International Finance Exam Preparation Guide
Course Introduction
International Finance explores the financial interactions that occur between two or more countries, focusing on topics such as foreign exchange markets, international monetary systems, balance of payments, and global investment analysis. The course examines the risks and opportunities faced by multinational corporations operating in diverse legal, economic, and political environments, with emphasis on foreign exchange risk management, international capital budgeting, and the impact of currency fluctuations on financial decision making. Students will also study international financial institutions, regulatory frameworks, and recent trends affecting global financial markets.
Recommended Textbook
Foundations of Financial Markets and Institutions 4th Edition by Frank J. Fabozzi
Available Study Resources on Quizplus
32 Chapters
1746 Verified Questions
1746 Flashcards
Source URL: https://quizplus.com/study-set/1063
Page 2
Chapter 1: Introduction
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/21006
Sample Questions
Q1) The proposal by the U.S. Department of the Treasury, popularly referred to as the "Blueprint for Regulatory Reform" or simply Blueprint, would replace the prevailing complex array of regulators with a regulatory system based on functions. More specifically, there would be three regulators. Which of the below is NOT one of these?
A) market stability regulator
B) prudential regulator
C) uninhibited regulator
D) business conduct regulator
Answer: C
Q2) Global competition has forced governments to exercise control various aspects of their financial markets so that their financial enterprises can compete effectively around the world.
A)True
B)False
Answer: False
Q3) Derivative instruments play a critical role in global financial markets.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Financial Institutions, Financial Intermediaries, and Asset Management Firms
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/21007
Sample Questions
Q1) A financial institution that provides an underwriting service will only on occasion also provide a brokerage and/or dealer service.
A)True
B)False
Answer: False
Q2) Very few regulations and tax considerations influence the investment policies that financial institutions pursue.
A)True
B)False
Answer: False
Q3) Liquidity risk is the risk that a counterparty in a trade fails to satisfy its obligation.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Depository Institutions: Activities and Characteristics
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/21008
Sample Questions
Q1) Which of the below statements is TRUE?
A) Depository institutions do not include commercial banks (or simply banks), savings and loan associations (S&Ls), savings banks, and credit unions.
B) Since their funds are raised through deposits and other funding sources, depository institutions cannot make direct loans to various entities or invest in securities.
C) Depository institutions derive their income from two sources: (1) the income generated from the loans they make and the securities they purchase, and (2) fee income.
D) It is uncommon to refer to S&Ls, savings banks, and credit unions as thrifts, which are specialized types of depository institutions.
Answer: C
Q2) After 1981, the bulk of the liabilities of S&Ls consisted of passbook savings accounts and time deposits.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
5
Chapter 4: The US Federal Reserve and the Creation of Money
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/21009
Sample Questions
Q1) Assume REQ is 0.15 and the behavior of banks and depositors responds to interest rates such that banks do not make all the loans they can but rather want to hold 1% of their deposits (TDD) in excess reserves (ER), with the result that the ratio, \(\frac{\mathrm{ER}}{\mathrm{TDD}}\)
, equals 0.01. Also assume that the interest rate is at the level where the public will hold only 75% in checkable deposits (rather than a 100% maximum) and thus 25% in cash or currency (C) such that the ratio \(\frac{\mathrm{C}}{\mathrm{TDD}}\) = 0.33. With these assumptions, what is the money multiplier?
Q2) The Fed has four major tools by which it influences, indirectly and to a greater or lesser extent, the amount of money in the economy and the general level of interest rates. These tools represent the key ways that the Fed interacts with commercial banks in the process of creating money. Name and describe three of these tools.
Q3) Many deposit accounts pay interest, so holding cash does not impose an opportunity cost.
A)True
B)False
Q4) Describe the Federal Reserve System and its important feature.
Page 6
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Monetary Policy in the United States
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/21010
Sample Questions
Q1) Bernanke became chairman during the final 25 basis point increases in the Fed funds rate to 5.25% on June 29, 2006, and maintained this rate through the remainder of 2006 and the first half of 2007.
A)True
B)False
Q2) Interestingly, in recent years, many central banks have adopted inflation, despite certain problems in measurement, as a key intermediate variable.
A)True
B)False
Q3) The goals are numerous, but the Fed's capabilities are limited to the simple menu of (1) trying to raise the rate of growth in the money supply by providing more reserves to banks, and (2) trying to reduce the rate of monetary expansion by reducing the reserves in the banking system.
A)True
B)False
Q4) The Fed seeks to achieve its goals through a form of chain reaction. Describe the chronology and structure of this chain reaction explaining how operating and intermediate targets are used to achieve the Fed's ultimate goals?
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Insurance Companies
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/21011
Sample Questions
Q1) Which of the below statements is FALSE?
A) Companies that provide insurance in both life and long-term care insurance products are called multiline insurance companies.
B) Health insurance has predominately, but not completely, separated from life insurance and become a separate industry.
C) Life insurance companies have also increasingly offered investment-oriented products, both annuities, variable and fixed, and mutual funds.
D) Disability insurance is now sold primarily by pure disability companies but is also offered by some life insurance companies.
Q2) Liability insurance insures against the inability of employed persons to earn an income in either their own occupation or any occupation.
A)True
B)False
Q3) Globalization has occurred in many industries, but not in the insurance industry. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Investment Companies and Exchange Traded Funds
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/21012
Sample Questions
Q1) Explain what is meant by an index fund. In your answer contrast it with an active fund.
Q2) A decade ago, many observers speculated that load funds would become obsolete. But, the actual trend has been quite different. Which of the below is offered as a reason for load funds maintaining a costly fee?
A) Many investors have remained dependent on the investment counsel and service
B) Investors do not pay attention to fees and so do not care
C) Many investors have remained dependent on the initiative of the sales agent
D) Sales-force distributed funds have shown considerable ingenuity and flexibility in imposing sales charges
Q3) ETFs are priced only once a day by being redeemed or offered by the fund company at NAV. On the other hand, open-ended funds are traded on an exchange and so are priced continuously throughout the day.
A)True
B)False
Q4) There are important aspects of open-end funds, commonly referred to simply as mutual funds. Describe three of these aspects.
Q5) What are variable annuities?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Pension Funds
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/21013
Sample Questions
Q1) There are several fundamental differences between defined-benefit plans and defined-contribution plans. In the defined-benefit plan, the plan sponsor does which of the following?
A) The sponsor does not guarantee the retirement benefit
B) The sponsor does not make the investment choices
C) The sponsor bears the investment risk if the investments earn enough to fund the guaranteed retirement benefits.
D) The sponsor bears the investment risk if the investments do not earn enough to fund the guaranteed retirement benefits.
Q2) The first part of the Pension Protection Act of 2006 (PPA) modified ERISA. Which of the below was NOT a major modification?
A) It required underfunded plans to pay additional premiums to the Pension Benefit Guaranty Corporation (PBGC).
B) It tightened the requirement for companies terminating their pension plans to provide extra funding to the pension system.
C) It closed loopholes that allowed underfunded plans to skip pension payments.
D) It required that companies measure their pension plan obligations more accurately.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Properties and Pricing of Financial Assets
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/21014
Sample Questions
Q1) When we refer to changes in the required yield, it is convenient to measure a change in yield in terms of what market participants refer to as ________.
A) a basis modification rather than a yield modification.
B) a yield modification rather than in terms of a basis modification.
C) a percentage change rather than a basis point.
D) a basis point rather than in terms of a percentage change.
Q2) 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
Q3) It should be understood that even a financial asset with a stated maturity may terminate before its stated maturity. This may occur for several reasons. Describe some of these reasons.
Q4) Explain the difference between modified duration and effective duration. In your also give an example of when the difference can be dramatic.
Q5) Define what we mean by "an appropriate discount rate". Describe four of the six components that make up this rate.
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: The Level and Structure of Interest Rates
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/21015
Sample Questions
Q1) Treasury securities are used to develop the benchmark interest rates. There are two categories of U.S. Treasury securities: ________.
A) discount and coupon securities.
B) discount and coupon stocks.
C) interest rate and coupon securities.
D) discount and compound securities.
Q2) In the absence of inflation, the nominal rate ________ the real rate. A) equals B) is greater than C) is less than D) greater than or equal to
Q3) Convertible bonds are securities issued by state and local governments and by their creations, such as "authorities" and special districts.
A)True
B)False
Q4) Explain what is meant by the liquidity effect.
Q5) There are several interesting points about the relationship among the coupon rate, market price, and yield to maturity. Briefly explain these relationships.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: The Term Structure of Interest Rates
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/21016
Sample Questions
Q1) 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
Q2) Explain through an example as to why borrowers (like investors) need to understand the mean of a forward rate.
Q3) As quoted on a bond equivalent basis, what is the forward rate (f) for a six-month security if z is 2.00% and z is 4.50%?
A) 7.06%
B) 9.02%
C) 14.12%
D) 15.06%
Q4) Name and comment on two of the three main influences on the shape of the Treasury yield curve as suggested by empirical research.
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Risk/Return and Asset Pricing Models
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/21017
Sample Questions
Q1) Which of the below statements is FALSE?
A) The systematic risk of a portfolio is simply the market value-weighted average of the systematic risk of the individual securities.
B) The beta ( ) for a portfolio consisting of all stocks is 1.00.
C) The beta of a security or portfolio can be estimated using statistical analysis.
D) There will be no difference in the calculated beta depending on the length of time over which a return is calculated and the number of observations used
Q2) The multifactor CAPM approach entails that a security's return has ________.
A) an alpha like sensitivity to each factor.
B) a riskless performance for each factor.
C) a standard deviation type performance for each factor.
D) a beta like sensitivity to each factor.
Q3) 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).
Q4) Explain the concept of framing.
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Primary Markets and the Underwriting of Securities
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/21018
Sample Questions
Q1) A red herring is ________.
A) a period of waiting for SEC approval.
B) an amended prospectus.
C) a preliminary prospectus.
D) a prospectus printed fully in red ink.
Q2) Underwriting activities are regulated by the ________.
A) Initial Public Offerings Market (IPOM).
B) Securities and Exchange Commission (SEC).
C) Investment Banking Industry (IBI).
D) Federal Bureau of Investigation (FBI).
Q3) In regards to Rule 144a, which of the below statements is FALSE?
A) Rule 144A encouraged non-U.S. corporations to issue securities in the U.S. private placement market by relaxing the requirement to hold the securities for two years.
B) Rule 144A encourages non-U.S. corporations to issue securities in the U.S. private placement market by relaxing the requirement to furnish necessary disclosure set forth by U.S. securities laws.
C) Rule 144A improved liquidity, reducing the cost of raising funds.
D) Rule 144A improved the liquidity of securities acquired by all institutional investors in a private placement.
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Secondary Markets
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/21019
Sample Questions
Q1) Call auctions provide for fixed price auctions (that is, all the transaction or exchanges occur at the same "fixed" price) at specific times during the day and are appropriate for less liquid bonds such as corporate bonds and municipal bonds.
A)True
B)False
Q2) The dominant OTC market for stocks in the United States is AMEX.
A)True
B)False
Q3) Trace the historical evolution of transaction costs charged by the brokerage industry.
Q4) A perfect market results when all buyers and sellers are ________, and the market price is determined where there is ________.
A) price-takers; equality of supply and demand.
B) price-makers; equality of supply and demand.
C) price-takers; inequality of supply and demand.
D) price-makers; inequality of supply and demand.
Q5) A perfect market does not allow the sale of borrowed securities.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Treasury and Agency Securities Markets
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/21020
Sample Questions
Q1) If the rate on the repo is 6.5% and the rate on the reverse repo is 6.55%, the dealer firm is borrowing at 6.5% and lending at 6.55%, locking in a spread of 0.55% (fifty-five basis points).
A)True
B)False
Q2) What is the reason for distinguishing between local debt ratings and foreign currency debt ratings?
Q3) An advantage of a taxable entity investing in Treasury strips is that accrued interest is taxed each year even though interest is not paid.
A)True
B)False
Q4) Stripped Treasury securities are zero-coupon instruments that, while not issued by the U.S. government, are backed by Treasury securities from which they are created. A)True
B)False
Q5) Describe the types of issued by non-U.S. central governments such as the British government and the Canadian government.
Q6) Describe two types of government-chartered entities.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Municipal Securities Markets
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/21021
Sample Questions
Q1) For a tax-exempt municipal security, as the marginal tax rate ________, the price of a tax?exempt municipal security will ________.
A) declines; rise.
B) declines; decline.
C) rises; rise.
D) rises; decline.
Q2) What is The Bond Buyer.
Q3) In regards to the yields on municipal bonds, the yield ratio has changed over time. The ________, the more attractive the tax-exempt feature and the ________.
A) lower the tax rate; lower the yield ratio
B) higher the tax rate; higher the yield ratio
C) higher the tax rate; lower the yield ratio
D) None of these
Q4) In a competitive process, the bidder submitting the highest bid price for the security gets the right to market the debt to investors.
A)True
B)False
Q5) Cite two reasons for the exemption afforded municipal securities.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Markets for Common Stock: The Basic
Characteristics
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/21022
Sample Questions
Q1) Which of the below statements is TRUE?
A) Stock prices often exhibit abrupt price changes, so the direction of a change in a stock price may be quite permanent, resulting in the premature trading of a stock.
B) A stop-limit order, a hybrid of a stop order and a limit order, is a stop order that designates a price limit.
C) The stop-limit order cannot be used to cushion the market impact of a stop order.
D) We can think of the stop order as an order designed to get out of an existing position at an acceptable price (by specifying the exact price), and the market if touched order as an order designed to get into a position at an acceptable price (also by specifying the exact price).
Q2) ________ is the minimum proportion of (1) the equity in the investor's margin account to (2) the total market value.
A) preservation margin requirement
B) maintenance boundary requirement
C) maintenance margin condition
D) maintenance margin requirement
Q3) Name and describe the three different forms of pricing efficiency.
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: Markets for Common Stock: Structure and Organization
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/21023
Sample Questions
Q1) A fundamental difference between U.S. and international exchanges involves ________.
A) their method of trading.
B) their market structure.
C) the nature of the exchanges' business organizations.
D) All of these
Q2) What is a dark pool? Describe two of the sponsors of dark pools.
Q3) The Pacific Exchange (PHLX) is the oldest stock exchange in the United States, founded in 1790.
A)True
B)False
Q4) Electronic communication networks (ECNs) ________.
A) are not off-exchange exchanges.
B) are direct descendants of (and part of) the NYSE, not Nasdaq.
C) display bids and offers; that is, they provide an open display.
D) provide institutions and market-makers with an known way to enter orders.
Q5) The Pink Sheets is an electronic quotation system that displays quotes from broker dealers for many OTC securities.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Markets for Corporate Senior Instruments: I
Available Study Resources on Quizplus for this Chatper
43 Verified Questions
43 Flashcards
Source URL: https://quizplus.com/quiz/21024
Sample Questions
Q1) Which of the below statements is FALSE?
A) Corporate debt obligations expose an investor to credit risk.
B) Credit risk consists of default risk, credit spread risk, and downgrade risk.
C) Corporate risk is typically measured by the credit or quality ratings assigned by nationally recognized commercial rating companies.
D) Commercial rating companies play a key role in the functioning of debt markets in the United States, and their role in other countries is increasing.
Q2) A unique characteristic of medium-term notes is that they are continuously offered to investors over a period of time by an agent of the issuer.
A)True
B)False
Q3) A structured note is a medium-term note in which the issuer couples its offering with a position in a derivative instrument in order to create instruments with more interesting risk/return characteristics.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Markets for Corporate Senior Instruments: II
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/21025
Sample Questions
Q1) Which of the below statements is TRUE?
A) In a reorganization, the distribution made to claimholders will converge to that required by the absolute priority principle.
B) In a reorganization, a committee representing the various claimholders is appointed with the purpose of formulating a plan of reorganization.
C) When a company is take over in a merger, creditors receive distributions based on the absolute priority rule to the extent assets are available.
D) None of these
Q2) A provision in the tax code exempts ________ from federal income taxation, if the recipient is a qualified corporation.
A) 50% of qualified dividends
B) 70% of qualified dividends
C) 50% of nonqualified dividends
D) 70% of nonqualified dividends
Q3) The Eurobond sector of the global bond market includes bonds with a number of distinguishing features. Name three of these features.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 21: The Markets for Bank Obligations
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/21026
Sample Questions
Q1) ________ is an interest rate that changes periodically in accordance with a predetermined formula that indicates the spread (or margin) above some index at which the rate will reset periodically.
A) A fixed-rate CD
B) An Eurodollar CD
C) A floating-rate CD
D) A domestic CD
Q2) Which of the below statements is TRUE?
A) Investing in bankers acceptances exposes the investor to market risk, which is the risk that neither the borrower nor the accepting bank will be able to pay the principal due at the maturity date.
B) The market interest rates that acceptances offer investors reflect credit risk because BAs have lower yields than risk-free Treasury bills.
C) The spread between bankers acceptance rates and Treasury rates represents a combined reward to investors for bearing the higher risk and relative illiquidity of the acceptance.
D) The investor in a bankers acceptance is not exposed to credit risk
Q3) What are the four types of CDs, according to the issuing institution.
Q4) Why might some federal funds transactions require the use of a broker?
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 22: The Residential Mortgage Market
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/21027
Sample Questions
Q1) Mortgage originators can protect themselves against fallout risk by entering into an agreement with a government-sponsored enterprises (GSE) or private conduit for mandatory rather than optional delivery of the mortgage.
A)True
B)False
Q2) The two primary quantitative underwriting standards are (1) the payment-to-income ratio (PTI), and (2) the loan-to-value ratio (LTV). Describe these two ratios.
Q3) Two government-sponsored enterprises and several private companies buy mortgages for purposes of pooling them and selling them to investors.
A)True
B)False
Q4) A loan originated where the borrow is of lower credit quality is classified as a ________.
A) prime loan.
B) credit guarantee.
C) lien status guarantee.
D) subprime loan.
Q5) What does the lien status of a mortgage loan indicate?
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Mortgage-Backed Securities Market
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/21028
Sample Questions
Q1) A CMO is a security backed by a pool of mortgage pass-through securities or mortgages and is referred to as a derivative security.
A)True
B)False
Q2) Suppose that an investor owns a pass-through in which the remaining mortgage balance at the beginning of some month is $300 million. Assuming that the CPR is 5.00% and the scheduled principal payment is $4 million, what is the estimated prepayment for the month?
A) $1,242,789
B) $1,262,534
C) $1,273,128
D) $1,284,465
Q3) Securitization - the financial framework that allowed Wall Street to package these loans into RMBS - is of enormous benefit to the economy.
A)True
B)False
Q4) What is a PO?
Q5) What is an IO?
Q6) What does the creation of a CMO accomplish? Briefly explain.
Page 25
To view all questions and flashcards with answers, click on the resource link above.
Chapter 24: Market for Commercial Mortgage Loans and Commercial
Mortgage-Backed Securities
Available Study Resources on Quizplus for this Chatper
42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/21029
Sample Questions
Q1) CMBS can be classified only by CMBS with loans from a single borrower. A)True
B)False
Q2) Describe some main features of a commercial loan.
Q3) The most prevalent form of deal backed by commercial mortgage loans to multiple borrowers is the conduit deal. Describe the nature of this "conduit deal"?
Q4) The structure of a CMBS transaction is the same as in a nonagency RMBS ________.
A) in that most structures have a sing bond class (tranch) with the same rating, and there are regulations for the distribution of interest and principal to the bond class.
B) in that most structures have multiple bond classes (tranches) with the same ratings, and there are rules for the distribution of interest and principal to the bond classes.
C) in that most structures have multiple bond classes (tranches) with different ratings, but there are no regulations for the distribution of interest and principal to the bond classes.
D) in that most structures have multiple bond classes (tranches) with different ratings, and there are rules for the distribution of interest and principal to the bond classes.
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Market for Asset-Backed Securities
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/21030
Sample Questions
Q1) Due to the ________, quality of the collateral, and credit enhancement, a corporation can raise funds via a ________ where some of the bond classes have a credit rating better than the corporation seeking to raise funds and where in the aggregate the funding cost is less than issuing corporate bonds.
A) SPV; mobilization
B) OTC; mobilization
C) SPV; securitization
D) OTC; securitization
Q2) Rate reduction bonds, also called stranded cost bonds or stranded asset bonds, are backed by a state-legislative approved special charge, referred to as the competitive transition charge, charged by pharmaceutical companies.
A)True
B)False
Q3) Evaluating asset risks involves the analysis of the credit quality of the collateral and consider s the underlying borrower's ability to pay but not the borrower's equity in the asset.
A)True
B)False
Q4) What is the key benefit of securitization to financial markets?
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Financial Futures Markets
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/21031
Sample Questions
Q1) Without financial futures, investors would have only one trading location to alter portfolio positions when they get new information that is expected to influence the value of assets and that is the ________.
A) commodity market.
B) derivatives market.
C) noncash market.
D) cash market.
Q2) For interest rate futures contracts are cash settlement contracts whose underlying is a common stock index and the dollar value of a stock index futures contract is the product of the futures price and the contract's multiple.
A)True
B)False
Q3) Credit risk is maximal in the case of futures contracts because the clearinghouse associated with the exchange does not guarantee the other side of any transaction.
A)True
B)False
Q4) What is a forward contract? How does it differ from a futures contract?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 27: Options Markets
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/21032
Sample Questions
Q1) The Options Clearing Corporation has established standard strike price guidelines for listed options. For stocks ________.
A) with a price above $100, option strike prices are set at $10 intervals.
B) with a price below $100 and above $30, strike prices are set at $4 intervals.
C) priced between $10 and $30 the interval is $2.
D) with stock splits, the strike price is not adjusted.
Q2) Options allow the investor to mold a risk/return relationship.
A)True
B)False
Q3) An option cannot be used to alter the risk/reward relationship from that of a position in the underlying.
A)True
B)False
Q4) There has been decreased use by institutional investors of over-the-counter options on Treasury and mortgage-backed securities.
A)True
B)False
Q5) Differentiate between a call option and a put option.
Q6) Describe and summarize the meaning of the four option positions.
To view all questions and flashcards with answers, click on the resource link above. Page 29
Chapter 28: Pricing of Futures and Options Contracts
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/21033
Sample Questions
Q1) The actual futures price will diverge from the theoretical futures price because of interim cash flows, differences between lending and borrowing rates, transaction costs, restrictions on short selling, and uncertainty about the deliverable asset and the date it will be delivered.
A)True
B)False
Q2) When developing a theory of futures pricing, which of the following is NOT a notation that is used?
A) F = Futures price ($)
B) C = Cash market price ($)
C) r = Financing cost (%)
D) y = Cash yield (%)
Q3) Suppose a portfolio consisting of the long position in the asset and the short position in the call option is riskless and will produce a return that equals the risk-free interest rate. A portfolio constructed in this way is called ________.
A) a risk-reduced portfolio.
B) an unhedged portfolio.
C) a hedged portfolio.
D) a speculative portfolio.
To view all questions and flashcards with answers, click on the resource link above.
Page 30
Chapter 29: The Applications of Futures and Options Contracts
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/21034
Sample Questions
Q1) Market participants can employ interest rate futures in various ways. These include
A) speculating on the movement of risk-free rates.
B) controlling the interest rate risk of a bond.
C) hedging against known interest rate movements.
D) enhancing returns when futures are mispriced.
Q2) While investment managers can alter the interest rate sensitivity of their portfolios with cash market instruments, a quick and inexpensive means for doing so (on either a temporary or permanent basis) is to use ________.
A) bond indentures.
B) stock index contracts.
C) interest rate treaties.
D) futures contracts.
Q3) Buying a futures contract decreases a market participant's exposure to a market; selling a futures contract decreases a market participant's exposure to a market.
A)True
B)False
Q4) Explain how a "protective put buying strategy" works.
To view all questions and flashcards with answers, click on the resource link above. Page 31
Chapter 30: OTC Interest Rate Derivatives: Forward Rate
Agreements, Swaps, Caps, and Floors
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/21035
Sample Questions
Q1) A ceiling is created by buying an interest rate cap and selling an interest rate floor.
A)True
B)False
Q2) The reference rates that are commonly used for the floating rate in an interest rate swap are those on various money market instruments such as ________.
A) Treasury bills, prime rate, and the London Interbank Offered Rate.
B) LIBOR and commercial paper.
C) bankers acceptances, certificates of deposit, and federal funds rate.
D) All of these
Q3) The terms of an interest rate agreement include ________.
A) the reference rate and the strike rate that sets the ceiling or floor.
B) the length of the agreement and the frequency of settlement.
C) the notional principal amount.
D) All of these
Q4) There are two types of swaptions - a payer swaption and a receiver swaption.
Describe each of these two types of swaptions.
Q5) What is forward start swap?
Q6) Describe an interest rate cap and an interest rate floor.
Page 32
To view all questions and flashcards with answers, click on the resource link above.
Chapter 31: Market for Credit Risk Transfer Vehicles: Credit
Derivatives and Collateralized Debt Obligations
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/21036
Sample Questions
Q1) The most controversial credit event that may be included in a credit derivative product is restructuring of an obligation. A restructuring occurs when the terms of the obligation are altered so as to make the new terms less attractive to the debt holder than the original terms. Term that can be changed are a ________.
A) reduction in the interest rate and a reduction in the principal.
B) rescheduling of the principal repayment schedule and a reduction in the principal. C) change in the level of seniority of the obligation in the reference entity's debt structure and a reduction in the interest rate.
D) All of these
Q2) In a credit default swap index, the credit risk of a standardized basket of reference entities is transferred between the protection buyer and protection seller with the contract continuing even if there is a credit event for any of the reference entities in the basket but at a lower premium to reflect the credit protection for less reference entities.
A)True
B)False
Q3) What is credit-linked note (CLN)? Can it be complicated?
To view all questions and flashcards with answers, click on the resource link above.
Page 33
Chapter 32: The Market for Foreign Exchange and Risk
Control Instruments
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/21037
Sample Questions
Q1) If the number of units of a foreign currency that can be obtained for one dollar (the price of a dollar in that currency or indirect quotation) rises, the dollar is said to ________ relative to the currency, and the currency is said to ________. Thus, appreciation means a decline in the ________ quotation.
A) appreciate; depreciate; direct
B) depreciate; appreciate; indirect.
C) appreciate; depreciate; direct,
D) depreciate; appreciate; indirect.,
Q2) To qualify as a participating country in the EMU requires that a country satisfy certain economic standards. Describe these standards. Have they been achieved?
Q3) From the perspective of a U.S. investor, the cash flows of assets denominated in a foreign currency offer the investor to certainty as to the actual level of the cash flow measured in U.S. dollars.
A)True
B)False
Q4) Contrast what a currency option contract gives compared to a forward or futures contract. What is the option price?
To view all questions and flashcards with answers, click on the resource link above. Page 34