Capital Markets
Practice Exam
Course Introduction
Capital Markets is a comprehensive course designed to introduce students to the structure, functions, and significance of capital markets within the broader financial system. The course covers primary and secondary markets, key financial instruments such as stocks, bonds, and derivatives, as well as the processes of issuance, trading, and regulation. Emphasis is placed on understanding how capital markets facilitate fund-raising for corporations and governments, support investment and economic growth, and manage risk through various market mechanisms. Students will also analyze the roles of financial institutions, market participants, and regulatory bodies, gaining insights into current trends, innovations, and challenges impacting global capital markets.
Recommended Textbook
Foundations of Financial Markets and Institutions 4th Edition by Frank J. Fabozzi
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Chapter 1: Introduction
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Q1) Financial markets can be categorized as those dealing with newly issued financial claims that are called the ________, and those for exchanging financial claims previously issued that are called the ________.
A) secondary market; primary market.
B) financial market; secondary market.
C) OTC market; NYSE/AMEX market.
D) primary market; secondary market.
Answer: D
Q2) A factor leading to the integration of financial markets is ________.
A) decreased institutionalization of financial markets.
B) increased monitoring of markets.
C) technological advances for monitoring domestic markets, executing orders, and analyzing financial opportunities.
D) technological advances for monitoring world markets, executing orders, and disregarding financial opportunities.
Answer: D
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Chapter 2: Financial Institutions, Financial Intermediaries, and Asset Management Firms
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Q1) ________ is a broadly used term to describe several types of risk.
A) Credit risk
B) Settlement risk
C) Counterparty risk
D) Market risk
Answer: A
Q2) Name three of the five types of funds managed by asset management firms.
Answer: Types of funds managed by asset management firms include:regulated investment companies; insurance company funds; separately managed accounts for individuals and institutional investors; pension funds; and hedge funds.
Q3) Funding liquidity risk is the risk that the financial institution will be unable to obtain funding to obtain cash flow necessary to satisfy its obligations.
A)True
B)False
Answer: True
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Chapter 3: Depository Institutions: Activities and Characteristics
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Q1) Savings deposits (checking accounts) pay no interest and can be withdrawn upon demand.
A)True
B)False
Answer: False
Q2) The Garn-St. Germain Act, not only granted thrifts the right to offer money market demand accounts so that S&Ls could compete with money market funds, but also ________ the types of assets in which S&Ls could invest.
A) limited
B) shortened
C) broadened
D) maintained
Answer: C
Q3) The market where banks can borrow or lend reserves is called the federal funds market. The interest rate charged to borrow funds in this market is called the federal funds rate.
A)True
B)False
Answer: True
Page 5
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Chapter 4: The US Federal Reserve and the Creation of Money
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Q1) The Federal Reserve System consists of 12 districts covering the entire country; each district has a Federal Reserve Bank with its own president.
A)True
B)False
Q2) The central bank of the United Kingdom, the Bank of England, describes its duties toward maintaining stability of the currency and money supply for a country or a group of countries through four measures. Name and describe two of these four measures.
Q3) Which of the following does the central bank of the United Kingdom identify as its role in maintaining financial stability?
A) Risk Assessment
B) Risk Enhancement
C) Oversight of Crisis System
D) Crisis Payment System
Q4) Describe the meaning of the word money.
Q5) The most basic monetary aggregate is the fiscal base.
A)True B)False
Q6) Briefly discuss the nature of a closed economy and an open economy.
Page 6
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Chapter 5: Monetary Policy in the United States
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Q1) Which of the below statements is TRUE?
A) The goal of stabilizing interest rates is indirectly related to the goal of growth and to the Fed's responsibility for the health of the nation's financial and banking system.
B) The Fed's goal is to stabilize and prevent changes in rates.
C) Because exchange rates are independent of the monetary policies of the major countries, the Fed has accepted the goal of stabilizing foreign exchange rates.
D) A chief disadvantage of unstable foreign currency exchange rates is that volatility in the prices of currencies inhibits the international trade that offers a host of benefits to all participating countries.
Q2) In the Keynesian view, the Fed's decision to reduce the fed funds rate, by increasing the banking system's excess reserves, should have certain consequences. Explain these consequences.
Q3) A "weak" dollar contributes to inflation, as U.S. buyers pay more for the many goods they do import.
A)True
B)False
Q4) Discuss two problems that the Fed has in implementing monetary policy.
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Chapter 6: Insurance Companies
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Q1) Globalization has occurred in many industries, but not in the insurance industry.
A)True
B)False
Q2) Under what condition can a participating policy pay a higher dividend than the guaranteed minimum?
Q3) Explain the concept of a multiline company.
Q4) Describe and contrast the various types of IRAs.
Q5) The performance of separate account products depends on the performance of the ________ portfolio chosen and is not affected by the performance of the overall insurance company's ________ portfolio.
A) separate account; general account
B) general account; separate account
C) separate account; liability account
D) mutual account; general account
Q6) The first major investment-oriented product developed by life insurance companies was the guaranteed investment contract (GIC).
A)True
B)False
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Chapter 7: Investment Companies and Exchange Traded Funds
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Q1) A rule called " ________" or "Plain English Disclosure" was enacted on October 1, 1998, to improve the readability of the fund prospectus and other fund documents.
A) prospectus simplification
B) prospectus generalization
C) prospectus modification
D) prospectus overview
Q2) Which of the below statements is FALSE?
A) The operating expense, also called the expense ratio, is debited annually from the investor's fund balance by the fund sponsor.
B) The management fee, also called the investment advisory fee, is the fee charged by the investment advisor for managing a fund's portfolio.
C) While covering the annual operating expenses, the fund prospectus does not provide the fees, which are imposed only at the time of a transaction.
D) In 1980, the SEC approved the imposition of a fixed annual fee, called the 12b-1 fee, which is, in general, intended to cover distribution costs, including continuing agent compensation and manufacturer marketing and advertising expenses.
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Chapter 8: Pension Funds
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Q1) Which of the below statements is TRUE?
A) An insured plan is always safer than a noninsured plan.
B) A federal agency, the Pension Benefit Guaranty Corporation (PBGC) does not insure the vested benefits of participants.
C) Defined benefit plans that are guaranteed by life insurance products are called insured benefit plans.
D) A plan sponsor establishing a defined-benefit plan cannot use the payments made into the fund to purchase an annuity policy from a life insurance company.
Q2) Which of the below is NOT a type of pension plan?
A) defined-benefit plans
B) defined-contribution plans
C) defined-balance plans
D) cash balance plan
Q3) In a qualified pension plan, contributions (up to some extent) and earnings thereof are tax-exempt.
A)True
B)False
Q4) Describe the essence of a qualified fund.
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Chapter 9: Properties and Pricing of Financial Assets
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Q1) Tax rates are constant from year to year, from country to country, and even among municipal units within a country (as with state and local taxes in the United States).
A)True
B)False
Q2) An asset's price is the present value of its expected cash flows, discounted at an appropriate rate.
A)True
B)False
Q3) Suppose that you have a bond issued by a German firm and that all payments are in euros for the maturity of the bond which is four years. Why is the cash flow in U.S. dollars that you will receive as a U.S. investor uncertain? In your answer illustrate the uncertainty in terms of an exchange rate premium and the appropriate discount rate.
Q4) ________ relates to the minimum size in which a financial asset can be liquidated and exchanged for money.
A) Reversibility
B) Denomination
C) Convertibility
D) Divisibility
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Chapter 10: The Level and Structure of Interest Rates
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Q1) Within the corporate market sector, issuers are classified as ________.
A) (1) utilities, (2) industrials, (3) finance, and (4) banks.
B) (1) high-risk, (2) medium-risk, (3) low-risk, and (4) no-risk.
C) (1) foreign, (2) domestic, (3) European, and (4) Asian.
D) (1) intramarket, (2) extramarket, (3) ultramarket, and (4) intermarket.
Q2) By the ________, we mean the rate that would prevail in the economy if the average prices for goods and services were expected to remain constant during the loan's life.
A) risk-free rate
B) short term
C) real rate
D) long term
Q3) The ________ the market price, the higher the yield to maturity.
A) higher
B) less risky
C) more safe
D) lower
Q4) Explain what is meant by the liquidity effect.
Q5) Explain the distinction between the real rate of interest and the nominal rate of interest.
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Chapter 11: The Term Structure of Interest Rates
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Q1) The preferred habitat theory asserts that, to the extent that the demand and supply of funds in a given maturity range does not match, some lenders and borrowers will be induced to shift to maturities showing the opposite imbalances.
A)True
B)False
Q2) The concept of ________ suggests that when interest rates change by a large number of basis points, a Treasury security's price change will not be the same for an increase and decrease in interest rates.
A) inversion
B) maturity premium
C) convexity
D) expectations
Q3) There have not been many instances in the recent history of the U.S. Treasury market where the yield curve exhibited ________.
A) a downward-sloping.
B) a normal sloping yield curve.
C) a reverted yield curve.
D) an upward-sloping yield curve.
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Chapter 12: Risk/Return and Asset Pricing Models
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Q1) The concept of heuristics means a rule-of-thumb strategy or good guide to follow in order to shorten the time it takes to make a decision. Psychology literature tells us that heuristics can lead to systematic biases in decision making, what psychologists refer to as cognitive biases. In the context of finance, these biases lead to errors in making
A) accounting decisions.
B) investment decisions.
C) heuristic decisions.
D) psychological decisions.
Q2) The two major standards of risk are: ________.
A) total risk and the relative index of systematic or nondiversifiable risk.
B) standard deviation and unsystematic risk.
C) total risk and the standard deviation.
D) beta and the relative index of systematic or nondiversifiable risk (beta).
Q3) The first behavioral finance theme involves the concept of heuristics. This term means a rule-of-thumb strategy or good guide to follow in order to shorten the time it takes to make a decision.
A)True
B)False
Q4) Describe the multifactor CAPM and how it extends the CAPM.
Page 14
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Chapter 13: Primary Markets and the Underwriting of Securities
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Q1) A variation for underwriting securities is the auction process. In this method,
A) the issuer announces the terms of the issue, and interested parties submit bids for part of the issue.
B) the auction form is mandated for certain securities of regulated public utilities but not for municipal debt obligations.
C) the issuer announces the terms of the issue, and interested parties submit bids for the entire issue.
D) mandated for many municipal debt obligations but not for certain securities of regulated public utilities.
Q2) The traditional process in the United States for issuing new securities involves investment bankers performing up to three functions. Which of the below is NOT one of these functions?
A) One function is advising the issuer on the terms and the timing of the offering.
B) One function is selling the securities to the issuer.
C) One function is distributing the issue to the public.
D) One function is buying the securities from the issuer.
Q3) What is the waiting period? What do underwriters do during the waiting period?
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Chapter 14: Secondary Markets
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Q1) The ________ can be viewed as the price charged by dealers for supplying immediacy together with short-run price stability (continuity or smoothness) in the presence of short-term order imbalances.
A) bid-ask fee
B) bid-ask price
C) bid-ask spread
D) bid-ask imbalance
Q2) Which of the below statement is FALSE?
A) According to the exchange system, dealer and customer bids and offers are entered into the system on an anonymous basis, and the clearing of the executed trades is done through a common process.
B) Although there is a common clearinghouse for bonds, there is none for common stocks.
C) According to the exchange system, dealer and customer bids and offers are entered into the system on an anonymous basis, and the clearing of the executed trades is done through a common process.,
D) The exchange system is quite different rom the dealer-to-customer systems and has potentially significantly greater value added.
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Chapter 15: Treasury and Agency Securities Markets
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Q1) The yields on ________ government bonds are viewed as benchmark interest rates in Europe.
A) German
B) U.S.A.
C) Japan
D) England
Q2) In regards to the primary dealer, which of the below statements is TRUE?
A) Any firm can deal in government securities, but in implementing its open market operations, the Federal Reserve will deal directly only with dealers that it designates as unrecognized dealers.
B) The Federal Reserve will make a reporting dealer into a primary dealer if it is convinced that the firm will continue to meet the established criteria.
C) The Federal Reserve wants to be sure that firms requesting status as primary dealers have adequate capital relative to positions assumed in Treasury securities and disregard the amount of volume in Treasury securities.
D) A reporting dealer is a firm that is taken off the Federal Reserve's regular reporting list.
Q3) Describe two types of government-chartered entities.
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Chapter 16: Municipal Securities Markets
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Q1) Congress has specifically exempted municipal securities from both the registration requirements of the Securities Act of 1933 and the periodic reporting requirements of the ________. When there was a significant expansion of the federal securities in 2002 with the passage of the ________.
A) Municipal Exchange Act of 1934; Sarbanes-Oxley Act
B) Securities Act Amendment of 1975; Sarbanes-Oxley Act
C) Sarbanes-Oxley Act of 1995; Securities Exchange Act
D) Securities Exchange Act of 1934; Sarbanes-Oxley Act
Q2) In the Treasury but not the corporate bond markets, it is not unusual to find at different times shapes for the yield curve.
A)True
B)False
Q3) When bonds are issued outside of the United States, the investor benefits from the tax-exempt feature.
A)True
B)False
Q4) Contrast the yield on municipal bonds with that on Treasuries.
Q5) What is The Bond Buyer.
Q6) Cite two reasons for the exemption afforded municipal securities.
Page 18
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Chapter 17: Markets for Common Stock: The Basic
Characteristics
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Q1) If the price at a future date ________ the purchase price, then there is a
A) less than; capital gain
B) less than; a taxable gain
C) exceeds; capital loss
D) exceeds; capital gain
Q2) Explicit trading costs include impact costs, timing costs, and opportunity costs.
A)True
B)False
Q3) When an investor is calculating the return from holding common stock from the date of purchase to a given point in time and has sold the common stock, the return reflects an unrealized capital gain or unrealized capital loss.
A)True
B)False
Q4) ________ is the "cost" of securities not traded.
A) The sunk cost
B) The impact cost
C) The timing cost
D) The opportunity cost
19
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Chapter 18: Markets for Common Stock: Structure and Organization
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Q1) ________ matches buy and sell orders in a multinational trade at a price that is set elsewhere.
A) Investment Technologies Groups (ITG)
B) A debit network
C) A crossing network
D) WorthNET
Q2) Which of the following statements is FALSE?
A) Limit orders are executed by the specialist when the market price moves to the limit.
B) The NYSE lists stocks throughout the United States and, thus, is not a "national exchange."
C) Overall, the NYSE trading mechanism is an auction-based, order-driven market.
D) The need for "space" for trading floors for the NYSE derives from its trading mechanism, the floor-based specialist system.
Q3) A structural change that has occurred in exchanges is their evolution from publicly owned electronically traded (that is, no trading floor) organizations to membership-owned, floor-traded organizations.
A)True
B)False
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Chapter 19: Markets for Corporate Senior Instruments: I
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Q1) The popularity of MTNs as a financing vehicle is due to the ________.
A) flexibility they provide borrowers in designing a structure that satisfies the needs of firms.
B) fact they can be issued at either a fixed- or floating-rate.
C) fact the coupon payments can be denominated in U.S. dollars or in a foreign currency.
D) All of these
Q2) Sourcing alternatives for a corporation include ________.
A) a subsidiary of a domestic bank that has been established in a country where the corporation does business and a domestic bank in the corporation's home country.
B) a subsidiary of a foreign bank that is established in the corporation's home country and a domestic bank in the corporation's home country.
C) a foreign bank domiciled in a country where the corporation does business and a domestic bank in the corporation's home country.
D) All of these
Q3) Senior loans cannot be distributed by participation.
A)True
B)False
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Chapter 20: Markets for Corporate Senior Instruments: II
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Q1) In regards to adjustable-rate preferred stock, which of the below statements are FALSE?
A) The dividend rate on an adjustable-rate preferred stock is fixed quarterly.
B) The predetermined spread on an adjustable-rate preferred stock is called the dividend reset spread.
C) The popularity of adjustable-rate preferred stock declined when instruments began to trade below their par value- because the dividend reset rate is determined at the time of issuance, not by market forces.
D) In the case of adjustable-rate preferred stock, the dividend rate is determined periodically by a remarketing agent who resets the dividend rate so that any preferred stock can be tendered at par and be resold (remarketed) at the original offering price.
Q2) Corporate governance issues involve (1) the ownership structure of the corporation, (2) the practices followed by management, and (3) policies for financial disclosure. A)True B)False
Q3) Can failure to make preferred stock dividend payments force a firm into bankruptcy? Explain.
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Chapter 21: The Markets for Bank Obligations
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Q1) The rate determined in the federal funds market is the major factor that influences the rate paid on all other private money market instruments.
A)True
B)False
Q2) Yankee banks are foreign banks with U.S. branches. Included in this group are non-Japanese branches of foreign banks, such as Credit Lyonnais and Deutsche Bank.
A)True
B)False
Q3) ________ rely primarily on deposits for funding and make less use of the money markets to obtain funds.
A) Japanese banks
B) Regional
C) Money center banks
D) Yankee banks
Q4) Borrowing in the federal funds market is an alternative to borrowing in the repo market.
A)True
B)False
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Chapter 22: The Residential Mortgage Market
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Q1) Which of the below statements is FALSE?
A) If a lender decides to lend the funds, it sends a commitment letter to the applicant whereby this letter commits the lender to provide funds to the applicant.
B) At the time the application is submitted, the mortgage originator will give the applicant a choice among various types of mortgages.
C) Mortgage originators cannot sell the mortgage to an investor that wishes to hold the mortgage in its portfolio.
D) The interest rate that the originator will set on the loan, referred to as the note rate, will depend on the interest rate required by the investor who plans to purchase the mortgage.
Q2) Qualifying for a conforming loan is important for both the borrower and the mortgage originator.
A)True
B)False
Q3) Is prepayment risk like that faced by a bond investor? Discuss.
Q4) Can a borrower face penalties if a loan is prepaid? Discuss.
Q5) What is prepayment risk? Discuss.
Q6) What does the lien status of a mortgage loan indicate?
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Chapter 23: Mortgage-Backed Securities Market
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Q1) In ________, the loans are pooled and used to create different bond classes, which we refer to as ________.
A) an agency CMO; branches
B) an agency CMO; tranches
C) a nonagency CMO; debt classes
D) a nonagency CMO; tranches
Q2) ________ is more commonly used as a form of credit enhancement in subprime deals than in prime deals.
A) Surplus spread
B) Overcollateralization
C) Multiline insurance
D) Junior-subordinate structure
Q3) There are two types of stripped mortgage-backed securities: partially stripped and IO/PO securities.
A)True
B)False
Q4) What does PSA stand for? How is the PSA prepayment benchmark expressed? What does the PSA benchmark assume?
Q5) What is an IO?
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Chapter 24: Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities
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Q1) One of the three major differences in the structures of a CMBS transaction and a nonagency RMBS transaction include: ________.
A) Residential mortgages impose prepayment penalties or restrictions on prepayments.
B) The role of the buyers when the structure is being created is different.
C) With residential mortgages, the loan can be transferred by the servicer to the special servicer when the borrower is in default, imminent default, or in violation of covenants.
D) All of these
Q2) ________ are predetermined penalties that must be paid by the borrower if the borrower wishes to refinance.
A) defeasance
B) Prepayment penalty points
C) prepayment lockout
D) None of these
Q3) The least prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal.
A)True
B)False
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Page 26
Chapter 25: Market for Asset-Backed Securities
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Q1) A security created by pooling loans (other than residential prime mortgage loans) is referred to as ________.
A) a residential-backed security (RBS).
B) a mortgaged-backed security (MBS).
C) an asset-backed security (ABS).
D) a prime mortgage-backed security (PMBS).
Q2) Name three of the four principal reasons as to why a corporation may elect to raise funds via a securitization rather than a corporate bond.
Q3) ________ are loans in which the borrower's periodic payment consists of scheduled principal and interest payments over the life of the loan.
A) Nonamortizing assets
B) Amortizing liabilities
C) Amortizing assets
D) Nonamortizing liabilities
Q4) Uncommon forms of internal credit enhancement are senior/subordinate structures, overcollateralization, and reserve funds.
A)True
B)False
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Chapter 26: Financial Futures Markets
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Q1) The futures price for the S&P 500 is 1000 and the multiple is $150. What is the dollar value of the stock index futures contract?
A) $125,000
B) $150,000
C) $175,000
D) None of these
Q2) Little of what we say about futures contracts applies equally to forward contracts.
A)True
B)False
Q3) The futures price for the S&P 500 is 2000 and the multiple is $100. What is the dollar value of the stock index futures contract?
A) $200
B) $20,000
C) $120,000
D) None of these
Q4) Futures contracts are leveraged instruments that can be used to control risk. A)True
B)False
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Chapter 27: Options Markets
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Q1) Suppose you purchase a put option on Asset XYZ that has an exercise price of $100. The option price is $3 per share. Suppose that on the expiration date, you exercise your option at the current price of $96. What is your net profit or loss per share?
A) -$3.00
B) -$1.00
C) $0.00
D) $1.00
Q2) Futures contracts allow ________.
A) investors to hedge the risks associated with favorable and known price movements. B) market participants to lock in a price and thereby take on price risk.
C) investors to acquire the opportunity to benefit from a favorable price movement.
D) market participants to trade off the benefits of a favorable price movement for protection against an adverse price movement.
Q3) The buyer of a put option benefits if the price of the underlying is unchanged or rises.
A)True
B)False
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Chapter 28: Pricing of Futures and Options Contracts
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Q1) Consider the "cash and carry trade" where you sell (or take a short position in) the futures contract, purchase Asset XYZ, and borrow until the settlement date. In computing the "profit," which of the below statements is TRUE?
A) Profit = Total proceeds - Total outlay
B) Profit = F + yP + (P - rP)
C) Profit = Total outlay - Total proceeds
D) Profit = P + yP - (P + rF)
Q2) According to arbitrage arguments, the equilibrium or theoretical futures price can be determined on the basis of ________.
A) the price of the asset in the options market.
B) the net book income on the asset until the settlement date.
C) the financing cost, which is the interest rate for borrowing and lending until the settlement date.
D) None of these
Q3) The price of an option can be separated into two parts, its extrinsic value and its risk premium.
A)True
B)False
Q4) What do we assume when we illustrate arbitrage strategies?
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Chapter 29: The Applications of Futures and Options Contracts
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Source URL: https://quizplus.com/quiz/21034
Sample Questions
Q1) A corporation plans to issue long-term bonds two months from now. To protect itself against a rise in interest rates, the corporation can buy put options. If interest rates rise, the interest cost of the bonds issued two months from now will be ________, but the put option will have ________ in value.
A) higher; decreased B) lower; increased C) higher; increased D) lower; not changed
Q2) An institutional investor can create a put option synthetically by using either ________.
A) stocks or a riskless asset.
B) stock index futures or stocks.
C) stock index futures or a riskless asset.
D) stock index futures or stocks and a riskless asset.
Q3) A short hedge is undertaken to protect against an increase in the price of a financial instrument or portfolio to be purchased in the cash market at some future time.
A)True B)False
Q4) Explain how a "protective put buying strategy" works.
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Chapter 30: OTC Interest Rate Derivatives: Forward Rate
Agreements, Swaps, Caps, and Floors
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Source URL: https://quizplus.com/quiz/21035
Sample Questions
Q1) The agreement is referred to as an ________ when one party agrees to pay the other if the reference rate falls below a predetermined level.
A) interest rate ceiling
B) interest rate cap
C) interest rate floor
D) interest rate bottom
Q2) In a ________, the party that wants out of the transaction will arrange for an additional swap in which (1) the maturity on the new swap is equal to the time remaining of the original swap, (2) the reference rate is the same, and (3) the notional principal amount is the same.
A) swap sale
B) swap buy-back
C) close-out
D) swap reversal
Q3) The ________ is the value of the reference rate at the FRA's settlement date.
A) notional rate
B) going rate
C) contract rate
D) settlement rate
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Chapter 31: Market for Credit Risk Transfer Vehicles: Credit
Derivatives and Collateralized Debt Obligations
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Q1) There are eight types of credit events possible, the most controversial being restructuring.
A)True
B)False
Q2) In a basket credit default swap, there are multiple reference entities with the trigger determining when the protection buyer must make a payment to the protection seller being based on the number of reference entities that must default.
A)True
B)False
Q3) The proceeds to meet the obligations to the CDO tranches (interest and principal repayment) can come from coupon interest payments from the ________.
A) coupon interest payments from the collateral assets.
B) maturing of collateral assets
C) sale of collateral assets
D) All of these
Q4) What is the most controversial credit event that may be included in a credit derivative product? When does this controversial credit event occur?
Q5) What is credit-linked note (CLN)? Can it be complicated?
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Chapter 32: The Market for Foreign Exchange and Risk
Control Instruments
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Q1) In general, an exchange rate is defined ________.
A) as the amount of one currency that can be exchanged for a unit of another currency.
B) as the amount of two currencies that can be exchanged for a unit of another currency.
C) as the amount of a Japanese yen (and no other currency) that can be exchanged for a unit of any other currency in the world.
D) as the amount of one currency (of any country) that can be exchanged for a unit of a U.S. dollar and no other currency.
Q2) Forward contracts ________.
A) typically have a maturity of more than 2 years.
B) that are shorter-dated have relatively large bid-ask spreads.
C) are not attractive for hedging long-dated foreign currency exposure.
D) that are longer-dated have a the bid-ask spread (for a given currency) that decreases with the maturity of the contract.
Q3) To qualify as a participating country in the EMU requires that a country satisfy certain economic standards. Describe these standards. Have they been achieved?
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