returns.
incorrect.
--------------------------------------------------------------------------------
3. incorrect diversification results when the returns on securities in a

portfolio are:
your answer: perfectly correlated.
the correct answer: less than perfectly correlated.
incorrect. combining securities whose returns are perfectly correlated creates a
portfolio of securities whose returns change in the same way at the same time.
--------------------------------------------------------------------------------
4. correct on average, how many securities must be included in a portfolio to

eliminate about 40% of the diversifiable risk of each individual security?
your answer: 20 stocks.
correct.
--------------------------------------------------------------------------------
5. incorrect the return on a security is based on which of the following?
your answer: systematic risk.
incorrect.
--------------------------------------------------------------------------------
6. correct an asset with a beta greater than one:

your answer: has more systematic risk than the market.
correct.
--------------------------------------------------------------------------------
7. incorrect unsystematic risk is a function of which of the following factors?

your answer: managerial issues.
incorrect.
--------------------------------------------------------------------------------
8. incorrect the risk associated with the market is called:

your answer: unsystematic risk.
the correct answer: systematic risk.
incorrect. unsystematic risk is risk unique to the issuer of the security
--------------------------------------------------------------------------------
9. incorrect the relevant measure of risk for the pricing of securities is:
your answer: standard deviation of returns.
the correct answer: beta.
incorrect. the standard deviation is a measure of total risk and is not the
relevant risk measure for the pricing of securities.
--------------------------------------------------------------------------------
10. incorrect which of the following is not an assumption of the capm?

your answer: risk-averse investors.
the correct answer: multiple time horizons.
incorrect. the capm assumes that investors are risk-averse.
--------------------------------------------------------------------------------
11. incorrect which of the following is a major criticism of the capm?

your answer: it is untestable.
incorrect.
--------------------------------------------------------------------------------
12. incorrect which of the following extra-market factors are included in the
multifactor capm?
your answer: future labor income.
incorrect.
--------------------------------------------------------------------------------
13. incorrect which of the following assumptions is not required for the apt?
your answer: perfect capital markets.
the correct answer: b and c.
incorrect. apt assumes perfect capital markets.
--------------------------------------------------------------------------------
14. incorrect according the apt, the factors whose unexpected changes have a
systematic impact on stock returns include which of the following?
your answer: business cycles.
incorrect.
--------------------------------------------------------------------------------
15. incorrect the feature of the apt that offers the greatest potential
advantage over the capm is the:
your answer: identification of future labor income, future relative consumer
prices, and future investment opportunities as key factors explaining the risk-
return relationship.
the correct answer: use of several factors instead on a single market index to
explain the risk-return relationship.
incorrect. the apt does not identify future labor income, future relative consumer
prices, and future investment opportunities as key factors explaining the risk-
return relationship.
routing information
my name is:

chapter 13 : risk/return and asset pricing models

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect the relevant risk of any individual security is the total

variability in returns.
your answer: true
incorrect. the relevant risk of any individual security is the systematic
variability in returns.
--------------------------------------------------------------------------------
2. correct portfolio diversification reduces some of the risk of most

securities.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct beta is a measure of a security�s systematic risk

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct the capital asset pricing model describes the relationship between
risk and return.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect the relationship between risk and return is nonlinear in the capm.
your answer: true
incorrect. empirical studies give no evidence of significant curvature in the
risk/return relationship.
--------------------------------------------------------------------------------
6. correct the multifactor capm postulates that extra-market factors influence

the expected return on a security.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct the apt assumes the possibility of many common factors influencing a
security�s required return.
your answer: true
correct.
routing information
my name is:

chapter 14 : primary markets and the underwriting of securities

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect investment bankers perform which of the following functions?

your answer: advising
incorrect.
--------------------------------------------------------------------------------
2. incorrect which of the following pertains to investment banking:
your answer: underwriting.
incorrect.
--------------------------------------------------------------------------------
3. incorrect to reduce the risks associated with the underwriting of securities,

investment bankers use which of the following?
your answer: insurance
the correct answer: syndication
incorrect. investment bankers cannot by insurance to reduce the risks of
underwriting new securities.
--------------------------------------------------------------------------------
4. incorrect which of the following groups perform investment banking?

incorrect.
--------------------------------------------------------------------------------
5. incorrect which of the following firms dominate investment banking in japan?

your answer: nomura
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following applies to the issuance of new securities?

your answer: rule 415.
incorrect.
--------------------------------------------------------------------------------
7. correct rule 415 applies to which of the following?

your answer: shelf registration.
correct.
--------------------------------------------------------------------------------
8. incorrect which of the following underwriting arrangements is only used to

issue new stock?
your answer: bought deal.
the correct answer: rights offering.
incorrect. the bought deal is used for underwriting bonds.
--------------------------------------------------------------------------------
9. incorrect competitive bidding falls under which type of underwriting

arrangement?
your answer: bought deal.
the correct answer: auction process.
incorrect. competitive bidding is not a type of bought deal.
--------------------------------------------------------------------------------
10. correct when all bidders agree to pay the highest winning yield bid, which
of the following auction types is being used?
your answer: single-price auction.
correct.
--------------------------------------------------------------------------------
11. incorrect which of the following is an element in a rights offering?

your answer: number of rights.
incorrect.
--------------------------------------------------------------------------------
12. incorrect when an investment bank agrees to buy securities from the issuer
at a set price, it is using which type of underwriting agreement?
your answer: rights offering.
the correct answer: firm commitment underwriting.
incorrect. in a rights offering, existing stockholders are given rights that allow
them to purchase a pro rata share of the new securities.
--------------------------------------------------------------------------------
13. incorrect which of the following sec rules applies to private placements?
your answer: rule 415.
the correct answer: b and d.
incorrect. rule 415 applies to shelf registration.
--------------------------------------------------------------------------------
14. incorrect which of the following are benefits of rule 144a?
your answer: improved liquidity.
incorrect.
--------------------------------------------------------------------------------
15. incorrect when new securities are sold directly to one or a few investors,
it is called:
your answer: public offering.
the correct answer: private placement.
incorrect. in a public offering, new securities are sold to many investors.
routing information
my name is:

chapter 14 : primary markets and the underwriting of securities

true or false
results reporter
86%
14%
0%

6 correct
1 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct investment bankers may be exposed to risks associated with the

underwriting of securities.
your answer: true
correct.
--------------------------------------------------------------------------------
2. correct life insurance companies are the major investors in private

placements.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct j.p. morgan is a major u.s. investment banking firm.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct the sec regulates underwriting activities.

your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect a bought deal is used for the underwriting of common stock.

your answer: true
incorrect. an offering of bonds can be made by means of a bought deal.
--------------------------------------------------------------------------------
6. correct new securities can be issued by means of an auction process.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct rule 144a permits large institutions to trade securities acquired in

a private placement among themselves.
your answer: true
correct.
routing information
my name is:

chapter 15 : secondary markets

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following is a benefit from a secondary market?

your answer: liquidity.
incorrect.
--------------------------------------------------------------------------------
2. incorrect which of the following is not a function of the secondary market?

your answer: price discovery.
incorrect.
--------------------------------------------------------------------------------
3. incorrect xetra, a new electronic trading system, is used by which of the

following exchanges?
your answer: the london stock exchange.
the correct answer: the frankfurt stock exchange.
incorrect. the lse does not use xetra.
--------------------------------------------------------------------------------
4. correct which of the following international equity markets is an otc market

like nasdaq?
your answer: the lse.
correct.
--------------------------------------------------------------------------------
5. incorrect which of the following is a feature of the call method of trading?

your answer: orders are grouped or batched together.
incorrect.
--------------------------------------------------------------------------------
6. incorrect when a market combines elements of the continuous and the call
market, it its called a:
your answer: hybrid market.
the correct answer: mixed market.
incorrect. a hybrid market is not a market that combines elements of the
continuous and the call frameworks.
--------------------------------------------------------------------------------
7. incorrect which of the following is not a characteristic of a perfect market?

your answer: no transaction costs.
the correct answer: restrictions on market makers.
incorrect. a perfect market assumes no transactions costs.
--------------------------------------------------------------------------------
8. incorrect which of the following causes friction in capital markets?

your answer: commissions charged by brokers.
incorrect.
--------------------------------------------------------------------------------
9. incorrect short selling is important for which of the following reasons?

your answer: price-setting function.
incorrect.
--------------------------------------------------------------------------------
10. incorrect the broker performs which of the following functions?

your answer: receives and transacts investors� orders.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following is a function performed by dealers?

your answer: price stabilization.
incorrect.
--------------------------------------------------------------------------------
12. incorrect which of the following are risks associated with maintaining short
and long positions in a given security?
your answer: price risk.
incorrect.
--------------------------------------------------------------------------------
13. incorrect which of the following factors determine the price dealers charge
for their services?
your answer: order processing costs.
incorrect.
--------------------------------------------------------------------------------
14. correct when a market offers investors reasonably prices services related to
trading securities, it is said to be:
your answer: operationally efficient.
correct.
--------------------------------------------------------------------------------
15. incorrect when security prices reflect all available information at all
times, the market is said to be:
your answer: internally efficient.
the correct answer: externally efficient.
incorrect. in an internally efficient market, transactions occur at the lowest
cost.
routing information
my name is:


chapter 15 : secondary markets
true or false
results reporter
43%
43%
14%

3 correct
3 incorrect
1 unanswered
--------------------------------------------------------------------------------
1. correct secondary markets benefit investors by providing liquidity.

your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect secondary trading of common stocks occurs only on organized

exchanges.
your answer: true
incorrect. secondary trading may also occur in the over-the-counter market.
--------------------------------------------------------------------------------
3. not answered in a continuous market, prices are determined continuously

throughout the trading day as buyers and sellers submit orders.
--------------------------------------------------------------------------------
4. incorrect a perfect market is free of short selling.

your answer: true
incorrect. a perfect market must permit short selling.
--------------------------------------------------------------------------------
5. correct a dealer makes a profit when making a market.

your answer: true
correct.
--------------------------------------------------------------------------------
6. correct a market is operationally efficient if it allows investors to receive

transaction services at the lowest price possible.
your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect electronic bond trading has actually reduced the liquidity of the
bond market.
your answer: true
incorrect. electronic bond trading has improved the liquidity of the bond market.
routing information
my name is:

chapter 16 : treasury and agency securities markets

multiple choice
results reporter
20%
80%
0%

3 correct
12 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect u.s. treasury securities play a prominent role for which of the
following reasons?
your answer: volume.
incorrect.
--------------------------------------------------------------------------------
2. incorrect treasury securities with a maturity of thirty years are called:

your answer: treasury bills.
the correct answer: treasury bonds.
incorrect. treasury bills have a maturity of one year or less.
--------------------------------------------------------------------------------
3. correct a treasury bill is issued as a:

your answer: discount security.
correct.
--------------------------------------------------------------------------------
4. incorrect an auction for treasury securities, conducted using competitive

bidding, may consist of which of the following tenders:
your answer: competitive bids.
incorrect.
--------------------------------------------------------------------------------
5. incorrect in which of the following markets are treasury securities trading

when they are traded prior to the issuance of the treasury?
your answer: primary market.
the correct answer: when-issued market.
incorrect. new issues of securities are traded in the primary market.
--------------------------------------------------------------------------------
6. incorrect government dealers use interdealer brokers for which of the

following reasons?
your answer: lower commission costs.
incorrect. government dealers do not use interdealer brokers for their lower
commission costs
--------------------------------------------------------------------------------
7. correct a transaction calling for the sale of a security and its repurchase
at a future date is called a:
your answer: repo transaction.
correct.
--------------------------------------------------------------------------------
8. incorrect when the fed buys collateral on behalf of a foreign central bank in
repo transactions, it is termed a:
your answer: system repo.
the correct answer: customer repo.
incorrect. when the fed buys collateral for its own account, it is called system
repo.
--------------------------------------------------------------------------------
9. incorrect coupon stripping is the process of:

your answer: creating zero-coupon bonds.
incorrect.
--------------------------------------------------------------------------------
10. incorrect what forces the price of a treasury security to trade near its
theoretical value based on spot rates?
your answer: coupon stripping.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following government-sponsored enterprises issues

securities?
your answer: federal home loan bank system.
incorrect.
--------------------------------------------------------------------------------
12. incorrect what types of securities are issued by gses?

your answer: debentures.
incorrect.
--------------------------------------------------------------------------------
13. correct compared to treasury securities, investors in federal agency

securities are exposed to which type of investment risk?
correct.
--------------------------------------------------------------------------------
14. incorrect which of the following foreign governments issue inflation-indexed

securities?
your answer: great britain.
incorrect.
--------------------------------------------------------------------------------
15. incorrect which of the following distribution methods are used by central
governments to issue government bonds?
your answer: dutch auction.
incorrect.
routing information
my name is:

chapter 16 : treasury and agency securities markets

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect interest income from treasury securities is tax-exempt from federal

taxation.
your answer: true
incorrect. interest income from treasury securities is subject to federal income
taxes but exempt from state and local income taxes.
--------------------------------------------------------------------------------
2. correct tips are inflation-protected securities treasury.

your answer: true
correct.
--------------------------------------------------------------------------------
3. incorrect u.s. treasury securities have credit risk.

your answer: true
incorrect. since treasury securities are backed by the full faith and credit of
the u. s. government, they are considered risk-free.
--------------------------------------------------------------------------------
4. correct treasury securities are issued through an auction process.

your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect just like treasury securities, agency securities are free of

default risk.
your answer: true
incorrect. in general, the securities issued by government-sponsored agencies are
not backed by the full faith and credit of the u.s. government.
--------------------------------------------------------------------------------
6. correct all securities issued by federally-related enterprises are exempt

from sec registration.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct the british government issues shorter-term bonds that are convertible
into a specified amount of long-term gilts for a number of years.
your answer: true
correct.
routing information
my name is:

chapter 17 : municipal securities markets

multiple choice
results reporter
20%
80%
0%

3 correct
12 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following bonds are secured by the issuer�s unlimited
taxing power?
your answer: revenue bonds.
the correct answer: general obligation bonds.
incorrect. issuers of revenue bonds pledge to the bondholders the revenues
generated by the operating projects financed with the bonds.
--------------------------------------------------------------------------------
2. incorrect which of the following is a tax-backed debt obligation?

your answer: general obligation debt.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following are backed by dedicated revenue such as

sales taxes?
your answer: revenue bonds.
incorrect. issuers of revenue bonds pledge to the bondholders the revenues
generated by the operating projects financed
--------------------------------------------------------------------------------
4. incorrect which of the following are municipal notes?

your answer: tax anticipation notes.
incorrect.
--------------------------------------------------------------------------------
5. incorrect the debt retirement structure for municipal bonds can be which of
the following?
your answer: sinking fund.
the correct answer: c and d.
incorrect. a sinking fund is a redemption feature associated with corporate bonds.
--------------------------------------------------------------------------------
6. incorrect which of the following would a commercial rating company use to

evaluate general obligation bonds?
your answer: information on issuer�s debt structure and overall debt burden.
incorrect.
--------------------------------------------------------------------------------
7. incorrect which of the following determines the creditworthiness of a

municipal bond issue?
your answer: in-house municipal credit analysts.
incorrect.
--------------------------------------------------------------------------------
8. incorrect a tax risk associated with investing in municipal bonds is that:

your answer: the marginal tax rate will be increased.
the correct answer: the highest marginal tax rate will be reduced.
incorrect. an increase in the marginal tax rate makes the value of tax-exempt
securities increase.
--------------------------------------------------------------------------------
9. correct a tax risk associated with investing in municipal bonds is that:

your answer: an issue brought to market as tax-exempt may be declared taxable by
the irs.
correct.
--------------------------------------------------------------------------------
10. incorrect which of the following methods is used to market a public offering
of municipal obligations in the primary market?
your answer: competitive bidding.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following is regarded an odd lot of bonds?

your answer: $25,000 or less in par value for retail investors.
incorrect.
--------------------------------------------------------------------------------
12. incorrect municipal bonds are traded and quoted in which of the following
terms?
your answer: yield-to-maturity.
incorrect.
--------------------------------------------------------------------------------
13. correct what is the slope of the municipal yield curve?

your answer: positively sloped.
correct.
--------------------------------------------------------------------------------
14. incorrect which of the following are primary investors in municipal

securities?
your answer: households.
incorrect.
--------------------------------------------------------------------------------
15. correct what is the most important advantage of municipal securities to

investors?
your answer: exemption of interest income from federal taxes.
correct.
routing information
my name is:

chapter 17 : municipal securities markets

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect revenue bonds are debt obligations of municipalities that are

backed by tax revenues.
your answer: true
incorrect. revenue bonds are paid off using the revenues generated by the projects
financed by the bonds.
--------------------------------------------------------------------------------
2. correct a serial maturity structure requires that a portion of the debt

obligation be retired each year.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct the investor in a municipal security is exposed to credit risk.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct commercial rating agencies evaluate the creditworthiness of municipal

bond issues.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect tax-exempt municipal securities investors are not subject to tax
risks.
your answer: true
incorrect. investing in municipal securities exposes the investor the risk that
the marginal tax rate will be reduced, resulting in a decline in the value of
municipal bonds.
--------------------------------------------------------------------------------
6. incorrect revenue bonds are marketed through competitive bidding.

your answer: true
incorrect. most states mandate that general obligation bonds are marketed through
competitive bidding, but generally this is not necessary for revenue bonds.
--------------------------------------------------------------------------------
7. correct municipal securities offerings are subject to the sec�s bond

disclosure rule.
your answer: true
correct.
routing information
my name is:

chapter 18 : common stock markets in the united states

multiple choice
results reporter
summary: 7% correct
7%
93%
0%

1 correct
14 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect secondary market trading in common stock occurs via which of the
following?
your answer: organized exchange.
incorrect.
--------------------------------------------------------------------------------
2. incorrect stocks are traded in which of the following markets?

your answer: first market.
incorrect.
--------------------------------------------------------------------------------
3. incorrect the day on which the nyse and the amex began trading all their
stock in decimals is referred to as:
your answer: teenies day.
the correct answer: decimal monday.
incorrect. "teenies" refers to the date on which the nyse began trading in
sixteenths.
--------------------------------------------------------------------------------
4. incorrect the nasdaq pricing controversy refers to which of the following?

your answer: price fixing.
incorrect.
--------------------------------------------------------------------------------
5. incorrect a price threshold specified for the execution of a trade is called

a:
your answer: public order.
the correct answer: limit order.
incorrect. public orders are orders of those member firms dealing for their own
account.
--------------------------------------------------------------------------------
6. incorrect the sale of a security not owned by the investor at the time of the
sale is called:
your answer: long stock.
incorrect. long stock refers to the purchase of a security.
--------------------------------------------------------------------------------
7. incorrect implicit trading costs include which of the following:

your answer: impact costs.
incorrect.
--------------------------------------------------------------------------------
8. incorrect broker commissions can be classified into which category of trading

costs?
your answer: implicit costs.
the correct answer: explicit costs.
incorrect. implicit costs do not involve cash outlays.
--------------------------------------------------------------------------------
9. incorrect institutional trading falls into which of the following categories?

your answer: program trades.
incorrect.
--------------------------------------------------------------------------------
10. incorrect which of the following statements is not accurate?

your answer: program trading and index arbitrage are equivalent.
incorrect.
--------------------------------------------------------------------------------
11. correct which of the following is the most commonly quoted stock market
indicator?
your answer: djia.
correct.
--------------------------------------------------------------------------------
12. incorrect which of the following approaches is used to construct a stock

market index?
your answer: equal weighted.
incorrect.
--------------------------------------------------------------------------------
13. incorrect a market in which the price of the security reflects the past
price and trading history of the security is said to be:
your answer: price efficient.
the correct answer: weak-form efficient.
incorrect. price efficiency refers to a market in which security prices reflect
all available information at all times.
--------------------------------------------------------------------------------
14. incorrect which of the following is not an active investment strategy?

your answer: timing the selection of transactions.
the correct answer: attempting to match the market�s performance.
incorrect. active strategies attempt to outperform the market, which is attempted
by timing the selection of transactions.
--------------------------------------------------------------------------------
15. incorrect which of the following place restrictions on index arbitrage

trading?
your answer: circuit breakers.
the correct answer: trading collar.
incorrect. circuit breakers halt all trading on the nyse.
routing information
my name is:

chapter 18 : common stock markets in the united states

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct equity securities represent ownership interest in a corporation.

your answer: true
correct.
--------------------------------------------------------------------------------
2. correct stocks are traded on the big board.

your answer: true
correct.
--------------------------------------------------------------------------------
3. correct regulation fd bars selective disclosure of material corporate

information.
your answer: true
correct.
--------------------------------------------------------------------------------
4. incorrect a market order is executed only at a designated price.

your answer: true
incorrect. the market order is the simplest type of order, which is executed at
the best price available in the market.
--------------------------------------------------------------------------------
5. correct equity trading costs vary systematically with trade difficulty and
order-placement strategy.
your answer: true
correct.
--------------------------------------------------------------------------------
6. incorrect block trading involves the trade of at least 200,000 shares with a
market value of $10,000.
your answer: true
incorrect. the nyse defines block trades as either trades of at least 10,000
shares of a given stock, or trades of shares with a market value of at least
$200,000.
--------------------------------------------------------------------------------
7. correct circuit breakers are a type of trading restriction.

your answer: true
correct.
routing information
my name is:

chapter 19 : international stock markets

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following msci world stock indexes covers developing
countries?
your answer: world index.
the correct answer: em index.
incorrect. the world index includes eafe as well as the united states and canada.
--------------------------------------------------------------------------------
2. incorrect which of the following is not a reason for a firm to have listings
on several national stock exchanges?
your answer: to diversify the sources of capital across national boundaries.
incorrect. firms seek to diversify their sources of capital across national
boundaries.
--------------------------------------------------------------------------------
3. incorrect correlations between international equity markets differ as a

result of which of the following factors:
your answer: different taxation.
incorrect.
--------------------------------------------------------------------------------
4. incorrect correlations between major international equity markets have which

of the following characteristics?
your answer: correlations are positive.
incorrect.
--------------------------------------------------------------------------------
5. incorrect the lse market currently includes which of the following

securities?
your answer: ordinary shares of local and foreign companies.
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following countries has not experienced a "big bang?"
your answer: united kingdom.
the correct answer: germany
incorrect. the "big bang" occurred in england in 1986.
--------------------------------------------------------------------------------
7. correct german equity trading is highly concentrated on which of the
following stock exchanges?
your answer: frankfurt.
correct.
--------------------------------------------------------------------------------
8. incorrect shares listed on the tokyo stock exchange are classified into which
of the following market segments?
your answer: first section
incorrect.
--------------------------------------------------------------------------------
9. incorrect foreign investors can purchase shares in which chinese stock

market?
your answer: a-share market.
the correct answer: b-share market.
incorrect. the a-share market is limited to chinese investors.
--------------------------------------------------------------------------------
10. incorrect newer and smaller companies are traded on which of the following
new european exchanges?
your answer: neuer mart in frankfurt.
incorrect.
--------------------------------------------------------------------------------
11. incorrect one of the newest and fastest changing markets in japan is:
your answer: osaka securities exchange.
the correct answer: nasdaq japan.
incorrect. one section of the osaka securities exchange is nasdaq japan.
--------------------------------------------------------------------------------
12. incorrect exchanges in spain and italy fall into which of the following
stock market structures?
your answer: private markets.
the correct answer: public institutions.
incorrect. the markets in spain and italy are not private markets.
--------------------------------------------------------------------------------
13. correct which of the following trading procedures characterizes markets in

europe?
your answer: continuous trading.
correct.
--------------------------------------------------------------------------------
14. incorrect a corporation�s equity may be indirectly traded in a foreign

market in which of the following forms?
your answer: drs.
the correct answer: gdrs.
incorrect. the combination of gdrs and adrs for a given company is called a dr.
--------------------------------------------------------------------------------
15. incorrect which of the following is a major international stock market

index?
your answer: topix
incorrect.
routing information
my name is:

chapter 19 : international stock markets

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct stocks of some large corporations are listed on stock exchanges in

several countries.
your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect the more correlated the international capital markets, the greater
the benefits from global diversification.
your answer: true
incorrect. the benefits of international diversification result from the low
correlation of international capital markets.
--------------------------------------------------------------------------------
3. correct a country�s economy is made up of a country sector and a global

sector
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct the london stock exchange is one of the world�s major stock
exchanges.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect the "big bang" describes the introduction of the euro on january 1,
1999.
your answer: true
incorrect. the financial reform that occurred in england in 1986 is called the
"big bang."
--------------------------------------------------------------------------------
6. correct the paris, brussels, and amsterdam exchanges merged to form euronext.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct the nikkei 225 stock average is one of the most widely followed
indexes in the world.
your answer: true
correct.
routing information
my name is:


chapter 20 : markets for corporate senior instruments: i
multiple choice
results reporter
summary: 0% correct
0%
93%
7%

0 correct
14 incorrect
1 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following is not a form of credit risk?

your answer: default risk.
the correct answer: upgrade risk.
incorrect. default risk is a form of credit risk.
--------------------------------------------------------------------------------
2. incorrect which of the following is a credit rating company?

your answer: fitch investor service.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following is a feature of commercial paper?

your answer: short-term.
incorrect.
--------------------------------------------------------------------------------
4. incorrect the sec does not require registration of commercial paper with
maturities of:
your answer: more than one year.
the correct answer: less than 270 days.
incorrect. at a maturity of more than one year, commercial paper must be
registered with the sec.
--------------------------------------------------------------------------------
5. incorrect the principal issuers of commercial paper include which of the

following?
your answer: captive finance companies.
incorrect.
--------------------------------------------------------------------------------
6. incorrect in which of the following ways can commercial paper be sold in the
market?
your answer: direct placement.
incorrect.
--------------------------------------------------------------------------------
7. incorrect which of the following is not true about eurocommercial paper?

your answer: longer maturity.
the correct answer: illiquid secondary market..
incorrect. eurocommercial paper has maturity about twice as long as those of u.s.
commercial paper do.
--------------------------------------------------------------------------------
8. incorrect investors in medium-term notes can select from which of the

following maturity ranges?
your answer: 9 to 12 months.
incorrect.
--------------------------------------------------------------------------------
9. not answered in designing mtns, borrowers have flexibility with respect to

which of the following?
--------------------------------------------------------------------------------
10. incorrect a medium-term note created using a derivative instrument is called

a:
your answer: euro medium-term note.
the correct answer: structured note.
incorrect. a medium-term euro note is issued in the euro market.
--------------------------------------------------------------------------------
11. incorrect which of the following is a funding alternative for a corporation?

your answer: a domestic bank in the company�s home country.
incorrect.
--------------------------------------------------------------------------------
12. incorrect syndicated loans can be distributed in which of the following

ways?
your answer: assignment.
incorrect.
--------------------------------------------------------------------------------
13. incorrect the reference rate on a senior bank loan is typically which of the
following:
your answer: commercial paper rate.
the correct answer: libor.
incorrect. the commercial paper rate is not typically used as the reference rate
for a senior bank loan.
--------------------------------------------------------------------------------
14. incorrect loans made by offshore banks are called:

your answer: foreign loans.
the correct answer: eurocurrency loans.
incorrect. a foreign loan is not a loan made by offshore banks.
--------------------------------------------------------------------------------
15. incorrect which of the following is considered a big-ticket item in the

leasing of equipment?
your answer: large ships.
incorrect.
routing information
my name is:

chapter 20 : markets for corporate senior instruments: i

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect commercial paper is not rated by credit rating agencies.

your answer: true
incorrect. rating companies assign credit ratings to commercial paper.
--------------------------------------------------------------------------------
2. correct smaller and less well-known companies with lower credit ratings can
issue commercial paper with credit support.
your answer: true
correct.
--------------------------------------------------------------------------------
3. incorrect medium-term notes are typically underwritten by an investment

banker.
your answer: true
incorrect. typically, medium-term notes are issued on a best-efforts basis.
--------------------------------------------------------------------------------
4. correct governments issue medium-term euro notes in the euromarket.

your answer: true
correct.
--------------------------------------------------------------------------------
5. correct bank loans are an alternative to issuing securities.

your answer: true
correct.
--------------------------------------------------------------------------------
6. correct bullet loans require no repayment of principal until the maturity

date.
your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect once a rating has been assigned to a corporate debt instrument, it

cannot be changed.
your answer: true
incorrect. credit ratings can be changed based on subsequent economic and
financial developments.
routing information
my name is:

chapter 21 : corporate senior instruments: ii

multiple choice
results reporter
20%
80%
0%

3 correct
12 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following is the largest investor in corporate bonds?

your answer: households.
the correct answer: life insurance companies.
incorrect. households are a smaller investor group in corporate bonds.
--------------------------------------------------------------------------------
2. incorrect corporate bond issues, which are arranged so that specified

principal amounts become due on specified dates prior to maturity are called:
your answer: bullet bonds.
the correct answer: serial bonds.
incorrect. term bonds are referred to as bullet bonds since they run for a term of
years.
--------------------------------------------------------------------------------
3. incorrect bonds secured by financial instruments are called:

your answer: mortgage bonds.
the correct answer: collateral trust bonds.
incorrect. mortgage bonds are secured by a lien against real property.
--------------------------------------------------------------------------------
4. incorrect which of the following is a provision for paying off bonds?

your answer: sinking fund provision.
incorrect.
--------------------------------------------------------------------------------
5. incorrect a bond which gives the holder the right to sell the issue back to
the issuer at par value on designated dates is called a:
your answer: warrant.
the correct answer: putable bond.
incorrect. a warrant is a separate instrument that gives the holder the right to
buy a designated security at a specified price from the issuer of the bond.
--------------------------------------------------------------------------------
6. incorrect which of the following is a feature of a floating-rate bond?

your answer: the coupon rate is adjusted periodically.
the correct answer: all of the above are features of floating-rate bonds.
correct.
--------------------------------------------------------------------------------
7. incorrect which of the following companies does not provide credit ratings
for corporate bonds?
your answer: moody�s investor service.
the correct answer: securities and exchange commission.
incorrect. moody�s investor service is a nationally recognized rating company.
--------------------------------------------------------------------------------
8. correct fallen angels are:

your answer: bonds that have been downgraded.
correct.
--------------------------------------------------------------------------------
9. incorrect which of the following is a feature of eurobonds?

your answer: they are issued in unregistered form.
the correct answer: all of the above are features of eurobonds.
incorrect.
--------------------------------------------------------------------------------
10. correct which currency is used most often in eurobond offerings?

your answer: u.s. dollar.
correct.
--------------------------------------------------------------------------------
11. incorrect which type of preferred stock is issued by corporations?

your answer: fixed-rate preferred stock.
incorrect.
--------------------------------------------------------------------------------
12. incorrect a type of preferred stock on which missed dividend payments accrue
until paid in full is:
your answer: perpetual preferred stock.
the correct answer: cumulative preferred stock.
incorrect. a perpetual preferred stock has no maturity date.
--------------------------------------------------------------------------------
13. correct corporate investors in preferred stock receive a:

your answer: 70% exemption of qualified dividends from federal income taxation.
correct.
--------------------------------------------------------------------------------
14. incorrect in the united states, the code governing bankruptcy is set forth
in:
your answer: chapter 7.
the correct answer: bankruptcy reform act.
incorrect. chapter 7 deals with the liquidation of a company.
--------------------------------------------------------------------------------
15. incorrect which statement is true regarding the absolute priority rule?
your answer: the absolute priority rule generally holds in liquidation.
incorrect.
routing information
my name is:

chapter 21 : corporate senior instruments: ii

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct a bond indenture details the obligations of the issuer and the rights
of the bondholders.
your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect a subordinated debenture bond has priority over a senior corporate

bond.
your answer: true
incorrect. a senior debenture bond has priority over a subordinated debenture
bond.
--------------------------------------------------------------------------------
3. correct junk bonds are non-investment grade debt.

your answer: true
correct.
--------------------------------------------------------------------------------
4. incorrect since preferred stock has priority over common stock, it is a debt
instrument.
your answer: true
incorrect. although preferred stock has characteristics of both common stock and
debt, it is an equity instrument.
--------------------------------------------------------------------------------
5. correct failure to pay dividends on preferred stock does not force the issuer
into bankruptcy.
your answer: true
correct.
--------------------------------------------------------------------------------
6. correct in an auction-preferred stock, the dividend rate is set periodically
through an auction process.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct in liquidations, the absolute priority rule generally holds.

your answer: true
correct.
routing information
my name is:

chapter 22 : the markets for bank obligations

multiple choice
results reporter
20%
80%
0%

3 correct
12 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect banks operating in the u.s. are classified into which of the
following categories?
your answer: money center banks.
incorrect.
--------------------------------------------------------------------------------
2. incorrect the usual denomination of large-denomination negotiable cds is:

your answer: $100,000
the correct answer: $1,000,000
incorrect. large-denomination negotiable cds are typically issued in denominations
of $1 million.
--------------------------------------------------------------------------------
3. correct if the cd can be sold in the open market prior to maturity without a
penalty it is called a:
your answer: negotiable cd.
correct.
--------------------------------------------------------------------------------
4. incorrect cds can be classified into which of the following types?

your answer: eurodollar cds.
incorrect.
--------------------------------------------------------------------------------
5. incorrect posted yields on cds vary depending on which of the following

factors?
your answer: size of issuing bank.
incorrect. cd yields do not depend on the size of the issuing bank.
--------------------------------------------------------------------------------
6. incorrect cds issued by lower-rated domestic banks are called:

your answer: prime cds.
the correct answer: nonprime cds.
incorrect. prime cds are issued by high-rated domestic banks.
--------------------------------------------------------------------------------
7. incorrect compared to treasury securities of the same maturity, the yields on

cds are:
your answer: lower.
the correct answer: higher.
incorrect. cd rates are higher than rates on treasury securities of the same
maturity due to credit risk.
--------------------------------------------------------------------------------
8. incorrect reserve deposits at district federal reserve banks are called:

your answer: excess reserves.
the correct answer: federal funds.
incorrect. excess reserves are the difference between a bank�s total reserves and
required reserves.
--------------------------------------------------------------------------------
9. incorrect which transaction will be included in the creation of a bankers

acceptance?
your answer: importing goods into the u.s.
the correct answer: trading bankers acceptances in the secondary market.
incorrect. importing goods into the u.s. is one of the transactions involved in
the creation of a bankers acceptance.
--------------------------------------------------------------------------------
10. incorrect bankers acceptances do not pay interest and are sold on a
discounted basis like which of the following instruments?
your answer: commercial paper.
incorrect.
--------------------------------------------------------------------------------
11. incorrect major investors in bankers acceptances include:

incorrect. commercial banks are not major investors in bankers acceptances.
--------------------------------------------------------------------------------
12. incorrect an acceptance that the federal reserve will take as collateral for
a loan at the discount window is the:
your answer: documented acceptance.
the correct answer: eligible acceptance.
incorrect. eligible bankers acceptances may be used as collateral for a discount
window loan.
--------------------------------------------------------------------------------
13. correct one of the requirements established by the federal reserve for
bankers acceptances used as collateral for loans at the discount window concerns:
your answer: maturity.
correct.
--------------------------------------------------------------------------------
14. correct the secondary market for bankers acceptances is __________ developed
compared to that of treasury bills.
your answer: less.
correct.
--------------------------------------------------------------------------------
15. incorrect commercial banks can raise funds by issuing which of the following
money market instruments?
your answer: large-denomination cds.
the correct answer: a and d.
incorrect.
routing information
my name is:

chapter 22 : the markets for bank obligations

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect a negotiable cd must be held until maturity.

your answer: true
incorrect. a negotiable cd allows the investor to sell the cd in the open market
prior to maturity.
--------------------------------------------------------------------------------
2. correct the yield offered on cds depends on the issuer�s credit rating.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct federal funds are borrowed on an unsecured basis.

your answer: true
correct.
--------------------------------------------------------------------------------
4. incorrect most federal funds transactions have a maturity of 30 years.

your answer: true
incorrect. most federal funds transactions involve overnight loans.
--------------------------------------------------------------------------------
5. correct bankers acceptances are typically used in international trade

transactions.
your answer: true
correct.
--------------------------------------------------------------------------------
6. correct the investor in a bankers acceptance is exposed to credit risk.

your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect a yankee bank is a u.s. bank in foreign country.

your answer: true
incorrect. a foreign bank that has a u.s. branch is called a yankee bank.
routing information
my name is:

chapter 23 : the mortgage market

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect investors in mortgage loans are exposed to which of the following

risks?
incorrect.
--------------------------------------------------------------------------------
2. incorrect which of the following mortgage designs solve the tilt problem?
your answer: price-level adjusted mortgage.
incorrect.
--------------------------------------------------------------------------------
3. incorrect a mortgage design in which the mortgage rate is fixed over the life
of the mortgage, and the monthly mortgage payment grows at a constant rate during
a portion of the life of the contract and then levels off is called:
your answer: price-level-adjusted mortgage.
the correct answer: graduated-payment mortgage.
incorrect. similar to a traditional mortgage except that monthly payments are
designed to be level in purchasing power rather than in nominal terms.
--------------------------------------------------------------------------------
4. incorrect the key features of a gpm plan include which of the following?
your answer: the term of the mortgage.
incorrect.
--------------------------------------------------------------------------------
5. incorrect traditional mortgages suffer from which of the following risks?

your answer: mismatch problem.
incorrect.
--------------------------------------------------------------------------------
6. correct when inflation causes the real burden of mortgage payments to decline
over the life of a mortgage homebuyers experience the:
your answer: tilt problem.
correct.
--------------------------------------------------------------------------------
7. incorrect mortgage originators are subject to which type of risk?

your answer: price risk
incorrect.
--------------------------------------------------------------------------------
8. correct which of the following is not mortgage insurance guaranteed by the

u.s. government?
your answer: pmi mortgage insurance.
correct.
--------------------------------------------------------------------------------
9. incorrect the principal originators of residential mortgage loans are which

of the following?
your answer: thrifts.
incorrect.
--------------------------------------------------------------------------------
10. incorrect a primary factor in the decision to lend funds for a mortgage is
the:
your answer: payment-to-income ratio.
incorrect.
--------------------------------------------------------------------------------
11. incorrect mortgage originators may generate income from which of the
following sources?
your answer: origination fees.
incorrect.
--------------------------------------------------------------------------------
12. incorrect which of the following documents commits the lender to provide
funds to the applicant?
your answer: letter of credit.
the correct answer: commitment letter.
incorrect. the mortgage lender does not provide a letter of credit to the mortgage
applicant.
--------------------------------------------------------------------------------
13. incorrect mortgage originators can do which of the following with their
mortgage loans?
your answer: hold the mortgages in their portfolios.
incorrect.
--------------------------------------------------------------------------------
14. incorrect the terms of a price-level-adjusted mortgage include which of the

following?
your answer: the real interest rate.
incorrect.
--------------------------------------------------------------------------------
15. incorrect a mortgage design that is created for senior homeowners who want
to convert their home equity into cash.
your answer: convertible mortgage.
the correct answer: reverse mortgage.
incorrect. a convertible mortgage converts an adjustable-rate mortgage into a
fixed-rate mortgage.
routing information
my name is:

chapter 23 : the mortgage market

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct a mortgage is a pledge of property to secure payment of a debt.

your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect if a lender decides to lend funds for a mortgage, it sends a letter

of credit to the applicant.
your answer: true
incorrect. the lender will send a commitment letter to the applicant if funds are
being lent.
--------------------------------------------------------------------------------
3. correct pipeline risk is associated with mortgage origination.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct the fixed-rate mortgage is the most common type of mortgage design in
the u.s.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect the principal investors in mortgage loans include pension funds and
life insurance companies.
your answer: true
incorrect. while pension funds and life insurance companies invest in mortgage
loans, their ownership is much smaller than that of commercial banks and thrifts.
--------------------------------------------------------------------------------
6. correct credit risk can be reduced if the mortgage is federally or privately

insured.
your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect an adjustable rate mortgage is designed to overcome the tilt

problem.
your answer: true
incorrect. the adjustable rate mortgage, in which the interest rate is reset
periodically according to an index, overcomes the mismatch problem but not the
tilt problem.
routing information
my name is:

chapter 24 : mortgage-backed securities markets

multiple choice
results reporter
20%
73%
7%
3 correct
11 incorrect
1 unanswered
--------------------------------------------------------------------------------
1. incorrect in which of the following ways does asset securitization resemble

the traditional methods of financing the acquisition of assets?
your answer: loan origination by one financial institution.
the correct answer: loan servicing by one financial institution.
incorrect. asset securitization involves more than one lending institution.
--------------------------------------------------------------------------------
2. incorrect the cash flows of a mortgage pass-through security consist of:

your answer: interest payments.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following government agencies guarantee pass-through

securities?
your answer: treasury.
the correct answer: b, c and d.
incorrect. the u.s. treasury does not guarantee pass-through securities.
--------------------------------------------------------------------------------
4. correct a security issued by freddie mac is called:

your answer: participation certificate.
correct.
--------------------------------------------------------------------------------
5. incorrect which of the following is not a credit enhancement?

your answer: mortgage pool policy.
incorrect. a mortgage pool policy is a type of credit enhancement.
--------------------------------------------------------------------------------
6. incorrect prepayment risk encompasses which of the following types of risk?

your answer: extension risk.
incorrect.
--------------------------------------------------------------------------------
7. correct a security developed to deal with prepayment risk in mortgage-backed

securities is the:
your answer: cmo.
correct.
--------------------------------------------------------------------------------
8. incorrect the various maturity classes into which a cmo is often structured
are known as:
your answer: sections.
the correct answer: tranches.
incorrect. sections are not the various maturity classes into which a cmo is
structured.
--------------------------------------------------------------------------------
9. incorrect cmos that are scheduled to be paid off in a sequence are called:
your answer: tranches.
the correct answer: sequential-pay cmos.
incorrect. a tranche is a bond class within a cmo structure.
--------------------------------------------------------------------------------
10. incorrect which of the following is a key innovations in the cmo market?
your answer: planned amortization class bonds.
incorrect.
--------------------------------------------------------------------------------
11. not answered which of the following are derivative mortgage-backed

securities?
--------------------------------------------------------------------------------
12. incorrect the risk that a decline in mortgage rates that will shorten the
life of a mortgage is called:
your answer: interest rate risk.
the correct answer: contraction risk.
incorrect. interest rate risk is the risk that rising interest rates cause a
security�s price to fall.
--------------------------------------------------------------------------------
13. incorrect the risk that a rise in mortgage rates that will lengthen the life
of a mortgage is called:
your answer: interest rate risk.
the correct answer: extension risk.
incorrect. interest rate risk is the risk that rising interest rates cause
security price to fall
--------------------------------------------------------------------------------
14. correct a mortgage-backed security that is backed by a pool of commercial

mortgage loans is called:
your answer: commercial mortgage-backed security.
correct.
--------------------------------------------------------------------------------
15. incorrect which of the following is not a type of commercial mortgage-backed

security?
your answer: conduit-originated deal.
incorrect. a conduit-originated deal is a type of commercial mortgage-backed
security.
routing information
my name is:

chapter 24 : mortgage-backed securities markets

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct securitization of mortgage loans is one form of asset securitization.

your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect a security guaranteed by the federal home loan mortgage corporation

is called a mortgage-backed security.
your answer: true
incorrect. a mortgage-backed security is a security guaranteed by ginnie mae.
--------------------------------------------------------------------------------
3. correct pass-through securities have prepayment risk.

your answer: true
correct.
--------------------------------------------------------------------------------
4. correct a support bond is one type of tranche that is included in a cmo�s

structure.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect stripped mortgage-backed securities can be used to hedge against

adverse price fluctuations.
your answer: true
incorrect. stripped mortgage-backed securities provide a means by which investors
can hedge prepayment risk.
--------------------------------------------------------------------------------
6. incorrect calculating the yield for a mortgage-backed security is relatively

simple.
your answer: true
incorrect. calculating the yield on mortgage-backed securities is complex because
it requires a determination of the cash flows that are not known due to
prepayments.
--------------------------------------------------------------------------------
7. correct rates in the mortgage market reflect the relative supply and demand
in the capital markets.
your answer: true
correct.
routing information
my name is:

chapter 25 : asset-backed securities markets

multiple choice
results reporter
summary: 0% correct
0%
100%
0%

0 correct
15 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following is not a major sector of the asset-backed

securities market?
your answer: home equity loans.
the correct answer: mortgage bonds.
incorrect. home equity loans comprise a major component of the asset-backed
securities market.
--------------------------------------------------------------------------------
2. incorrect which of the following is an external credit enhancement?

your answer: corporate guarantee.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following is an internal credit enhancement?

your answer: bond insurance.
the correct answer: senior/subordinate structures.
incorrect. bond insurance is a form of external credit enhancement.
--------------------------------------------------------------------------------
4. incorrect amortizing assets have which of the following features?

your answer: projection of cash flows requires projecting prepayments.
incorrect.
--------------------------------------------------------------------------------
5. incorrect for securities backed by auto loans, prepayments may result from:
your answer: sales and trade-in requiring full payoff of loan.
incorrect.
--------------------------------------------------------------------------------
6. incorrect auto loan-backed securities are issued by which of the following

institutions?
your answer: independent finance companies.
incorrect.
--------------------------------------------------------------------------------
7. incorrect student loans that are not part of a government guarantee program
are called:
your answer: term loans.
the correct answer: alternative loans.
incorrect. term loans are to be paid off in a specified period of time.
--------------------------------------------------------------------------------
8. incorrect student loans involve which of the following?

your answer: deferment period.
incorrect.
--------------------------------------------------------------------------------
9. incorrect an investor in an sba-backed security receives monthly cash flows
consisting of:
your answer: coupon interest.
incorrect.
--------------------------------------------------------------------------------
10. incorrect for a pool of credit card receivables, the cash flows consist of:
your answer: finance charges.
incorrect.
--------------------------------------------------------------------------------
11. incorrect the typical structure of a collateralized bond obligation consists

of:
your answer: senior tranche.
incorrect.
--------------------------------------------------------------------------------
12. incorrect asset-backed securities and corporate bonds differ in terms of

which of the following?
incorrect.
--------------------------------------------------------------------------------
13. incorrect prepayments on auto loans are measured in terms of which of the
following?
your answer: cpr
the correct answer: abs
incorrect. prepayments for sba-backed securities are measured in terms of cpr.
--------------------------------------------------------------------------------
14. incorrect the performance of a portfolio of receivables is measured using

which of the following factors?
your answer: delinquencies.
incorrect.
--------------------------------------------------------------------------------
15. incorrect which of the following is considered in transactions involving
asset-backed securities?
your answer: operating or business risk.
incorrect.
routing information
my name is:

chapter 25 : asset-backed securities markets

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered

--------------------------------------------------------------------------------
1. correct asset-backed securities are a financing alternative to issuing

straight coupon bonds.
your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect the schedule for the repayment of a bond�s principal is called

payoff schedule.
your answer: true
incorrect. an amortization schedule is the schedule for the repayment of the
principal.
--------------------------------------------------------------------------------
3. correct there is no schedule of principal repayments for a non-amortizing

asset.
your answer: true
correct.
--------------------------------------------------------------------------------
4. incorrect asset-backed securities need not be credit enhanced.

your answer: true
incorrect. all asset-backed securities must be credit enhanced; that is, there
must be other sources available to absorb a certain amount of defaults.
--------------------------------------------------------------------------------
5. incorrect a home-equity loan is backed by commercial property.

your answer: true
incorrect. home-equity loans are backed by residential property.
--------------------------------------------------------------------------------
6. correct commercial banks issue securities backed by auto loans.

your answer: true
correct.
--------------------------------------------------------------------------------
7. correct in a true securitization, repayment is not dependent on a servicer�s

ability to generate cash flows.
your answer: true
correct.
routing information
my name is:

chapter 26 : financial futures markets

multiple choice
results reporter
13%
87%
0%

2 correct
13 incorrect
0 unanswered

--------------------------------------------------------------------------------
1. incorrect in futures trading, the minimum level to which an equity position

may fall is called the:
your answer: initial margin.
the correct answer: maintenance margin.
incorrect. the initial margin is the amount of dollars per futures contract that
must be deposited when a futures position is first taken.
--------------------------------------------------------------------------------
2. incorrect futures differ from forwards in terms of which of the following?

your answer: firm legal agreements.
incorrect. both forward and futures contracts are legal agreements that must be
fulfilled at expiration.
--------------------------------------------------------------------------------
3. incorrect which of the following statistics is useful in measuring the

liquidity of a futures contract?
your answer: settlement price.
the correct answer: open interest.
incorrect. the settlement price is the price in the day�s last trade.
--------------------------------------------------------------------------------
4. incorrect how can a futures position be liquidated?

your answer: take an offsetting position in the futures contract.
incorrect.
--------------------------------------------------------------------------------
5. incorrect a margin requirement that must be satisfied by party involved in a

futures contract is the:
your answer: initial margin.
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following statements is true?

your answer: the buyer of a futures contract is said to be long futures.
the correct answer: a and d.
incorrect.
--------------------------------------------------------------------------------
7. incorrect which of the following is not a function of the clearinghouse?

your answer: guarantees performance of futures transactions.
incorrect. the clearinghouse guarantees that the two parties to a futures contract
will perform.
--------------------------------------------------------------------------------
8. incorrect which of the following instruments is traded in the financial

futures market?
your answer: treasury bills and bonds.
incorrect.
--------------------------------------------------------------------------------
9. incorrect which of the following is not a participant in the futures market?

your answer: locals.
incorrect. locals are floor traders who buy and sell futures contracts for their
own account.
--------------------------------------------------------------------------------
10. incorrect which of the following is a key role of the financial futures
market?
your answer: price discovery.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following factors contributes to a well-functioning

futures market?
your answer: liquidity.
incorrect.
--------------------------------------------------------------------------------
12. correct the buyer of a futures position will realize a profit if the futures
price:
your answer: increases.
correct.
--------------------------------------------------------------------------------
13. incorrect the seller of a futures contract will realize a profit if the
futures price:
your answer: increases.
the correct answer: decreases.
incorrect. if the futures price increases, the seller will incur a loss.
--------------------------------------------------------------------------------
14. correct the buyer in a fra benefits if:

your answer: the settlement rate is greater than the contract rate on the
settlement date.
correct.
--------------------------------------------------------------------------------
15. incorrect the seller in a fra benefits if:

your answer: the settlement rate is greater than the contract rate on the
settlement date.
the correct answer: the settlement rate is less than the contract rate on the
settlement date.
incorrect. the buyer will benefit because the seller will provide a rate lower
than the prevailing market rate.
routing information
my name is:

chapter 26 : financial futures markets

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct a futures contract is a legal agreement between two parties.

your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect the clearinghouse buys and sells futures contracts.

your answer: true
incorrect. the clearinghouse never buys or sells futures contracts. however, it
interposes itself as the buyer for every sale and the seller for every purchase
--------------------------------------------------------------------------------
3. correct the initial margin on futures contracts serves as good faith money.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct futures contracts are marked-to-market on a daily basis.

your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect like a futures contract, a forward contract is traded on an

exchange.
your answer: true
incorrect. forward contracts are tailor-made contracts, which are traded in the
over-the-counter market.
--------------------------------------------------------------------------------
6. correct stock index futures contracts are cash settlement contracts.

your answer: true
correct.
--------------------------------------------------------------------------------
7. correct libor is used as the reference rate in a forward rate agreement.

your answer: true
correct.
routing information
my name is:

chapter 27 : options markets

multiple choice
results reporter
summary: 7% correct
7%
93%
0%

1 correct
14 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect on which of the following exchanges are stock traded?

your answer: nyse.
incorrect.
--------------------------------------------------------------------------------
2. incorrect which of the following is a reason for the popularity of futures

options?
your answer: futures prices are readily available.
incorrect.
--------------------------------------------------------------------------------
3. incorrect options and futures differ in which of the following aspects?

your answer: the nature of the buyer�s obligation at expiration.
incorrect.
--------------------------------------------------------------------------------
4. incorrect options that may me exercised only at expiration are called:

your answer: american options.
the correct answer: european options.
incorrect. an american option can be exercised any time up to and including the
expiration date.
--------------------------------------------------------------------------------
5. incorrect exchange-traded options are standardized in terms of:

your answer: the exercise price.
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following is not an advantage of exchange-traded

options?
your answer: standardization.
incorrect. standardization is an advantage of an option traded on an organized
exchange.
--------------------------------------------------------------------------------
7. incorrect the price paid to purchase an option is called the:

your answer: strike price.
the correct answer: option premium.
incorrect. the option premium is the price of the option.
--------------------------------------------------------------------------------
8. correct what is the maximum profit that the option writer can realize?
your answer: option premium.
correct.
--------------------------------------------------------------------------------
9. incorrect who will benefit from an increase in the price of underlying

instrument in an option contract?
your answer: the buyer of a call option.
incorrect.
--------------------------------------------------------------------------------
10. incorrect a put writer�s potential loss is:

your answer: unlimited.
the correct answer: limited because the value of the stock can only go to zero.
incorrect. the difference between the strike price and the premium received.
--------------------------------------------------------------------------------
11. incorrect options are available on which of the following financial

instruments?
your answer: common stock.
incorrect.
--------------------------------------------------------------------------------
12. incorrect exotic options are traded on which of the following exchanges?
your answer: cboe.
the correct answer: otc market.
incorrect. exotic options are customized contracts, which are traded in the over-
the-counter market.
--------------------------------------------------------------------------------
13. incorrect an alternative option:

your answer: can be exercised at several specified dates including the expiration
date.
the correct answer: has a payoff that is the best independent payoff of two
distinct assets.
incorrect. options, which can be exercised at several specified dates as well as
the expiration date are referred to as limited exercise options, bermuda options,
and atlantic options.
--------------------------------------------------------------------------------
14. incorrect option markets have developed in which of the following countries?
your answer: united kingdom.
incorrect.
--------------------------------------------------------------------------------
15. incorrect a hedger would use which of the following options to protect
against a decline in the price of the underlying instrument?
your answer: call option.
the correct answer: put option.
incorrect. call options are used the hedge against an increase in the price of the
underlying asset.
routing information
my name is:

chapter 27 : options markets

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect american options can only be exercised at expiration.

your answer: true
incorrect. an american option can be exercise any time up to and including the
expiration date.
--------------------------------------------------------------------------------
2. incorrect the strike price is the price of the option.

your answer: true
incorrect. the strike price is the contract price or price at which the underlying
asset is purchased or sold.
--------------------------------------------------------------------------------
3. correct a put option gives the buyer the right to sell the underlying asset
at a specified price at a specified future date.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct for the buyer of an option, the potential loss is limited to the
option�s premium.
your answer: true
correct.
--------------------------------------------------------------------------------
5. correct hedging with put options provides the option buyer with downside risk
protection while maintaining upside profit potential.
your answer: true
correct.
--------------------------------------------------------------------------------
6. correct exchange-traded stock options have a standardized quantity.

your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect the underlying instrument on a futures option is a future position

in stocks.
your answer: true
incorrect. the underlying instrument of a futures option is a futures contract.
routing information
my name is:

chapter 28 : pricing of futures and options contracts

multiple choice
results reporter
33%
67%
0%

5 correct
10 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect which of the following models can be used to estimate the
theoretical option price?
your answer: put-call parity.
incorrect.
--------------------------------------------------------------------------------
2. incorrect which one of the following will increase the value of a call
option?
your answer: a decrease in short-term interest rates.
the correct answer: an increase in expected price volatility of the underlying
asset.
incorrect. a decrease in short-term interest rated decreases the value of a call
option.
--------------------------------------------------------------------------------
3. incorrect which of the following is not needed to estimate the value of an

option?
your answer: the strike price.
the correct answer: the exchange on which the option is listed.
incorrect. the strike price is needed to value an option.
--------------------------------------------------------------------------------
4. correct which one of the following will increase the value of a put option?
your answer: an increase in the strike price.
correct.
--------------------------------------------------------------------------------
5. correct a call has a strike price of $100 and costs $8. the current asset
price is $105.
your answer: the call�s intrinsic value is $5.
correct.
--------------------------------------------------------------------------------
6. incorrect a put has a strike price of $100 and costs $10. the current asset
price is $92.
your answer: the put�s intrinsic value is $0.
the correct answer: the put�s intrinsic value is $8.
incorrect. the intrinsic value is $8, the difference between the strike price and
the current asset price.
--------------------------------------------------------------------------------
7. incorrect the equilibrium futures price is a function of which of the

following variables?
your answer: the cash price.
incorrect.
--------------------------------------------------------------------------------
8. incorrect which of the following is true for a futures contract as it

approaches the delivery date?
your answer: the financing cost approaches zero.
incorrect.
--------------------------------------------------------------------------------
9. incorrect which of the following is not an assumption of the arbitrage model?

your answer: no interim cash flows.
the correct answer: differing lending and borrowing rates.
incorrect. the arbitrage model assumes there are no interim cash flows.
--------------------------------------------------------------------------------
10. incorrect which of the following factors causes the actual futures price to
diverge from the theoretical futures price?
your answer: interim cash flows.
incorrect.
--------------------------------------------------------------------------------
11. correct which arbitrage strategy is used to capture profits if a futures

contract is overpriced?
your answer: cash and carry trade.
correct.
--------------------------------------------------------------------------------
12. correct when the futures price is at a discount to the cash price, the cost
of carry is:
your answer: positive.
correct.
--------------------------------------------------------------------------------
13. incorrect when the cash yield earned on the underlying asset is less than
the financing cost:
your answer: the carry is negative.
incorrect.
--------------------------------------------------------------------------------
14. incorrect the optimal hedge ratio is not a function of which of the
following variables?
your answer: current asset price.
the correct answer: b and d.
incorrect. the current asset price is used in the calculation of the hedge ratio.
--------------------------------------------------------------------------------
15. correct put-call parity is the relationship among:

your answer: the prices of a put, a call and the underlying asset.
correct.
routing information
my name is:

chapter 28 : pricing of futures and options contracts

true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct the theoretical futures price can be derived using arbitrage

arguments.
your answer: true
correct.
--------------------------------------------------------------------------------
2. incorrect a cash and carry trading strategy is used to capture arbitrage

profit using an underpriced futures contract.
your answer: true
incorrect. a cash and carry trading strategy is implemented to capture arbitrage
profit using an overpriced futures contract.
--------------------------------------------------------------------------------
3. correct a reverse cash and carry strategy involves going short in the
security and investing the proceeds from the sale.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct as the delivery date approaches, the futures price of an asset

converges to the cash market price.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect the price of an option consists of the intrinsic value and the
option premium.
your answer: true
incorrect. the price of an option is equal to the sum of the intrinsic value and
the time value or time premium.
--------------------------------------------------------------------------------
6. correct the put-call parity relationship can be used to determine the value
of a put option.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct an american-type option is at least as valuable as a european-type

option.
your answer: true
correct.
routing information
my name is:

chapter 29 : the applications of futures and options contracts

multiple choice
results reporter
27%
73%
0%

4 correct
11 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect for which of the following investment strategies are stock index
futures used?
your answer: program trading.
incorrect. program trading is used to carry out index arbitrage.
--------------------------------------------------------------------------------
2. incorrect what are the advantages or using interest rate futures instead of
cash market transactions?
your answer: lower transactions costs.
incorrect.
--------------------------------------------------------------------------------
3. incorrect what type of risk is produced by an indexed portfolio?

your answer: interest rate risk
the correct answer: tracking error risk
incorrect. an indexed portfolio is created to mirror a targeted index. the
possibility that its movements will not precisely match those of the index results
in tracking error risk.
--------------------------------------------------------------------------------
4. correct if the actual price of a futures index is higher than the theoretical
futures price, an arbitrager would do which of the following:
your answer: sell the futures index and buy the underlying stocks.
correct.
--------------------------------------------------------------------------------
5. incorrect if the actual price of a futures index is lower than the

theoretical futures price, an arbitrager would employ which of the following
arbitrage transactions?
your answer: sell the futures index and buy the underlying stocks.
the correct answer: buy the futures index and sell the underlying stocks.
incorrect. this strategy would result in a loss.
--------------------------------------------------------------------------------
6. incorrect how can a synthetic put option be created?

your answer: using stock index futures.
the correct answer: a and b
incorrect
--------------------------------------------------------------------------------
7. correct the greater the volatility of market prices, the __________ the cost
of creating portfolio insurance.
your answer: higher.
correct.
--------------------------------------------------------------------------------
8. incorrect how can interest rate futures be employed?

your answer: to speculate on the direction of interest rates.
incorrect.
--------------------------------------------------------------------------------
9. correct a protective put buying strategy involves which of the following:

your answer: long put and long stocks.
correct.
--------------------------------------------------------------------------------
10. incorrect if an investor expects interest rates to rise, which of the

following hedging strategies would be appropriate?
your answer: purchase put options.
incorrect.
--------------------------------------------------------------------------------
11. incorrect which of the following hedging strategies would be appropriate for
an investor who expects interest rates to fall?
your answer: sell a call.
the correct answer: b and c
incorrect. selling a call will result in a loss to an investor who expects
interest rates to fall.
--------------------------------------------------------------------------------
12. incorrect what is the major function of futures markets?

your answer: transfer purchasing power.
the correct answer: transfer price risk from hedgers to speculators.
incorrect. transferring purchasing power is a function of the foreign exchange
market.
--------------------------------------------------------------------------------
13. incorrect what factors determine the effectiveness of a cross hedge?

your answer: the correlation between the cash price of an underlying security and
its futures price.
incorrect.
--------------------------------------------------------------------------------
14. incorrect which hedge is used to protect against an increase in the cash
price of a financial instrument?
your answer: a short hedge.
the correct answer: a long hedge.
incorrect. a short hedge protects against falling cash prices.
--------------------------------------------------------------------------------
15. correct which hedge will be used to protect against a decrease in the cash
price of a financial instrument?
your answer: a short hedge.
correct.
routing information
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chapter 29 : the applications of futures and options contracts

true or false
results reporter
57%
43%
0%

4 correct
3 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect institutional investors use stock index futures to speculate on the

movement of interest rates.
your answer: true
incorrect. interest rate futures are used to speculate on movements in interest
rates.
--------------------------------------------------------------------------------
2. correct buying stock index futures will increase the beta of a portfolio of
stocks.
your answer: true
correct.
--------------------------------------------------------------------------------
3. correct the mispricing of futures contracts creates opportunities for index

arbitrage.
your answer: true
correct.
--------------------------------------------------------------------------------
4. correct an option provides downside risk protection by limiting the potential

loss on the option to the cost of the option.
your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect a long hedge protects against a fall in the cash price of a

financial security or portfolio of securities.
your answer: true
incorrect. in a long hedge, futures are purchased to hedge against a rise in the
cash price of the underlying instrument or portfolio.
--------------------------------------------------------------------------------
6. correct a hedge using futures takes on basis risk.

your answer: true
correct.
--------------------------------------------------------------------------------
7. incorrect a cross hedge is less risky.
your answer: true
incorrect. cross-hedging introduces another type of risk called cross-hedging risk
routing information
my name is:

chapter 30 : other derivative markets: swaps, caps, floor, and credit derivatives
multiple choice
results reporter
20%
80%
0%

3 correct
12 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect what are the three components of credit risk?

incorrect.
--------------------------------------------------------------------------------
2. incorrect what reference rate is commonly used for the floating rate in an
interest rate swap?
your answer: treasury bill rate.
incorrect.
--------------------------------------------------------------------------------
3. incorrect which of the following is not true about interest rate swaps?
your answer: interest payments are based on the notional principal amount.
the correct answer: parties agree to exchange debt obligations.
incorrect.
--------------------------------------------------------------------------------
4. incorrect how can the position of a fixed-rate payer be viewed?

your answer: long in a floating-rate bond and short in a fixed-rate bond.
the correct answer: a and c
incorrect.
--------------------------------------------------------------------------------
5. incorrect what is a benefit of an interest rate swap?

your answer: changing the risk of a financial position by altering the cash flow
characteristics of assets.
incorrect.
--------------------------------------------------------------------------------
6. incorrect which of the following factors does not influence the level of swap
spreads?
your answer: the level and shape of the treasury yield curve.
the correct answer: the notional principal amount.
incorrect.
--------------------------------------------------------------------------------
7. correct which of the following is not a term used in an interest rate

agreement?
your answer: the swap spread.
correct. the swap spread is not part of the terms of an interest rate agreement.
--------------------------------------------------------------------------------
8. incorrect when interest rates increase, the value of a long cap:

your answer: decreases.
the correct answer: increases.
incorrect. the value of a long cap increases when interest rates rise.
--------------------------------------------------------------------------------
9. incorrect an interest rate floor is an interest rate agreement in which one

party agrees to pay the other if the reference rate __________ the strike rate.
your answer: rises above.
the correct answer: falls below.
incorrect. in a cap agreement, one party agrees to pay the other if the interest
rate rises above the strike rate.
--------------------------------------------------------------------------------
10. correct the buyer of an interest rate cap benefits if the underlying
interest rate __________ the strike rate.
your answer: rises above.
correct.
--------------------------------------------------------------------------------
11. incorrect in which of the following swap contracts, does the notional amount
vary?
your answer: plain vanilla swap.
the correct answer: roller coaster swap.
incorrect. in a plain vanilla swap, the notional principal amount does not vary
over the life of the swap contract.
--------------------------------------------------------------------------------
12. incorrect the yields in which market influence the spreads of short-term
swaps?
your answer: corporate bond market.
the correct answer: eurodollar cd futures market
incorrect. their premia for time and risk make corporate bonds inappropriate for
determining the spreads on short-term swaps.
--------------------------------------------------------------------------------
13. correct the yields in which market influence the spreads of longer-term
swaps?
your answer: corporate bond market.
correct.
--------------------------------------------------------------------------------
14. incorrect which of the following is a type of transaction in the secondary

swap market?
your answer: swap reversal.
incorrect.
--------------------------------------------------------------------------------
15. incorrect an interest collar includes a:

your answer: cap.
incorrect.
routing information
my name is:

chapter 30 : other derivative markets: swaps, caps, floor, and credit derivatives
true or false
results reporter
60%
40%
0%

6 correct
4 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct an interest rate swap is an agreement between two parties to exchange

periodic interest payments.
your answer: true
correct.
--------------------------------------------------------------------------------
2. correct in an interest rate swap, libor is commonly used as the reference

rate.
your answer: true
correct.
--------------------------------------------------------------------------------
3. incorrect the position of a floating-rate payer is equivalent to a short

position in a fixed-rate bond and a long position in a floating-rate bond.
your answer: true
incorrect. the position of the floating-rate payer is equivalent to purchasing a
fixed-rate bond (taking a long position) and financing that purchase with a
floating-rate (taking a short position).
--------------------------------------------------------------------------------
4. correct interest rate swaps are valued using arbitrage arguments.

your answer: true
correct.
--------------------------------------------------------------------------------
5. incorrect a receiver swaption gives the buyer of the swaption the right to
enter into an interest rate swap that requires paying a fixed-rate and receiving a
floating-rate.
your answer: true
incorrect. in a receiver swaption, the buyer has the right to enter into an
interest rate swap that requires paying a floating-rate and receiving a fixed-
rate.
--------------------------------------------------------------------------------
6. correct the swap rate is the strike rate for the swaption.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct the buyer of an interest rate cap benefits if the underlying interest
rate rises above the strike rate.
your answer: true
correct.
--------------------------------------------------------------------------------
8. incorrect buying a floor is equivalent to buying a package of calls on

interest rates.
your answer: true
incorrect. buying a floor is equivalent to buying a package of puts on interest
rates.
--------------------------------------------------------------------------------
9. incorrect credit derivatives can be used to control interest rate risk.

your answer: true
incorrect. credit derivatives are used to control for changes in the credit
spread.
--------------------------------------------------------------------------------
10. correct a total return swap is used by an investor to increase credit
exposure.
your answer: true
correct.
routing information
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chapter 31 : the market for foreign exchange rate risk control instruments
multiple choice
results reporter
summary: 7% correct
7%
93%
0%

1 correct
14 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. incorrect an indirect quote refers to:
your answer: the number of units of a local currency that is exchangeable for one
unit of a foreign currency.
the correct answer: the number of units of a foreign currency that is required to
purchase one unit of the local currency.
incorrect. a direct quote refers to the number of units of a local currency that
is required to purchase one unit of a foreign currency.
--------------------------------------------------------------------------------
2. correct which of the following has a significant effect on expected changes

in exchange rates?
your answer: relative expected inflation rates.
correct
--------------------------------------------------------------------------------
3. incorrect since the introduction of the euro on january 1, 1999, the single
european currency has:
your answer: strengthened.
the correct answer: weakened
incorrect. from its inception at $1.17, the euro weakened considerably reaching a
low of $0.8229 on october 27, 2000.
--------------------------------------------------------------------------------
4. incorrect which of the following financial instruments protects borrowers and

investors against adverse exchange rate changes?
your answer: currency forward contracts.
incorrect
--------------------------------------------------------------------------------
5. incorrect currency forward contracts are priced using:

your answer: relative expected inflation rates.
the correct answer: the interest rates between two countries and the spot exchange
rate.
incorrect. spot exchange rates adjust to relative expected inflation rates between
two countries.
--------------------------------------------------------------------------------
6. incorrect the chicago mercantile exchange opened the __________ division to

trade currency futures in major currencies.
your answer: board of trade.
the correct answer: international monetary market.
incorrect. financial futures contracts are traded on the chicago board of trade.
--------------------------------------------------------------------------------
7. incorrect options on foreign currencies have been traded on the __________

stock exchange since 1982.
your answer: new york.
the correct answer: philadelphia.
incorrect. the new york stock exchange trades common stock.
--------------------------------------------------------------------------------
8. incorrect currency options traded in the over-the-counter market are:

your answer: standardized contracts.
the correct answer: tailor-made contracts.
incorrect. standardized currency option contracts are traded on organized
exchanges, such as the philadelphia stock exchange.
--------------------------------------------------------------------------------
9. incorrect which of the following factors affects the price of a currency

option?
your answer: expected volatility of the underlying currency.
incorrect.
--------------------------------------------------------------------------------
10. incorrect a currency swap involves the exchange of:

your answer: interest payments.
the correct answer: interest and principal in different currencies.
incorrect. only interest payments are exchanged in an interest rate swap.
--------------------------------------------------------------------------------
11. incorrect which of the following is a standard for fiscal policy that must
be met in order to qualify for entrance in the emu?
your answer: zero inflation.
incorrect. the standards set for fiscal policy were that the annual fiscal deficit
could be no more than 3% of gdp, and total outstanding government indebtedness
could be nor more than 60% of gdp.
--------------------------------------------------------------------------------
12. incorrect when the theoretical cross rate does not equal the actual cross
rate, there is an opportunity for:
your answer: locational arbitrage.
the correct answer: triangular arbitrage.
incorrect. locational arbitrage arises from a difference in the prices quoted from
two different locations.
--------------------------------------------------------------------------------
13. incorrect which of the following are reasons to use swap contracts?
your answer: lower borrowing costs.
incorrect.
--------------------------------------------------------------------------------
14. incorrect american terms refer to:

your answer: a direct quote from the u.s. perspective.
incorrect.
--------------------------------------------------------------------------------
15. incorrect from which of the following sources do dealers in the foreign
exchange market realize income?
your answer: the bid-ask spread.
incorrect.
routing information
my name is:


chapter 31 : the market for foreign exchange rate risk control instruments
true or false
results reporter
71%
29%
0%

5 correct
2 incorrect
0 unanswered
--------------------------------------------------------------------------------
1. correct a direct quote is the number of units of the local currency that can
be exchanged to acquire one unit of a foreign currency.
your answer: true
correct
--------------------------------------------------------------------------------
2. correct spot market transactions in foreign currencies are settled within two
business days.
your answer: true
correct
--------------------------------------------------------------------------------
3. incorrect a cross rate is an exchange rate between two currencies which

includes the u.s. dollar.
your answer: true
incorrect. a cross rate is an exchange rate obtained by comparing the prices of
two currencies in terms of a third currency
--------------------------------------------------------------------------------
4. incorrect a euro is equivalent to a eurodollar.

your answer: true
incorrect. the euro is the single european currency, which has been adopted by the
economic and monetary union (emu).
--------------------------------------------------------------------------------
5. correct interest rate parity is the equilibrium relationship among the spot
rate, the forward rate, and the interest rates in two countries.
your answer: true
correct.
--------------------------------------------------------------------------------
6. correct currency futures contracts are traded on futures exchanges including

the international monetary market at the chicago mercantile exchange.
your answer: true
correct.
--------------------------------------------------------------------------------
7. correct a currency swap is a package of currency forward contracts.

your answer: true
correct.
routing information
my name is:


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chapter 1 : introduction

submitted on 06 jun 2007 07:41:08 edt

1. incorrect which one of the following is a financial asset?

2. incorrect investing in financial assets may expose investors to the following

3. incorrect the principal economic functions of financial assets include

4. incorrect financial markets are important because:

5. incorrect longer-maturity financial assets are traded in which financial

6. incorrect participants in the global financial markets include:

7. incorrect the increased globalization of financial markets throughout the

8. incorrect securities of issuers not domiciled in the country are traded in

9. incorrect which of the following statements about a call option is correct?

11. incorrect what major benefits do derivatives offer to investors?

13. incorrect purchasing power risk refers to:

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submitted on 06 jun 2007 07:42:34 edt

1. correct a financial asset is a legal claim to future cash flows.

2. incorrect a debt instrument is also called a residual claim.

5. incorrect global markets are classified as foreign markets and international

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� 1996-2002 by pearson education.

chapter 2 : financial intermediaries and financial innovation

submitted on 06 jun 2007 07:44:02 edt

1. incorrect financial institutions provide which of the following services:

2. incorrect which of the following transactions is an example of direct

3. incorrect which of the following transactions are examples of indirect

4. incorrect transforming financial assets that are less desirable into

5. incorrect depository institutions seek to generate income from which

6. incorrect the most important causes of financial innovations include:

7. incorrect asset securitization offers several advantages to the issuer

8. incorrect which types of financial intermediaries are in the spread business?

9. correct a fixed-rate deposit represents what type of liability to a financial

10. incorrect an automobile insurance policy represents what type of liability?

11. incorrect maturity intermediation offers which of the following benefits?

12. incorrect which of the following is true concerning a type-ii liability?

13. incorrect the economic council of canada classifies financial innovation

14. incorrect the bank of international settlements classifies financial

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� 1996-2002 by pearson education.

chapter 2 : financial intermediaries and financial innovation

submitted on 06 jun 2007 07:44:31 edt

1. correct when financial intermediaries acquire financial resources in the

2. incorrect a financial intermediary can make an indirect investment by making

3. correct the nature of a financial institution�s liabilities dictates its

4. incorrect financial innovations provide less efficient means for

5. correct asset securitization is the process of collecting or pooling loans

6. incorrect a three-year floating-rate certificate of deposit can be classified

7. incorrect the investment strategies pursued by financial institutions are not

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� 1996-2002 by pearson education.

chapter 3 : the role of the government in financial markets

submitted on 06 jun 2007 07:45:52 edt

2. incorrect rules and regulations for securities markets are established to

4. incorrect the roles of foreign firms in domestic markets are regulated by

5. incorrect which type of governmental regulation addresses changes in a

7. incorrect which organization monitors relationships among brokers, firms

8. incorrect which of the following are restrictions placed on depository

9. incorrect the extensive role of the japanese ministry of finance includes

10. incorrect which of the following regulations is widely practiced in japan?

13. incorrect which government agency is responsible for regulating financial