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S& I Fall Final Exam
| Question | Answer |
|---|---|
| Financial institutions generally use futures contracts to reduce risk. | True |
| _________ is most likely to be described as a depository institution? | Credit Unions |
| Funds are provided to the initial issuer of securities in the | primary market. |
| ___________ is a capital market instrument? | a ten-year bond |
| The Securities and Exchange Commission (SEC) was established by the | Securities Exchange Act of 1934. |
| Funds are allocated to bonds with a short term maturity as well as to bonds with a long term to maturity. | Barbell Strategy |
| A private bond placement has to be registered with the SEC. | False |
| The Financial Reform Act in 2010 created the Financial Stability Oversight Council. | True |
| Financial market participants who receive more money than they spend, such as investors are called | surplus units. |
| ____ concentrate on mortgage loans. | Savings institutions |
| Right to buy underlying financial instrument at exercise price (or strike price) within a specified period of time. | Call Option |
| The Securities Act of 1933 | required complete disclosure of relevant financial information for publicly offered securities in the primary market. |
| Traders of options tend to monitor economic indicators because economic conditions affect cash flows of firms and thus can affect expected stock valuations and stock option premiums. | True |
| _______________ risk securities have higher discount rates. | High |
| Debt obligations representing claims on a package of mortgages. | Mortgage-backed securities |
| Debt securities represent debt (borrowed funds) incurred by the issuer. | True |
| Bonds Selling below Par | Discount Bonds |
| Liquidity is the degree to which securities can easily be sold without a loss of value. | True |
| If financial markets were ____, all information about any securities for sale in primary and secondary markets would be continuously and freely available to investors. | perfect |
| The risk that a loss will occur because a counterparty defaults on the contract. | Credit Risk |
| If financial markets are efficient, this implies that all securities should earn the same return. | False |
| A five-year security was purchased two years ago by an investor who plans to resell it. The investor will sell the security in the | secondary market. |
| A standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date | Financial Futures Contract |
| ____ obtain funds by issuing securities and then lend the funds to individuals and small businesses. | Finance companies |
| If security prices fully reflect all available information, the markets for these securities are | efficient. |
| The price of an interest rate futures contract reflects the expected price of the underlying security on the settlement date | True |
| Behavioral finance | applies psychology to financial decision making. |
| The Financial Reform Act of 2010 established the __________ to provide oversight for credit rating agencies. | Office of Credit Ratings |
| The owner of an option cannot choose to let the option expire on the expiration date without exercising it. | False |
| The risk of losses as a result of inadequate management or controls. | Operational Risk |
| To obtain an option, a premium must be paid in addition to the price of the financial instrument. | True |
| Securities represent a claim on the provider of funds. | False |
| Financial contracts whose values are derived from the values of underlying assets. | Derivative Securities |
| _________are institutions that are most likely to purchase a private bond placement? | insurance company |
| International Bond Diversification may diversify foreign bond holdings among countries to reduce their exposure to different types of risk. | True |
| The risk that the position being hedged by the futures contracts is not affected in the same manner as the instrument underlying the futures contract. | Basis Risk |
| In aggregate, ____ are the most dominant depository institution, with more total assets than other depository institutions. | commercial banks |
| When security prices fully reflect all available information, the markets for these securities are said to be efficient. | True |
| The weighted average of a bond duration according to relative market value. | Duration of a Portfolio |
| Financial futures are traded to speculate on prices of securities or to hedge existing exposure | True |
| If the level of inflation is expected to increase, there will be ___________________ pressure on interest rates and hence on the required rate of return on bonds. | upward |
| Systemic Risk is the spread of financial problem, among financial institutions and across financial markets, that could cause collapse in the financial system | True |
| _________ is not an issuer of bonds? | households |
| Refers to potential price distortions due to lack of liquidity. | Liquidity Risk |
| Involves estimating future cash outflows and then developing a bond portfolio that can generate sufficient coupon or principal payments to cover those outflows. | Matching Strategy |
| Note maturities are usually ____, while bond maturities are ____. | less than 10 years; 10 years or more |
| ________ is a non depository financial institution? | mutual fund |
| Those financial markets that facilitate the flow of short-term funds are known as? | money markets. |
| ____________ distinguishes credit unions from commercial banks and savings institutions? | Credit unions are nonprofit. |
| Investors in Treasury notes and bonds receive ____ interest payments from the Treasury. | semiannual |
Created by:
mrstephens
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