Finance Market TTTC Multiple Choice

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Finance Market TTTC (multiple-choice)
Thị trường Tài Chính (Trường Đại học Mở Thành phố Hồ Chí Minh)
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1. For the purposes for which they are

used, money market securities should
6. Which one of the following statements
have which of the following
about commercial paper is not true?
characteristics?
Commercial paper issued in the United
I. Low trading costs
States
II. Little price risk
A) is an unsecured short-term
III. High rate of return
promissory note.
IV. Life greater than one year
B) has a maximum maturity of 270
A) I and III
days.
B) II and IV
C) is virtually always rated by at least
C) III and IV
one ratings agency.
D) I and II
D) has no secondary market.
E) I, II, and III
E) carries an interest rate above the
prime rate.
2. A repo is in essence a collateralized
A) banker's acceptance.
B) certificate of deposit.
C) Fed funds loan. 7. A negotiable CD
D) commercial paper loan. A) is a bank-issued transactions
E) Eurodollar deposit. deposit.
B) is a registered instrument.
3. A short-term unsecured promissory note C) is a bank-issued time deposit.
issued by a company is D) has denominations ranging from
A) commercial paper. $50,000 to $10 million.
B) a T-bill. E) pays discount interest.
C) a repurchase agreement.
D) a negotiable CD.
E) a banker's acceptance. 8. A banker's acceptance is
A) a time draft drawn on the exporter's
bank.
4. A time draft payable to a seller of goods B) a method to help importers evaluate
with payment guaranteed by a bank is a the creditworthiness of exporters.
A) commercial paper security. C) a liability of the importer and the
B) T-bill. importer's bank.
C) repurchase agreement. D) an add-on instrument.
D) negotiable CD. E) for greater than one year maturity.
E) banker's acceptance.
9. The most liquid of the money market

5. In the T-bill auction process, the securities are
competitive bidder is guaranteed a A) commercial paper.
________ and a noncompetitive bidder is B) banker's acceptances.
guaranteed a ________. C) T-bills.
A) stop-out price; maximum price. D) Fed funds.
B) stop-out price; minimum price. E) repurchase agreements.
C) stop-out price; given quantity.
D) stop-out price; maximum quantity.
E) None of these choices are correct.

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10. Which of the following descriptions does 15. Which one of the following bonds is
not apply to money market securities? likely to have the highest required rate of
A) Short-term return, ceteris paribus?
B) Low-risk A) AAA-rated non-callable corporate
C) Highly liquid bond with a sinking fund
D) Long maturity B) AA-rated callable corporate bond
E) High denominations with a sinking fund
C) AAA-rated callable corporate bond
with a sinking fund
11. The most active and important D) High-quality municipal bond
participant in the U.S. money market E) AA-rated callable corporate bond
A) is the U.S. Treasury. without a sinking fund
B) are the large banks.
C) are the investment banks.
D) are the insurance companies. 16. An investor is trying to decide between a
E) is the Federal Reserve. muni paying 5.75 percent or an
equivalent taxable corporate paying 8.25
percent. What is the minimum marginal
12. The most significant borrower in the U.S. tax rate the investor must have to
money markets? consider buying the municipal bond?
A) Are commercial banks A) 80.00 percent
B) Are large corporations B) 20.00 percent
C) Is the U.S. Treasury C) 25.00 percent
D) Are the investment banks D) 66.67 percent
E) Are the insurance companies E) 30.00 percent
13. A noncompetitive bid for Treasury bill
auction provides
A) all noncompetitive bidders the same 17. Standard revenue bonds are
price. A) backed by the full ta xing authority
B) all competitive bidders the same of the municipality.
price. B) collateralized by the earnings from
C) all noncompetitive bidders the same a specific project.
quantity. C) bonds backed by mortgages.
D) all noncompetitive bidders lesser D) backed by the U.S. Treasury.
price than the competitive bidders. E) always offered with a best efforts
E) all competitive bidders the same offering.
quantity.
14. A Treasury security in which periodic
coupon interest payments can be 18. When an investment banker purchases
separated from each other and from the an offering from a bond issuer and then
principal payment is called a resells it to the public, this is known as a
A) STRIP. A) rights offering.
B) T-note. B) private placement.
C) T-bond. C) firm commitment.
D) GO bond. D) best efforts.
E) Revenue bond. E) standby offering.

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19. Convertible bonds are C) 5.88 percent; 2.94 percent

I. options attached to bonds D) 5.56 percent; 2.78 percent
that give the bondholder the E) 4.65 percent; 3.17 percent
right to purchase stock at a
preset price without giving
up the bond. 22. Common stocks typically have which of
II. bonds in which the issue the following that bonds do NOT have?
matures (converts) a little I. Voting rights
each year. II. Fixed cash flows
III. bonds collateralized with III. Set maturity date
certain types of IV. Tax deductibility of cash
automobiles. flows to investors
IV. bonds that may be A) I only
converted to a certain B) I, II, and IV only
number of shares of stock C) II, III, and IV only
determined by the D) IV only
conversion ratio. E) I, II, III, and IV
A) I only
B) I and II only
C) I, II, and III 23. If all preferred dividend payments that
D) IV only have been missed must be paid before
E) I and III only any common stock dividend can be paid,
the preferred stock is called ________
preferred stock.
20. Bearer bonds are bonds A) cumulative
A) with coupons attached that are B) participating
redeemable by whoever has the C) nonparticipating
bond. D) voting
B) where the registered owner E) dual class
automatically receives bond
payments when scheduled.
C) in which the issue matures on a 24. If the net proceeds are greater than the
series of dates. gross proceeds in an underwritten
D) issued in another currency other offering, then
than the bond issuer's home A) the investment banker made a profit
currency. on the spread.
E) issued in a different country other B) the issuing company underpriced its
than the bond issuer's home securities.
country. C) the issue fails to occur.
D) the SEC rescinds the issue.
E) None of these choices are correct.
21. You buy a stock for $34 per share and
sell it for $36 after you collect a $1.00 per
share dividend. Your pretax capital gain 25. Which of the following information is
yield is ________ and your pretax NOT usually found in a Wall Street
dividend yield is ________. Journal stock quote?
A) 2.94 percent; 2.78 percent A) Dividend yield
B) 8.82 percent; 0.00 percent B) Price-earnings ratio

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C) Closing price of the stock

D) Stock rating
29. Suppose a firm has 10 million shares of
E) Ticker symbol
common stock outstanding and seven
candidates are up for election to three
seats on the board of directors. If the
26. A firm is using cumulative voting and
firm uses cumulative voting to elect its
four dire ctor spots are up for election.
board, what is the minimum number of
There are 3.6 million shares outstanding.
votes needed to ensure election to the
How many shares must a minority owner
board?
own or control to ensure that he or she
A) 3,000,000
can gain control of one seat on the
B) 4,285,715
board of directors?
C) 5,000,000
A) 900,001
D) 7,500,001
B) 880,001
E) 10,000,000
C) 720,001
D) 1,800,001
E) 1,750,001
30. A negotiable CD:
A. is a bank-issued transactions
deposit.
27. Suppose that over the last 10 to 15 years
B. is a registered instrument.
significantly large numbers of investors
C. is a bank-issued time deposit.
have been able to earn abnormal returns
D. has denominations ranging
from using the firm's publicly available
from $50,000 to $10 million.
financial information to forecast growth
E. pays discount interest.
in earnings and dividends. This would
be evidence that the markets are not
I. weak form efficient.
31. A Chinese exporter sells $200,000 of
II. semi-strong form efficient.
toys to a French importer. The Chinese
III. strong form efficient.
exporter requires the French importer to
A) I only
obtain a letter of credit. When the bank
B) I and II only
accepts the draft, the exporter discounts
C) III only
the 90-day note at a 4 percent discount.
D) II and III only
What is the exporter's true effective
E) I, II, and III
annual financing cost?
A. 4.00 percent
B. 4.04 percent
28. A publicly traded company gave its
C. 4.10 percent
existing shareholders the opportunity to
D. 4.16 percent
purchase from the new stocks that it will
E. 4.22 percent
issue. The existing shareholders can
purchase 3 new shares at a price of $10
per share for every 8 shares held. This is
32. A 90-day T-bill is selling for $9,900. The
an example of:
par is $10,000. The effective annual
A) Private placement
return on the T-bill is (watch your
B) Rights offering
rounding)
C) Shelf registration
A. 4.00 percent.
D) Initial public offering
B. 4.16 percent.
E) Syndicate offering

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C. 4.10 percent. D. procuring a banker's

D. 4.04 percent. acceptance.
E. 4.21 percent. E. none of the options
33. A $2 million jumbo CD is paying a 37. Rank the following types of mortgages
quoted 3.55 percent interest rate on 180- by amount outstanding from largest to
day maturity CDs. How much money will smallest.
you have at maturity if you invest in the I. Home mortgages
CD? II. Multifamily mortgages
A. $2,000,000 III. Farm mortgages
B. $2,035,014 IV. Commercial mortgages
C. $2,035,500 A. I, II, III, IV
D. $2,071,000 B. I, II, IV, III
E. $2,088,400 C. II, I, IV, III
D. IV, II, III, I
34. From 1990 to 2013, which one of the E. I, IV, II, III
following money market securities
actually declined in terms of dollar
amount outstanding? 38. A ___________ placed against
A. commercial paper mortgaged property ensures that the
B. treasury bills property cannot be sold (except by the
C. federal funds and repos lender) until the mortgage is paid off.
D. negotiable CDs A. collateral
E. banker's acceptances B. lien
C. writ of habeas corpus
D. down payment
35. A 50-day maturity money market E. writ of certiorari
security has a bond equivalent yield of
3.60 percent. The security's EAR is
A. 3.69 percent. 39. You obtain a $265,000, 15-year fixed-rate
B. 3.61 percent. mortgage. The annual interest rate is
C. 3.55 percent 6.25 percent. In addition to the principal
D. 3.87 percent. and interest paid, you must pay $275 a
E. 3.66 percent. month into an escrow account for
insurance and taxes. What is the total
monthly payment (to the nearest dollar)?
36. If your firm enters into an overnight A. $2,272
reverse repurchase agreement, your firm B. $1,632
is C. $2,547
A. borrowing Fed funds D. $1,907
temporarily. E. $2,311
B. selling a security now while
agreeing to buy it back
tomorrow. 40. A borrower took out a 30-year fixed-rate
C. giving an unsecured loan to mortgage of $2,250,000 at a 7.2 percent
the counterparty. annual rate. After five years, he wishes
to pay off the remaining balance. Interest

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rates have by then fallen to 7 percent. III. cash flows on a MBB are
How much must he pay to retire the not directly passed through
mortgage (to the nearest dollar)? from mortgages.
A. $2,122,426 A. I, II, and III
B. $2,225,330 B. I and II only
C. $2,015,678 C. II and III only
D. $2,212,041 D. I and III only
E. $1,999,998 E. I only
41. A homebuyer bought a house for 44. Which one of the following types of
$245,000. The buyer paid 20 percent mortgages is likely to become more
down but decided to finance closing popular as the average age of the U.S.
costs of 3 percent of the mortgage population increases?
amount. If the borrower took out a 30- A. GEM
year fixed-rate mortgage at a 5 percent B. GPM
annual interest rate, how much interest C. SAM
will the borrower pay over the life of the D. PLA
mortgage? E. RAM
A. $224,655
B. $180,622
C. $228,477 45. Of the following, the most recent
D. $188,265 derivative security innovations are
E. $248,575 A. foreign currency futures.
B. interest rate futures.
C. stock index futures.
42. A homeowner can obtain a $250,000, 30- D. stock options.
year fixed-rate mortgage at a rate of 6.0 E. credit derivatives.
percent with zero points or at a rate of
5.5 percent with 2.25 points. How long
must the owner stay in the house to 46. You have agreed to deliver the
make it worthwhile to pay the points if underlying commodity on a futures
the payment saving is not invested? contract in 90 days. Today the
A. 7.15 years underlying commodity price rises and
B. 3.33 years you get a margin call. You must have
C. 6.04 years A. a long position in a futures
D. 5.90 years contract.
E. more than 30 years B. a short position in a futures
contract.
C. sold a forward contract.
43. An MBB differs from a CMO or a pass- D. purchased a forward contract.
through in that E. purchased a call option on a
I. the MBB does not result in futures contract.
the removal of mortgages
from the balance sheet.
II. a MBB holder has no 47. You have taken a stock option position
prepayment risk. and, if the stock's price increases, you
could lose a fixed small amount of

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money, but if the stock's price

decreases, your gain increases. You
51. An investor sells a futures contract an
must have
asset when the futures price is $1,500.
______________________________.
Each contract is on 100 units of the
A. bought a call option
asset. The contract is closed out when
B. bought a put option
the futures price is $1,540. Which of the
C. written a call option
following is true
D. written a put option
A. The investor has made a gain
E. purchased a straddle
of $4,000
B. The investor has made a loss
48. Your firm enters into a swap agreement
of $4,000
with a notional principal of $40 million
C. The investor has made a gain
wherein the firm pays a fixed rate of
of $2,000
interest of 5.50 percent and receives a
D. The investor has made a loss
variable rate of interest equal to LIBOR
of $2,000
plus 150 basis points. If LIBOR is
currently 3.75 percent, the NET amount
your firm will receive (+) or pay (-) on the
next transaction date is 52. The price of a stock on February 1 is
A. -$2,200,000. $84. A trader buys 200 put options on
B. $2,625,000. the stock with a strike price of $90 when
C. $125,000. the option price is $10. The options are
D. -$100,000. exercised when the stock price is $85.
E. -$875,000. The trader's net profit or loss is
A. Loss of $1,000
B. Loss of $2,000
C. Gain of $200
49. The type of swap most closely linked to
D. Gain of $1000
the subprime mortgage crisis is the
____________.
A. interest rate swap
B. currency swap 53. IBM creates and sells additional stock to
C. equity linked swap the investment banker Morgan Stanley.
D. credit default swap Morgan Stanley then resells the issue to
E. DIF swap the U.S public. This transaction is an
example of a(n)
A) Primary market transaction
B) Asset transformation by Morgan
50. A company enters into a short futures
stanley
contract to sell 50,000 units of a
C) money market transaction
commodity for 70 cents per unit. The
D) foreign exchange transaction
initial margin is $4,000 and the
maintenance margin is $3,000. What is
the futures price per unit above which
there will be a margin call? 54. A corporation seeking to sell new equity
A. 78 cents securities to the public for the first time
B. 76 cents in order to rise cash for capital
C. 74 cents investment would most likely
D. 72 cents A) Conduct an IPO with the assistance
of an investment banker

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B) engage in secondary sale market C) the cereal government requires

sale of equity them to do so
C) Conduct a private placement to a D) Both a) and b)
large number of potential buyers
D) Place an ad in the Wall Street
Journal soliciting retail supplier of 59. Which of the following are money market
funds interments?
A) 6-month CDs
55. The process of allocating shares of hot B) common stock
IPO issues to directors and/or C) T-Bonds
executives of potential investment D) 4 year maturity corporate bond
banking clients in exchange of
subsequent investment banking
business is called 60. The most diversified type of depository
A) Spinning institutions are
B) Laddering A) Credit unions
C) Money Laundering B) Savings associations
D) Front Running C) Commercial banks
D) finance companies
56. ____ and _____ allows a financial

intermediary to offer safe liquid liabilities 61. Liquidity risk at a financial intermediary
as deposits while investing the (FI) is the risk
depositors money in riskier illiquid A) that promised cash flows from loans
assets. and securities held by FIs may not
A) Diversification ; high equity returns be paid in full.
B) Price risk ; Collateral B) incurred by an FI when the
C) Free Riders ; Regulations maturities of its assets and liabilities
D) Monitoring ; diversification do not match
C) that a sudden surge in deposit
withdrawals may require an FI to
57. Depository Institution include: liquidate assets quickly sales prices
A) Banks D) incurred by an FI when its
B) Thrifts investments in technology do not
C) Finance Companies result in cost savings growth
D) A and B only
62. Which of the following is/are capital

58. Financial intermediaries (FIs) can offer market instruments
savers a safer, more liquid investment A) 10 year corporate bonds
than a capital market security, even B) 30 year mortgages
though the intermediary invests in risky C) 20 year treasury bonds
illiquid instruments because D) All of the above
A) FIs can diversify away some of their
risk 63. Commercial paper is
B) FIs closely monitor the riskiness of A) a time draft payable to a seller of
their assets goods with payment guaranteed by
a bank

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B) a loan to an individual or business B) investors prefer certain maturities

to purchase a home land or other and will not normally switch out
real property those maturities
C) short term funds transferred C) investors are indifferent between
between finical institutions usual for maturities if the long term spot rates
on more than one day are equal the average of current
D) Short term unsecured promissory and expected future short term
note issued by a company to raise rates.
funds for a short time period
64. A negotiable Cd is
A) a time draft payable to a seller of
goods with payment guaranteed by 67. Of the following the most likely effect of
a bank an increase in income tax rates would be
B) a loan to an individual or business to
to purchase a home land or other A) decrease the savings rate
real property B) decrease the supply of lovable
C) short term funds transferred funds
between finical institutions usual for C) increase interest rates
on more than one day D) all of the above
D) a marketable bank issued time
deposit that specifies the interest
rate earned and a fixed maturity 68. Classify each of the following in terms of
date their effect on interest rates
I. convenience on borrowing
become more restrictive
65. You go to the Wall Street Journal and II. the federal reserve increases the
notice that yields on almost all corporate money supply
and treasury bonds have decreased. The III. total federal reserve increases the
yield decreases may be explained by money supply
which one of the following A) 1 increase, 11 increase, 111
A) a decrease in U.S inflationary increase
expectations B) 1 increase, 11 decrease, 111
B) newly expected decline in the value decrease
of the dollar C) 1 decrease, 11 increase, 111
C) an increase in current and expected decrease
future returns of real corporate D) 1 decrease, 11 decrease, 111
investments decrease
D) decrea sed japanese purchases of
U.S treasury Bills/Bonds
69. inflation causes the demand curve for
lovable funds to shift to the ____ and
66. According to the liquidity premium causes the supply curve to shift to the
theory of interest rates ____
A) Long term spot rates are higher A) right, right
than the average of current and B) right, left
expected future short term rates C) left, left

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D) left, right
75. Ceteris paribus if the fed was targeting
the quantity of money supplied and
70. which of the following bond types pays
money demanded dropped the fed would
interest that is exempt from federal
likely _____. If the fed was instead
taxation
targeting interest rates and money
A) Municipal bonds
demand dropped the fed would
B) Corporate bonds
likely____ .
C) Treasury bonds
A) increase the money supply, do
D) Convertible bonds
nothing
B) do nothing, decrease the money
supply
71. The relationship between maturity and C) decrease the money supply, do
yield to maturity is called the ____ nothing
A) Loan covernant D) do nothings, increase the money
B) term structure supply
C) bond indenture
D) fisher effects
76. Which of the following is the major
monetary policy making body of the U.S
72. According to the UET: unbiased federal reserve system
expectation theory A) FOMC
A) Markets are segmented and buyers B) Households
stay in their own segment C) FRB bank presidents
B) liquidity premiums are negative and D) U.S congress
time varying
C) the term structure will most often be
upward sloping
77. The major liability of the federal reserve
D) the long ten spot tate is an average
is
of the current and expected future
A) U.S treasury securities
short term interest rates
B) Depository institutions reserves
C) Currency out side banks
D) Vault cash of commercial banks
73. The primary policy tool used by the fed
to meet its monetary policy goals is
A) changing the discount rate
78. The major asset of the federal reserve is
B) changing reserve requirements
A) U.S treasury securities
C) devaluating currency
B) Depository institutions reserves
D) open market operations
C) Currency out side banks
D) Vault cash of commercial banks
74. The Federal Reserve System is charged

with
A) regulating securities exchanges
B) conducting monetary policy
79. The discount rate is the rate that
C) providing payment and other
A) Banks charge for loans to corporate
services to a variety of institutions
customers
D) Both B and C

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B) Banks charge to lend foreign inflation does not get out of hand the fed
exchange to customers could:
C) Banks charge each other on loans A) reduce reserve requirements at
of excess reserves banks
D) The federal reserve charges on B) Decrease the discount rate
loans to commercial banks C) lower the target fed funds rate
D) lower the target money supply
growth rate.
80. Before 2003 the discount window loan
rate was set
A) Below the target fed funds rate 85. If the fed is targeting interest rates and
B) Above the target fed funds rate money demand increases an appropriate
C) Equal to the target fed funds rate policy response would be to
D) Equal to the repurchase rate A) Increase reserve requirement
B) increase the discount rate
C) Buy U.S treasury securities from
81. A decrease in reserve requirements government bond dealers
could lead to a(n) D) Increase government spending
A) Increase in bank lending
B) Increase in the money supply
C) an increase in the discount rate 86. The Major monetary policy making arm
D) Both A and B of the federal reserve is the
A) The federal open market committee
B) Council of federal reserve bank
82. if the fed wishes to stimulate the presidents
economy it could C) Office of the comptroller of the
I. Buy the U.sS government currency
securities through OMO D) Federal reserve bank of new york
II. Raise the discount rate
III. Lower reserve requirements
A) 1 and 111 only 87. in the area of bank supervision, which of
B) 11 and 111 only the following are functions of the federal
C) 1 and 11 only banks
D) 11 only I. Examinations of state member
banks
II. approval of member bank and
83. Currently the fed sets monetary policy bank holding company
by targeting acquisitions
A) the fed funds rate III. deposit insurance
B) the prime rate A) 1 only
C) the level of non-borrowed reserves B) 1 and 11 only
D) the level of borrowed reserves C) 11 and 111 only
D) 1 and 111 only
84. Recently oil prices have risen in the U.S,

generating concerns that inflation may 88. The fed increases the money supply. The
lead the fed wishes to ensure that effect of the increase should be to

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I. increase consumption 92. A repo is in essence a collateralized

spending A) Baners acceptance
II. reduce business investment B) Certified of deposit
III. increase nominal GDP C) Fed funds loan
A) 1 only D) Commercial paper loan
B) 11 only
C) 1 and 11 only
D) 1 and 111 only 93. A short term unsecured promissory note
issued by a company is
A) Commercial paper
89. The federal reserve does all but which B) T-Bills
on of the following C) Repurchase agreement
A) Insure deposits D) Negotiable CD
B) Supervise and regulate bank
activities
C) Serve as the commercial bank for 94. A time draft payable to a seller of goods,
the U.S treasury with payment guaranteed by a bank is a
D) operate check clearing and wire A) Commercial paper security
transfer facilities B) T-Bill
C) Repurchase agreement
D) Bankers acceptance
90. For the purposes of which they are used,

money market securities should have
which of the following characteristics
I. low trading costs
II. little price risk 95. The rate of return on a repo is
III. high rate of return A) Determined by the rate of return on
IV. life greater than one year the underlying collateral
A) 1 and 111 B) Strongly affected by the current fed
B) 11 and 1v funds rate at the time of the repo
C) 111 and 1v C) Determined at the time of the repo
D) 1 and 11 D) Both C and D
91. Money market securities exhibit which of 96. Which one of the following statements
the following about commercial paper is NOT true?
I. large denomination Commercial paper issued in the U.S
II. maturity greater than one year A) Is an unsecured short term
III. low default risk promissory note
IV. contractually determined cash B) Has a maximum maturity of 270
flows days
A) 1, 11, and 111 C) Is virtually always rated by at least
B) 1, 11, and 1v one ratings agency
C) 11, 111, and 1v D) Carries an interest rate above the
D) 11 and 1v prime rate

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97. A negotiable CD C) AAA rated callable bond with a

A) Is a bank issued transactions sinking fund
deposit D) AA rated callable corporate bond
B) Is a registered instrument without a sinking fund
C) Is a bank issued time deposit
D) Has denominations ranging from
$50,000 to 10 million 102. interest income from treasure
securities is ____, and interest income
from municipal bonds is always_ ___
98. A bankers acceptance is A) Exempt from federal taxes; exempt
A) A time draft drawn on the exporters from all taxes
bank B) Taxable at the state level only;
B) A method to help importers exempt from state taxes only
evaluate the credit worthiness of C) Taxable at federal level only;
exporters exempt from federal taxes
C) A liability of the importer and the D) Taxable at the state level; taxed at
importers bank the federal level
D) An add on instrument
103. standard revenue bonds are

99. The most liquid of the money market A) Backed by the full taxing authority
securities are of the municipality
A) Commercial paper B) Collaterlized by the earnings from a
B) Bankers acceptances specific project
C) T-bills C) Bonds backed by mortgages
D) Fed funds D) Backed by the U.S treasury
100. LIBOR is generally _____ the fed 104. When an investment banker
funds rate because foreign bank purchases an offering from a bond
deposits are generally ____ than issuer and then re sells it to the public
domestic bank deposits. this is know as a
A) Greater than; less risky A) Rights offering
B) Less than; more risky B) Private placement
C) The same as; equally risky C) Firm commitment
D) Greater than; more risky D) Best efforts
105. The largest type of municipal bonds

outstanding are_________
101. Which one of the following bands is
A) Revenue bonds
likely to have the highest required rate of
B) Industrial development bonds
return cerntri paribus
C) Treasury STRIPS
A) AAA rated non-callable corporate
D) General obligation bonds
bond with a sinking fund.
B) AA rated callable corporate bond
with a sinking fund
106. Which of the following is/are true
about callable bonds

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I. Must always be called at par II.Interest rates on privately place

II. Will normally be called after debt tend to be higher than of
interest rates drop similar public issues
III. Can be called by either the III. Purchasers of privately placed
bondholder or the bond issuer debt have assets of at least $100
IV. Have higher required returns million
than non- callable bonds IV. Once bonds have been privately
A) 1 and 11 only placed, the original buyers must
B) 11 and 1V only hold the bonds until maturity
C) 11 an 111 only A) 1 only
D) 1, 11, and 111 only B) 1 and 111 only
C) 1, 11 and 111 only
D) 1, 111 and 1V only
109. Which of the following statements

about Euro bonds is/are true
I. the issuer chooses the currency of
denomination
II. Spreads on firm commitment
offers are lower for Euro bonds
than for U.S bonds
107. Convertible bonds are III. Euro bonds typically have
I. Options attached to bonds that give denomination of $5,000 and
the bondholder the right to purchase $10,000
stock at the present price with out IV. Euro bonds are bearer bonds
giving up the bond A) 1 and 11 only
II. Bonds in which the issue matures B) 1, 111 and 1V only
(converts) a little each year C) 11, 111 and 1V only
III. Bonds collateralized with certain D) 11 and 111 only
types of automobiles
IV. Bonds that may be converted to a 110. Bear bonds are bonds
certain number of shares of stock A) With coupons attached that are
determined by the conversion ration redeemable by whoever has the
A) 1 only bond
B) 1 and 11 only B) where the registered owner
C) 1, 11, and 111 only automatically receives bond
D) 1V only payments when scheduled
C) in which the issue mature on a
serves of dates
108. With respect to private placements of D) issued in another currency other
bonds, which of the following is than the bond issuers home
correct ? currency
I. Issuers of privately placed bonds
end to be less well known than
public bonds issues 111. For the purposes for which they are

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have which of the following A. commercial paper security.

characteristics? B. T-bill.
I. Low trading costs C. repurchase agreement.
II. Little price risk D. negotiable CD.
III. High rate of return E. banker's acceptance.
A. I and III
B. II and IV 116. In the T-bill auction process, the
C. III and IV competitive bidder is guaranteed a
D. I and II ______________ and a noncompetitive
E. I, II, and III bidder is guaranteed a
_______________.
A. minimum price; maximum
112. Money market securities exhibit price
which of the following? B. maximum price; minimum
I. Large denomination price
II. Maturity greater than one C. maximum price; given quantity
year D. minimum price; maximum
III. Low default risk quantity
IV. Contractually determined E. none of the options
cash flows
A. I, II, and III
B. I, III, and IV 117. A dealer is quoting a $10,000 face
C. II, III, and IV 180-day T-bill quoted at 2.75 bid, 2.65
D. II and IV ask. You could buy this bill at
E. I, II, III, and IV ______________ or sell it at
_______________.
A. $9,869.23; $9864.36
113. A repo is in essence a collateralized B. $9864.36; $9,869.23
A. banker's acceptance. C. $9,867.50; $9,862.50
B. certificate of deposit. D. $9,862.50; $9,867.50
C. Fed funds loan. E. none of the options
D. commercial paper loan.
E. Eurodollar deposit.
118. Rates on Federal funds and
repurchase agreements are stated
114. A short-term unsecured promissory A. on a bond equivalent basis
note issued by a company is with a 360-day year.
A. commercial paper. B. on a bond equivalent basis
B. a T-bill. with a 365-day year.
C. a repurchase agreement. C. as a discount yield with a 360-
D. a negotiable CD. day year.
E. a banker's acceptance. D. as an EAR.
E. as a discount yield with a 365-
day year.
115. A time draft payable to a seller of
goods, with payment guaranteed by a
bank is a

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119. .The discount yield on a T-bill differs determined at the time of the
from the T-bill's bond equivalent yield repo.
(BEY) because
I. the discount yield is the
return per dollar of face 122. Which one of the following
value and the BEY is a statements about commercial paper is
return per dollar originally NOT true?
invested. A. is an unsecured short-term
II. a 360-day year is used on promissory note.
the discount yield and the B. has a maximum maturity of
BEY uses 365 days. 270 days.
III. the discount yield is C. is virtually always rated by at
calculated without least one ratings agency.
compounding, and the BEY D. has no secondary market.
is calculated with E. carries an interest rate above
compounding. the prime rate.
A. I only
B. II only
C. I and II only 123. A negotiable CD
D. II and III only A. is a bank-issued transactions
E. I, II, and III deposit.
B. is a registered instrument.
120. The following formula is used to C. is a bank-issued time deposit.
calculate the _____________ of a money D. has denominations ranging
market investment. from $50,000 to $10 million.
A. EAR E. pays discount interest.
B. APR
C. single-payment yield
D. discount yield 124. A 180-day $3 million CD has a 4.25
E. BEY percent annual rate quote. If you buy the
CD, how much will you collect in 180
days?
121. The rate of return on a repo is A. $3,047,439
A. determined by the rate of B. $3,045.678
return on the underlying C. $3,062,877
collateral. D. $3,063,750
B. strongly affected by the E. $3,127,500
current Fed funds rate at the
time of the repo. 125. A banker's acceptance is
C. determined at the time of the A. a time draft drawn on the
repo. exporter's bank.
D. determined by the rate of B. a method to help importers
return on the underlying evaluate the creditworthiness
collateral and determined at of exporters.
the time of the repo. C. a liability of the importer and
E. strongly affected by the the importer's bank.
current Fed funds rate at the D. an add-on instrument.
time of the repo and

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E. for greater than one year the 120-day note at a 5.25 percent
maturity. discount. What is the exporter's true
effective annual financing cost?
A. 5.52 percent
126. The most liquid of the money market B. 5.42 percent
securities are C. 5.34 percent
A. commercial paper. D. 5.29 percent
B. banker's acceptances. E. 5.25 percent
C. T-bills.
D. Fed funds.
E. repurchase agreements.
131. A Chinese exporter sells $200,000 of
toys to a French importer. The Chinese
127. In dollars outstanding in 2013, the
exporter requires the French importer to
largest money market security was
A. commercial paper.
B. banker's acceptances.
the 90-day note at a 4 percent discount.
C. T-bills.
What is the exporter's true effective
D. Fed funds and repos.
annual financing cost?
A. 4.00 percent
B. 4.04 percent
128. You buy a $10,000 par Treasury bill at C. 4.10 percent
$9,575 and sell it 60 days later for $9,675. D. 4.16 percent
What was your EAR? E. 4.22 percent
A. 4.44 percent
B. 6.29 percent
C. 6.35 percent
132. If a $10,000 par T-bill has a 3.75
D. 6.52 percent
percent discount quote and a 90-day
E. 6.67 percent
maturity, what is the price of the T-bill to
the nearest dollar?
A. $9,625
129. LIBOR is generally _______________ B. $9,906
the Fed funds rate because foreign bank C. $9,908
deposits are generally D. $9,627
________________ domestic bank E. none of the options
deposits.
A. greater than; less risky than
B. less than; riskier than
133. A 90-day T-bill is selling for $9,900.
C. the same as; of equal risk to
The par is $10,000. The effective annual
D. greater than; riskier than
return on the T-bill is (watch your
E. less than; less risky than
rounding)
A. 4.00 percent.
B. 4.16 percent.
130. A U.S. exporter sells $150,000 of C. 4.10 percent.
furniture to a Latin American importer. D. 4.04 percent.
The exporter requires the importer to E. 4.21 percent.

lOMoARcPSD|41445776
134. Suppose that $10 million face value E. no group of bidders.

commercial paper with a 270-day
maturity is selling for $9.55 million. What
is the BEY on the paper? 139. If your firm enters into an overnight
A. 4.71 percent reverse repurchase agreement, your firm
B. 6.42 percent is
C. 6.37 percent A. borrowing Fed funds
D. 6.28 percent temporarily.
E. 4.50 percent B. selling a security now while
agreeing to buy it back
tomorrow.
135. A $2 million jumbo CD is paying a C. giving an unsecured loan to
quoted 3.55 percent interest rate on 180- the counterparty.
day maturity CDs. How much money will D. procuring a banker's
you have at maturity if you invest in the acceptance.
CD? E. none of the options
A. $2,000,000
B. $2,035,014
C. $2,035,500 140. Eurodollar CDs would include
D. $2,071,000 A. CDs denominated in euros.
E. $2,088,400 B. dollar investments by
136. From 1990 to 2013, which one of the European entities in the
following money market securities United States.
actually declined in terms of dollar C. dollars deposited in Caribbean
amount outstanding? banks.
A. commercial paper D. dollars deposited in Europe.
B. treasury bills E. dollars deposited in Caribbean
C. federal funds and repos banks and dollars deposited in
D. negotiable CDs Europe.
E. banker's acceptances
141. A 90-day T-bill is selling for $9,900.

137. A 50-day maturity money market The par is $10,000. The effective annual
security has a bond equivalent yield of return on the T-bill is (watch your
3.60 percent. The security's EAR is rounding)
A. 3.69 percent. a. 4.04 percent.
B. 3.61 percent. b. 4.10 percent.
C. 3.55 percent c. 4.16 percent.
D. 3.87 percent. d. 4.00 percent.
E. 3.66 percent. e. 4.21 percent.
138. In a Treasury auction, preferential 142. You buy a $10,000 par Treasury bill at
bidding status is granted to $9,575 and sell it 60 days later for $9,675.
A. competitive bidders. What was your EAR?
B. noncompetitive bidders. a. 6.35 percent
C. short sale committed bidders. b. 6.52 percent
D. commercial bank bidders. c. 4.44 percent

lOMoARcPSD|41445776
d. 6.29 percent a. determined by the rate of return

e. 6.67 percent on the underlying collateral.
b. strongly affected by the current
Fed funds rate at the time of the
143. In the T-bill auction process, the repo and determined at the time of
competitive bidder is guaranteed a the repo.
______________ and a noncompetitive c. determined by the rate of return
bidder is guaranteed a on the underlying collateral and
_______________. determined at the time of the repo.
a. maximum price; given quantity. d. strongly affected by the current
b. maximum price; minimum price. Fed funds rate at the time of the
c. minimum price; maximum price. repo.
d. minimum price; maximum quantity. e. determined at the time of the repo.
e. None of these choices are correct.
147. Rates on federal funds and

144. A dealer is quoting a $10,000 face repurchase agreements are stated
180-day T-bill quoted at 2.75 bid, 2.65 a. as a discount yield with a 365-day
ask. You could buy this bill at year.
______________ or sell it at b. as an EAR.
_______________. c. on a bond equivalent basis with a
a. $9,869.23; $9,864.36. 365-day year.
b. $9,867.50; $9,862.50. d. on a bond equivalent basis with a
c. $9,862.50; $9,867.50. 360-day year.
d. None of these choices are correct. e. as a discount yield with a 360-day
e. $9,864.36; $9,869.23. year.
145. Money market securities exhibit 148. The following formula is used to
which of the following? calculate the _____________ of a money
I. Large denomination market investment. (pf-p0)/p0 * (360/n)
II. Maturity greater than one a. single-payment yield
year b. EAR
III. Low default risk c. APR
IV. Contractually determined d. BEY
cash flows e. discount yield
a. I, II, and III
b. II and IV
c. II, III, and IV 149. The most significant borrower in the
d. I, III, and IV U.S. money markets?
e. I, II, III, and IV a. Are the investment banks
b. Are large corporations
c. Are commercial banks
d. Are the insurance companies
e. Is the U.S. Treasury
146. The rate of return on a repo is

lOMoARcPSD|41445776
150. A time draft payable to a seller of

goods with payment guaranteed by a
154. The quoted ask yield on a 14 year
bank is a
$1000 par T-Bond with a 7% semiannual
a. banker's acceptance.
payment coupon and a price quote of
b. negotiable CD.
98:15 is
c. commercial paper security.
A. 7.00%.
d. repurchase agreement.
B. 7.18%.
e. T-bill.
C. 7.30%.
D. 3.59%.
E. 3.63%.
155. A Treasury security in which periodic

151. For the purposes for which they are
coupon interest payments can be
separated from each other and from the
have which of the following
principal payment is called a
characteristics?
A. STRIP.
I. Low trading costs
B. T-Note.
II. Little price risk
C. T-Bond.
III. High rate of return
D. G.O. Bond.
E. Revenue Bond.
a. II and IV
b. III and IV
c. I and II
156. An 18 year T-Bond can be stripped
d. I and III
into how many separate securities?
e. I, II, and III
A. 18
B. 19
C. 36
152. You buy a principal STRIP maturing
D. 37
in 5 years. The price quote per hundred
E. 38
of par for the strip is 75.75%. Using
semiannual compounding what is the
promised yield to maturity on the
157. A life insurer owes $550,000 in 8
STRIP? A. 5.632%
years. To fund this outflow the insurer
B. 5.712%
wishes to buy strips that mature in 8
C. 2.816%
years. The strips have a $5,000 face
D. 2.945%
value per strip and pay a 6% APR with
E. 4.566%
semiannual compounding. How much
must the insurer spend now to fully fund
the outflow (to the nearest dollar)?
153. A T-Bond with a $1000 par is quoted
A. $110,000
at 97:14 Bid, 97:15 Ask. The clean price
B. $342,742
for you to buy this bond is
C. $355,224
A. $974.38.
D. $362,355
B. $975.42.
E. $370,890
C. $974.69.
D. $975.77.
E. none of the above.

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158. The ask yield on a 6% coupon D. $9,321.82.

Treasury bond maturing in 8 years is E. $9,333.24.
5.488%. If the face value is $1000, what
should be the QUOTED cost of the bond
today (use semiannual compounding)? 162. Interest income from Treasury
A. 103:6 securities is ________________, and
B. 103:7 interest income from municipal bonds is
C. 103:8 always ________________.
D. 103:9 A. exempt from federal taxes;
E. 103:10 exempt from all taxes
B. taxable at the state level only;
exempt from state taxes only
159. Which one of the following bonds is C. taxable at federal level only;
likely to have the highest required rate of exempt from federal taxes
return, ceteris paribus? D. taxable at the state level;
A. AAA-rated noncallable corporate bond taxed at the federal level
with a sinking fund E. totally tax exempt; exempt
B. AA-rated callable corporate bond with a from state taxes
sinking fund
C. AAA-rated callable corporate bond with a
sinking fund 163. An investor is in the 28% federal tax
D. High-quality municipal bond bracket, pays a 9% state tax rate and 4%
E. AA-rated callable corporate bond without in local income taxes. For this investor a
a sinking fund municipal bond paying 6% interest is
160. On July 1, 2012 you purchase a equivalent to a corporate bond paying
$10,000 par T-Note that matures in 5 _____ interest.
years. The coupon rate is 8% and the A. 11.79%
price quote is 98:6. The last coupon B. 10.17%
payment was May 1, 2012 and the next C. 9.08%
payment is November 1, 2012 (184 days D. 9.68%
total). The accrued interest is E. 8.47%
A. $132.61.
B. $101.00.
C. $50.54. 164. An investor is trying to decide
D. $40.65. between a muni paying 5.75% or an
E. $35.67. equivalent taxable corporate paying
8.25%. What is the minimum marginal
tax rate the investor must have to
161. On September 1, 2012 an investor consider buying the municipal bond?
purchases a $10,000 par T-Bond that A. 80.00%
matures in 12 years. The coupon rate is B. 20.00%
6% and the investor buys the bond 70 C. 25.00%
days after the last coupon payment (110 D. 66.67%
days before the next). The ask yield is E. 30.00%
7%. The dirty price of the bond is:
A. $9,295.45.
B. $9,300.55. 165. Standard revenue bonds are
C. $9,313.75.

lOMoARcPSD|41445776
A. backed by the full taxing C. Determines the limits of

authority of the municipality. responsibility of bond
B. collateralized by the earnings covenants
from a specific project. D. Requires that bonds traded on
C. bonds backed by mortgages. the NYSE bond market utilize
D. backed by the U.S. Treasury. the ABS system
E. always offered with a best E. None of the above
efforts offering.
170. Converti ble bonds are

166. When an investment banker A. I only
purchases an offering from a bond B. I and II only
issuer and then resells it to the public C. I, II, and III
this is known as a D. IV only
A. rights offering. E. I and III only
B. private placement.
C. firm commitment.
D. best efforts. 171. A holder of Rainbow Funds
E. standby offering. convertible bonds with a $1,000 par and
a $1,100 price can convert the bond to
25 shares of common stock. The stock is
167. The largest type of municipal bonds currently priced at $36 per share. By
outstanding are _______________. what percent does the stock price have
A. revenue bonds to rise to make conversion potentially
B. industrial development bonds attractive?
C. Treasury STRIPS A. 10.00%
D. convertible bonds B. 14.73%
E. general obligation bonds C. 22.22%
D. 23.64%
E. 25.69%
168. Which of the following is/are true
about callable bonds?
A. I and II only 172. With respect to private placements of
B. II and IV only bonds, which of the following is correct?
C. II and III only A. I only
D. I, II, and III only B. I and III only
E. I, II, III, and IV are true C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
169. SEC Rule 144 A does which of the
following?
A. Allows privately placed 173. Which of the following statements
investments to be traded on a about Euro bonds is/are true?
limited basis A. I and II only
B. Allows bond issuers to call B. I, III, and IV only
their bonds when desired C. II, III, and IV only
D. II and III only
E. I, II, III, and IV are true

lOMoARcPSD|41445776
C. 5.79%
D. 5.87%
174. Bearer bonds are bonds
E. 4.95%
A. with coupons attached that
179. An investor buys a $10,000 par, 4.25%
are redeemable by whoever
annual coupon TIPS security with 3
has the bond.
years to maturity. If inflation every six
B. where the registered owner
months over the investor's holding
automatically receives bond
period is 2.50%, what is the final
payments when scheduled.
payment the TIPS investor will receive?
C. in which the issue matures on
A. $10,213.00
a series of dates.
B. $10,869.28
D. issued in another currency
C. $11,822.25
other than the bond issuer's
D. $11,843.37
home currency.
E. $12,201.11
E. issued in a different country
180. A bond investor has a 99% chance of
other than the bond issuer's
receiving all of her promised payments
home country.
on a particular bond issue in the first
175. .
year of holding the bond, but only a 98%
176. A T-Bond with a $1000 par is quoted
chance in the second year, and a 97%
at a bid of 105:7 and an ask of 105:9. If
chance in the third year and beyond.
you sell the bond you will receive
What is the cumulative default
A. $1,052.81.
probability over the first three years she
B. $1,052.19.
holds the bond?
C. $1,057.22.
A. 3.75%
D. $1,059.22.
B. 4.24%
E. none of the above.
C. 5.89%
D. 6.85%
E. 7.33%
177. A T-Bond with a $10,000 par is quoted 181. You purchase a $1000 face value
at a bid of 92:11 and an ask of 92:17. If convertible bond for $975. The bond can
you bought the bond and then be converted into 150 shares of stock.
immediately sold it at the same quotes, The stock is currently priced at $5.25. At
how much money would you gain or what minimum stock price would you be
lose (ignore commissions)? willing to convert?
A. $12.50 A. $4.50
B. -$12.50 B. $5.26
C. -$18.75 C. $6.50
D. $18.75 D. $7.10
E. $0.00 E. $7.25
178. The quoted ask yield on a 30-year 182. You purchased a five-year annual
$1000 par T-Bond with a 6.25% coupon payment 6% coupon bond for $1,000 and
and a price quote of 106:16 is you planned on holding it to maturity.
___________ (use semiannual However right after you bought the bond
compounding). it was called at $1,043.29 when all
A. 2.94% interest rates fell to 5% and remained
B. 2.90% there for the full five years. You

lOMoARcPSD|41445776
reinvested the money for the full five D. One side has the obligation to
years. What was your annual compound buy an asset for the market
rate of return off your original price in one year's time.
investment?
A. 6.00%
B. 5.89% 186. Which of the following is NOT true
C. 5.75% A. When a CBOE call option on
D. 5.23% IBM is exercised, IBM issues
E. 5.00% more stock
B. An American option can be
exercised at any time during
183. If the net proceeds are greater than its life
the gross proceeds in an underwritten C. An call option will always be
offering, then exercised at maturity if the
A. the investment banker made a underlying asset price is
profit on the spread. greater than the strike price
B. the issuing company D. A put option will always be
underpriced its securities. exercised at maturity if the
C. the issue fails to occur. strike price is greater than the
D. the SEC rescinds the issue. underlying asset price.
184. NYSE listing has traditionally 187. A one-year call option on a stock with
benefited a firm by a strike price of $30 costs $3; a one-year
A. improving the stock's price. put option on the stock with a strike
B. generating increased publicity price of $30 costs $4. Suppose that a
for the firm. trader buys two call options and one put
C. providing easier access to option. The breakeven stock price above
primary market capital. which the trader makes a profit is
D. A, B, and C A. $35
B. $40
C. $30
D. $36
185. A one-year forward contract is an

agreement where
188. Which of the following is
A. One side has the right to buy
approximately true when size is
an asset for a certain price in
measured in terms of the underlying
one year's time.
principal amounts or value of the
B. One side has the obligation to
underlying assets
buy an asset for a certain
A. The exchange-traded market
price in one year's time.
is twice as big as the over-the-
C. One side has the obligation to
counter market.
buy an asset for a certain
B. The over-the-counter market
price at some time during the
is twice as big as the
next year.
exchange-traded market.

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C. The exchange-traded market C. The investor has made a gain

is ten times as big as the over- of $2,000
the-counter market. D. The investor has made a loss
D. The over-the-counter market of $2,000
is ten times as big as the
192. Which of the following describes
European options?
189. Which of the following best describes A. Sold in Europe
the term "spot price" B. Priced in Euros
A. The price for immediate C. Exercisable only at maturity
delivery D. Calls (there are no puts)
B. The price for delivery at a
future time
C. The price of an asset that has 193. Which of the following is NOT true
been damaged A. A call option gives the holder
D. The price of renting an asset the right to buy an asset by a
certain date for a certain price
B. A put option gives the holder
190. Which of the following is true about a the right to sell an asset by a
long forward contract certain date for a certain price
A. The contract becomes more C. The holder of a call or put
valuable as the price of the option must exercise the right
asset declines to sell or buy an asset
B. The contract becomes more D. The holder of a forward
valuable as the price of the contract is obligated to buy or
asset rises sell an asset
C. The contract is worth zero if 194. Which of the following is NOT true
the price of the asset declines about call and put options:
after the contract has been A. An American option can be
entered into exercised at any time during
D. The contract is worth zero if its life
the price of the asset rises B. A European option can only
after the contract has been be exercised only on the
entered into maturity date
C. Investors must pay an upfront
price (the option premium) for
191. An investor sells a futures contract an option contract
an asset when the futures price is D. The price of a call option
$1,500. Each contract is on 100 units of increases as the strike price
the asset. The contract is closed out increases
when the futures price is $1,540. Which
of the following is true
A. The investor has made a gain 195. The price of a stock on July 1 is $57.
of $4,000 A trader buys 100 call options on the
B. The investor has made a loss stock with a strike price of $60 when the
of $4,000 option price is $2. The options are

lOMoARcPSD|41445776
exercised when the stock price is $65. of $45 for $4 per option. For second
The trader's net profit is alternative to give a better outcome at
A. $700 the option maturity, the stock price must
B. $500 be above
C. $300 A. $45
D. $600 B. $46
C. $55
D. $50
196. The price of a stock on February 1 is
$124. A trader sells 200 put options on
the stock with a strike price of $120 200. A company knows it will have to pay
when the option price is $5. The options a certain amount of a foreign currency to
are exercised when the stock price is one of its suppliers in the future. Which
$110. The trader's net profit or loss is of the following is true
A. Gain of $1,000 A. A forward contract can be
B. Loss of $2,000 used to lock in the exchange
C. Loss of $2,800 rate
D. Loss of $1,000 B. A forward contract will always
give a better outcome than an
option
197. The price of a stock on February 1 is C. An option will always give a
$84. A trader buys 200 put options on better outcome than a forward
the stock with a strike price of $90 when contract
the option price is $10. The options are D. An option can be used to lock
exercised when the stock price is $85. in the exchange rate
The trader's net profit or loss is
A. Loss of $1,000
B. Loss of $2,000 201. A short forward contract on an asset
C. Gain of $200 plus a long position in a European call
D. Gain of $1000 option on the asset with a strike price
equal to the forward price is equivalent
to
198. The price of a stock on February 1 is A. A short position in a call option
$48. A trader sells 200 put options on the B. A short position in a put option
stock with a strike price of $40 when the C. A long position in a put option
option price is $2. The options are D. None of the above
exercised when the stock price is $39.
A. L oss of $800 202. A trader has a portfolio worth $5
B. Loss of $200 million that mirrors the performance of a
C. Gain of $200 stock index. The stock index is currently
D. Loss of $900 1,250. Futures contract trade on the
index with one contract being on 250
times the index. To remove market risk
199. A speculator can choose between from the portfolio the trader should
buying 100 shares of a stock for $40 per A. Buy 16 contracts
share and buying 1000 European call B. Sell 16 contracts
options on the stock with a strike price C. Buy 20 contracts

lOMoARcPSD|41445776
D. Sell 20 contracts 206. A one-year call option on a stock with

a strike price of $30 costs $3; a one-year
put option on the stock with a strike
203. Which of the following best describes price of $30 costs $4. Suppose that a
a central counterparty trader buys two call options and one put
A. It is a trader that works for an option. The breakeven stock price below
exchange which the trader makes a profit is
B. It stands between two parties A. $25
in the over-the-counter market B. $28
C. It is a trader that works for a C. $26
bank D. $20
D. It helps facilitate futures trades
207. Which of the following is

204. A one-year forward contract is an approximately true when size is
agreement where measured in terms of the underlying
A. One side has the right to buy principal amounts or value of the
an asset for a certain price in underlying assets
one year's time. A. The exchange-traded market
B. One side has the obligation to is twice as big as the over-the-
buy an asset for a certain counter market.
price in one year's time. B. The over-the-counter market
C. One side has the obligation to is twice as big as the
buy an asset for a certain exchange-traded market.
price at some time during the C. The exchange-traded market
next year. is ten times as big as the over-
D. One side has the obligation to the-counter market.
buy an asset for the market D. The over-the-counter market
price in one year's time. is ten times as big as the
205. Which of the following is NOT true

A. When a CBOE call option on 208. Which of the following best describes
IBM is exercised, IBM issues the term "spot price"
more stock A. The price for immediate
B. An American option can be delivery
exercised at any time during B. The price for delivery at a
its life future time
C. An call option will always be C. The price of an asset that has
exercised at maturity if the been damaged
underlying asset price is D. The price of renting an asset
greater than the strike price
D. A put option will always be
exercised at maturity if the 209. Which of the following is true about a
strike price is greater than the long forward contract
underlying asset price. A. The contract becomes more
valuable as the price of the
asset declines

lOMoARcPSD|41445776
B. The contract becomes more C. The holder of a call or put

valuable as the price of the option must exercise the right
asset rises to sell or buy an asset
C. The contract is worth zero if D. The holder of a forward
the price of the asset declines contract is obligated to buy or
after the contract has been sell an asset
entered into
D. The contract is worth zero if
the price of the asset rises 213. Which of the following is NOT true
after the contract has been about call and put options:
entered into A. An American option can be
exercised at any time during
its life
B. A European option can only
be exercised only on the
maturity date
210. An investor sells a futures contract C. Investors must pay an upfront
an asset when the futures price is price (the option premium) for
$1,500. Each contract is on 100 units of an option contract
the asset. The contract is closed out D. The price of a call option
when the futures price is $1,540. Which increases as the strike price
of the following is true increases
A. The investor has made a gain
of $4,000
B. The investor has made a loss 214. The price of a stock on July 1 is $57.
of $4,000 A trader buys 100 call options on the
C. The investor has made a gain stock with a strike price of $60 when the
of $2,000 option price is $2. The options are
D. The investor has made a loss exercised when the stock price is $65.
of $2,000 The trader's net profit is
A. $700
B. $500
211. Which of the following describes C. $300
European options? D. $600
A. Sold in Europe
B. Priced in Euros
C. Exercisable only at maturity 215. The price of a stock on February 1 is
D. Calls (there are no European $124. A trader sells 200 put options on
puts) the stock with a strike price of $120
when the option price is $5. The options
are exercised when the stock price is
212. Which of the following is NOT true $110. The trader's net profit or loss is
A. A call option gives the holder A. Gain of $1,000
the right to buy an asset by a B. Loss of $2,000
certain date for a certain price C. Loss of $2,800
B. A put option gives the holder D. Loss of $1,000
the right to sell an asset by a
certain date for a certain price

lOMoARcPSD|41445776
216. The price of a stock on February 1 is C. An option will always give a

$84. A trader buys 200 put options on better outcome than a forward
the stock with a strike price of $90 when contract
the option price is $10. The options are D. An option can be used to lock
exercised when the stock price is $85. in the exchange rate
A. Loss of $1,000
B. Loss of $2,000 220. A short forward contract on an asset
C. Gain of $200 plus a long position in a European call
D. Gain of $1000 option on the asset with a strike price
equal to the forward price is equivalent
to
217. The price of a stock on February 1 is A. A short position in a call option
$48. A trader sells 200 put options on the B. A short position in a put option
stock with a strike price of $40 when the C. A long position in a put option
option price is $2. The options are D. None of the above
exercised when the stock price is $39.
A. Loss of $800 221. A trader has a portfolio worth $5
B. Loss of $200 million that mirrors the performance of a
C. Gain of $20 0 stock index. The stock index is currently
D. Loss of $900 1,250. Futures contracts trade on the
index with one contract being on 250
times the index. To remove market risk
218. A speculator can choose between from the portfolio the trader should
buying 100 shares of a stock for $40 per A. Buy 16 contracts
share and buying 1000 European call B. Sell 16 contracts
options on the stock with a strike price C. Buy 20 contracts
of $45 for $4 per option. For second D. Sell 20 contracts
alternative to give a better outcome at
the option maturity, the stock price must
be above 222. Which of the following best describes
A. $45 a central clearing party
B. $46 A. It is a trader that works for an
C. $55 exchange
D. $50 B. It stands between two parties
in the over-the-counter market
C. It is a trader that works for a
219. A company knows it will have to pay bank
a certain amount of a foreign currency to D. It helps facilitate futures trades
one of its suppliers in the future. Which
of the following is true
A. A forward contract can be 223. Which of the following is true
used to lock in the exchange A. Both forward and futures
rate contracts are traded on
B. A forward contract will always exchanges.
give a better outcome than an
option

lOMoARcPSD|41445776
B. Forward contracts are traded

on exchanges, but futures
226. A company enters into a short futures
contracts are not.
contract to sell 50,000 units of a
C. Futures contracts are traded
commodity for 70 cents per unit. The
on exchanges, but forward
initial margin is $4,000 and the
contracts are not.
maintenance margin is $3,000. What is
D. Neither futures contracts nor
the futures price per unit above which
forward contracts are traded
there will be a margin call?
on exchanges.
A. 78 cents
B. 76 cents
C. 74 cents
224. Which of the following is NOT true
D. 72 cents
A. Futures contracts nearly
always last longer than
forward contracts
227. A company enters into a long futures
B. Futures contracts are
contract to buy 1,000 units of a
standardized; forward
commodity for $60 per unit. The initial
contracts are not.
margin is $6,000 and the maintenance
C. Delivery or final cash
margin is $4,000. What futures price will
settlement usually takes place
allow $2,000 to be withdrawn from the
with forward contracts; the
margin account?
same is not true of futures
A. $58
contracts.
B. $62
D. Forward contracts usually
C. $64
have one specified delivery
D. $66
date; futures contract often
have a range of delivery
dates.
228. One futures contract is traded where
both the long and short parties are
closing out existing positions. What is
225. In the corn futures contract a number
the resultant change in the open
of different types of corn can be
interest?
delivered (with price adjustments
A. No change
specified by the exchange) and there are
B. Decrease by one
a number of different delivery locations.
C. Decrease by two
Which of the following is true
D. Increase by one
A. This flexibility tends increase
the futures price.
B. This flexibility tends decrease
the futures price. 229. Who initiates delivery in a corn
C. This flexibility may increase futures contract
and may decrease the futures A. The party with the long
price. position
D. This flexibility has no effect on B. The party with the short
the futures price position
C. Either party
D. The exchange

lOMoARcPSD|41445776
230. You sell one December futures

contracts when the futures price is
233. The frequency with which futures
$1,010 per unit. Each contract is on 100
margin accounts are adjusted for gains
units and the initial margin per contract
and losses is
that you provide is $2,000. The
A. Daily
maintenance margin per contract is
B. Weekly
$1,500. During the next day the futures
C. Monthly
price rises to $1,012 per unit. What is the
D. Quarterly
balance of your margin account at the
end of the day?
A. $1,800
B. $3,300 234. Margin accounts have the effect of
C. $2,200 A. Reducing the risk of one party
D. $3,700 regretting the deal and
backing out
B. Ensuring funds are available
to pay traders when they
231. A hedger takes a long position in a
make a profit
futures contract on a commodity on
C. Reducing systemic risk due to
November 1, 2012 to hedge an exposure
collapse of futures markets
on March 1, 2013. The initial futures
D. All of the above
price is $60. On December 31, 2012 the
futures price is $61. On March 1, 2013 it
is $64. The contract is closed out on
March 1, 2013. What gain is recognized 235. Which entity in the United States
in the accounting year January 1 to takes primary responsibility for
December 31, 2013? Each contract is on regulating futures market?
1000 units of the commodity. A. Federal Reserve Board
A. $0 B. Commodities Futures Trading
B. $1,000 Commission (CFTC)
C. $3,000 C. Security and Exchange
D. $4,000 Commission (SEC)
D. US Treasury
232. A speculator takes a long position in

a futures contract on a commodity on 236. For a futures contract trading in April
November 1, 2012 to hedge an exposure 2012, the open interest for a June 2012
on March 1, 2013. The initial futures contract, when compared to the open
price is $60. On December 31, 2012 the interest for Sept 2012 contracts, is
futures price is $61. On March 1, 2013 it usually
is $64. The contract is closed out on A. Higher
March 1, 2013. What gain is recognized B. Lower
in the accounting year January 1 to C. The same
December 31, 2013? Each contract is on D. Equally likely to be higher or
1000 units of the commodity. lower
A. $0
B. $1,000
C. $3,000 237. Clearing houses are
D. $4,000

lOMoARcPSD|41445776
A. Never used in futures markets D. Perform a similar function to

and sometimes used in OTC exchange clearing houses
markets
B. Used in OTC markets, but not
in futures markets 241. Which of the following are cash
C. Always used in futures settled
markets and sometimes used A. All futures contracts
in OTC markets B. All option contracts
D. Always used in both futures C. Futures on commodities
markets and OTC markets D. Futures on stock indices
238. A haircut of 20% means that

A. A bond with a market value of
$100 is considered to be
worth $80 when used to
satisfy a collateral request
B. A bond with a face value of 242. A limit order
$100 is considered to be A. Is an order to trade up to a
worth $80 when used to certain number of futures
satisfy a collateral request contracts at a certain price
C. A bond with a market value of B. Is an order that can be
$100 is considered to be executed at a specified price
worth $83.3 when used to or one more favorable to the
satisfy a collateral request investor
D. A bond with a face value of C. Is an order that must be
$100 is considered to be executed within a specified
worth $83.3 when used to period of time
satisfy a collateral request D. None of the above
239. With bilateral clearing, the number of 243. The basis is defined as spot minus
agreements between four dealers, who futures. A trader is hedging the sale of
trade with each other, is an asset with a short futures position.
A. 12 The basis increases unexpectedly.
B. 1 Which of the following is true?
C. 6 A. The hedger's position
D. 2 improves.
B. The hedger's position
worsens.
240. Which of the following best describes C. The hedger's position
central clearing parties sometimes worsens and
A. Help market participants to sometimes improves.
value derivative transactions D. The hedger's position stays
B. Must be used for all OTC the same.
derivative transactions
C. Are used for futures
transactions

lOMoARcPSD|41445776
244. Futures contracts trade with every deviation of monthly changes in a

month as a delivery month. A company futures price for a contract on
is hedging the purchase of the commodity B (which is similar to
underlying asset on June 15. Which commodity A) is $3. The correlation
futures contract should it use? between the futures price and the
A. The June contract commodity price is 0.9. What hedge ratio
B. The July contract should be used when hedging a one
C. The May contract month exposure to the price of
D. The August contract commodity A?
A. 0.60
B. 0.67
245. On March 1 a commodity's spot price C. 1.45
is $60 and its August futures price is D. 0.90
$59. On July 1 the spot price is $64 and
the August futures price is $63.50. A
company entered into futures contracts 248. A company has a $36 million portfolio
on March 1 to hedge its purchase of the with a beta of 1.2. The futures price for a
commodity on July 1. It closed out its contract on an index is 900. Futures
position on July 1. What is the effective contracts on $250 times the index can be
price (after taking account of hedging) traded. What trade is necessary to
paid by the company? reduce beta to 0.9?
A. $59.50 A. Long 192 contracts
B. $60.50 B. Short 192 contracts
C. $61.50 C. Long 48 contracts
D. $63.50 D. Short 48 contracts
249. A company has a $36 million portfolio
with a beta of 1.2. The futures price for a
246. On March 1 the price of a commodity contract on an index is 900. Futures
is $1,000 and the December futures price contracts on $250 times the index can be
is $1,015. On November 1 the price is traded. What trade is necessary to incr
$980 and the December futures price is ease beta to 1.8?
$981. A producer of the commodity A. Long 192 contracts
entered into a December futures B. Short 192 contracts
contracts on March 1 to hedge the sale C. Long 96 contracts
of the commodity on November 1. It D. Short 96 contracts
closed out its position on November 1.
What is the effective price (after taking
account of hedging) received by the 250. Which of the following is true?
company for the commodity? A. The optimal hedge ratio is the
A. $1,016 slope of the best fit line when
B. $1,001 the spot price (on the y-axis) is
C. $981 regressed against the futures
D. $1,014 price (on the x-axis).
B. The optimal hedge ratio is the
slope of the best fit line when
247. Suppose that the standard deviation the futures price (on the y-
of monthly changes in the price of axis) is regressed against the
commodity A is $2. The standard spot price (on the x-axis).

lOMoARcPSD|41445776
C. The optimal hedge ratio is the A. Determines the amount of

slope of the best fit line when capital that is needed in
the change in the spot price particular situations
(on the y-axis) is regressed B. Is used to determine the price
against the change in the of futures contracts
futures price (on the x-axis). C. Relates the return on an asset
D. The optimal hedge ratio is the to the return on a stock index
slope of the best fit line when D. Is used to determine the
the change in the futures price volatility of a stock index
(on the y-axis) is regressed
against the change in the spot
price (on the x-axis). 254. Which of the following best describes
"stack and roll"?
A. Creates long-term hedges
251. Which of the following describes from short term futures
tailing the hedge? contracts
A. A strategy where the hedge B. Can avoid losses on futures
position is increased at the contracts by entering into
end of the life of the hedge further futures contracts
B. A strategy where the hedge C. Involves buying a futures
position is increased at the contract with one maturity and
end of the life of the futures selling a futures contract with
contract a different maturity
C. A more exact calculation of the D. Involves two different
hedge ratio when forward exposures simultaneously
contracts are used for hedging
D. None of the above
255. Which of the following increases
basis risk?
252. A company due to pay a certain A. A large difference between the
amount of a foreign currency in the futures prices when the hedge
future decides to hedge with futures is put in place and when it is
contracts. Which of the following best closed out
describes the advantage of hedging? B. Dissimilarity between the
A. It leads to a better exchange underlying asset of the futures
rate being paid contract and the hedger's
B. It leads to a more predictable exposure
exchange rate being paid C. A reduction in the time
C. It caps the exchange rate that between the date when the
will be paid futures contract is closed and
D. It provides a floor for the its delivery month
exchange rate that will be paid D. None of the above
253. Which of the following best describes 256. Which of the following is a reason for
the capital asset pricing model? hedging a portfolio with an index
futures?

lOMoARcPSD|41445776
A. The investor believes the D. If all companies in an industry

stocks in the portfolio will do not hedge, a company is
perform better than the market liable increase its risk by
but is uncertain about the hedging
future performance of the
market
B. The investor believes the 259. Which of the following is necessary
stocks in the portfolio will for tailing a hedge?
perform better than the market A. Comparing the size in units of
and the market is expected to the position being hedged with
do well the size in units of the futures
C. The portfolio is not well contract
diversified and so its return is B. Comparing the value of the
uncertain position being hedged with the
D. All of the above value of one futures contract
C. Comparing the futures price of
the asset being hedged to its
257. Which of the following does NOT forward price
describe beta? D. None of the above
A. A measure of the sensitivity of
the return on an asset to the
return on an index 260. Which of the following is true?
B. The slope of the best fit line A. Gold producers should always
when the return on an asset is hedge the price they will
regressed against the return receive for their production of
on the market gold over the next three years
C. The hedge ratio necessary to B. Gold producers should always
remove market risk from a hedge the price they will
portfolio receive for their production of
D. Measures correlation between gold over the next one year
futures prices and spot prices C. The hedging strategies of a
for a commodity gold producer should depend
on whether it shareholders
want exposure to the price of
258. Which of the following is true? gold
A. Hedging can always be done D. Gold producers can hedge by
more easily by a company's buying gold in the forward
shareholders than by the market
company itself
B. If all companies in an industry
hedge, a company in the 261. A silver mining company has used
industry can sometimes futures markets to hedge the price it will
reduce its risk by choosing not receive for everything it will produce
to hedge over the next 5 years. Which of the
C. If all companies in an industry following is true?
do not hedge, a company in A. It is liable to experience
the industry can reduce its risk liquidity problems if the price
by hedging of silver falls dramatically

lOMoARcPSD|41445776
B. It is liable to experience b) lower; less principal

liquidity problems if the price c) higher; less interest
of silver rises dramatically d) higher; more principal
C. It is liable to experience e) higher; more interest
liquidity problems if the price
of silver rises dramatically or 265. The act of buying a share in a loan
falls dramatically syndication with limited contractual
D. The operation of futures control and rights over the borrower is
markets protects it from called a:
liquidity problems a) correspondent loan.
b) loan assignment.
c) HLT loan.
d) loan participation.
e) distressed loan.
262. A company will buy 1000 units of a 266. Important buyers of loans include all
certain commodity in one year. It but which one of the following?
decides to hedge 80% of its exposure a) Foreign banks
using futures contracts. The spot price b) Insurance companies
and the futures price are currently $100 c) Closed-end bank loan mutual funds
and $90, respectively. The spot price and d) Vulture funds
the futures price in one year turn out to e) Credit unions
be $112 and $110, respectively. What is
the average price paid for the
commodity?
A. $92
267. Which one of the following types of
B. $96
transactions leaves the assets on the
C. $102
balance sheet?
D. $106
a) Loan sale without recourse
b) GNMA pass-throughs backed by
mortgages placed in trust
263. The schedule showing how monthly c) CMOs issued using mortgage pool
mortgage payments are split into as collateral
principal and interest is called a(n): d) Mortgage-backed bonds issued
a) securitization schedule. e) None of the options are correct.
b) balloon payment schedule.
c) graduated payment schedule.
d) amortization schedule.
e) growing equity schedule.
268. A three-class CMO has Class A, Class
B, and Class C securities outstanding.
264. Mortgage payments are Which class has the longest duration?
____________ on a 15-year fixed-rate a) Class A
mortgage than on a 30-year fixed-rate b) Class B
mortgage, and ____________ is paid on c) Class C
a 15-year mortgage than on a 30-year d) Class B and Class C have the
mortgage; ceteris paribus. same duration.
a) lower; less interest e) All of these choices are correct.

lOMoARcPSD|41445776
273. MONDEX spent $50 million to

develop the Smart Card, but tests of
269. Bank assets tend to have
prototypes in New York and Canadian
_____________ maturities and
cities revealed very little consumer
_____________ liquidity than/as bank
interest. This is an example of:
liabilities.
a) credit risk.
a) longer; greater
b) liquidity risk.
b) longer; lower
c) stupidity risk.
c) shorter; greater
d) technological risk.
d) shorter; lower
e) operational risk.
e) equal; equal
274. A bank has book value of $5 million

270. In comparison to small banks, larger
in liquid assets and $95 million in non-
banks typically have:
liquid assets. Large depositors
a) more equity capital.
unexpectedly withdraw $9.5 million in
b) more core deposits.
deposits. To cover the withdrawals the
c) more off-balance-sheet activities.
bank sells all of its liquid assets at book
d) larger net interest margins.
value. To raise the additional funds
e) All of these choices are correct.
needed the bank sells the necessary
amount of non-liquid assets at 80 cents
per dollar of book value. As a result, the
271. Nationally chartered banks receive bank's equity will _____________.
chartering and merger approval from a) remain unchanged
the: b) fall $4.5 million
a) Federal Deposit Insurance c) fall $3.6 million
Corporation. d) fall $1.4 million
b) Office of Comptroller of the e) fall $5.0 million
Currency.
c) Federal Reserve System.
d) Office of Thrift Supervision.
275. A thrift makes long-term fixed-rate
e) All of these choices are correct.
mortgages funded with short-term
deposits and then interest rates rise.
Which of the following is true?
272. Advantages of going global for U.S. a) Profitability would decline.
banks include all but which one of the b) Profitability would increase.
following? c) The market value of equity
a) Diversification of earnings increases.
b) Greater opportunities to exploit d) Interest income would fall.
economies of scale e) Profitability and market value of
c) Greater sources of funds equity increase.
d) Conducting business in less
regulated environments
e) Low fixed costs involved in
276. The risk that an unanticipated
international expansion
increase in liability withdrawals may
cause an FI to have to sell assets at fire
sale prices is an example of:
a) credit risk.

lOMoARcPSD|41445776
b) liquidity risk.
c) interest rate risk.
d) sovereign risk.
e) technology risk.
277. You can buy or sell the yen spot at

Y102 to the dollar. You can buy or sell
the yen one-year forward at Y 104 to the
dollar. If U.S. annual interest rates are 4
percent, what must be the approximate
one-year Japanese interest rate if
interest rate parity holds?
A) 6.04
B) 3.20
C) 2.75
D) 4.73
E) 6.80

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Finance Market TTTC (multiple-choice)

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1. For the purposes for which they are

9. The most liquid of the money market

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19. Convertible bonds are C) 5.88 percent; 2.94 percent

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C) Closing price of the stock

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C. 4.10 percent. D. procuring a banker's

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money, but if the stock's price

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B) engage in secondary sale market C) the cereal government requires

56. ____ and _____ allows a financial

62. Which of the following is/are capital

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B) a loan to an individual or business B) investors prefer certain maturities

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74. The Federal Reserve System is charged

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84. Recently oil prices have risen in the U.S,

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I. increase consumption 92. A repo is in essence a collateralized

90. For the purposes of which they are used,

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97. A negotiable CD C) AAA rated callable bond with a

103. standard revenue bonds are

105. The largest type of municipal bonds

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I. Must always be called at par II.Interest rates on privately place

109. Which of the following statements

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have which of the following A. commercial paper security.

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134. Suppose that $10 million face value E. no group of bidders.

141. A 90-day T-bill is selling for $9,900.

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d. 6.29 percent a. determined by the rate of return

147. Rates on federal funds and

146. The rate of return on a repo is

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150. A time draft payable to a seller of

155. A Treasury security in which periodic

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158. The ask yield on a 6% coupon D. $9,321.82.

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A. backed by the full taxing C. Determines the limits of

170. Converti ble bonds are

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185. A one-year forward contract is an

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56. and _ allows a financial