FINC 6016 test 2
A European option is an option contract that allows the holder to: a. exercise the option only on the expiration date. b. exercise the option on or before the expiration date. c. exercise the option before the expiration date. d. none of the above.
a
A capital market financing is most likely to finance a. new plant and equipment. b. seasonal inventory needs. c. suppliers' bills. d. the employees' wages.
a
A repurchase agreement calls for a. a firm to sell securities with the agreement to buy them back after a short period at a higher price. b. a firm to buy securities with the agreement to sell them back after a short period at a higher price. c. a firm to sell securities with the agreement to buy them back after a short period at a lower price. d. a firm to buy securities with the agreement to sell them back after a short period at a lower price.
a
Cash-market transactions are made up of a. unsecured interbank borrowing and lending. b. secured interbank borrowing and lending. c. borrowing and lending with the RBA. d. Repos among commercial banks.
a
Certificates of deposit a. trade with two yields, a ask yield and a bid yield. b. are exclusively issued by prime banks. c. are issued by AFMA. d. are attractive financial instruments for retail investors.
a
Corporate bonds a. make periodic payments of interest and repay principal at the maturity date. b. do not need to be paid back. c. pay interest at maturity date. d. are discount securities
a
Everything else being equal, a corporate bond will sell at a higher yield if it a. has a call provision. b. has lower default risk. c. can be converted to shares. d. is senior debt.
a
Futures contracts differ from forward contracts in all of the following ways except: a. forward contracts involve an intermediary or exchange. b. futures contracts are standardised; forward contracts are not. c. futures markets are more formal than forward markets. d. delivery is made most often in forward contracts.
a
If a security receives a bank acceptance the instrument is a(n) a. two-name paper. b. one-name paper. c. equity paper. d. commercial paper.
a
In Australia Treasury bonds pay coupons a. semiannually b. annually c. monthly d. at maturity
a
In an underwritten offer, the firm issuing commercial paper is guaranteed that a. the entire issue will be sold. b. the investment bank will attract enough investors to sell them the entire issue. c. the entire issue will be taken up by the investment bank. d. a discriminatory auction will be used to allocate the issue.
a
In the loans'securitization process, the SPV is a. legally separate from the loan originator. b. a subsidiary of the loan originator. c. the investor in asset-backed securities. d. the borrower of the securitized loans.
a
In the securitization process, overcollateralisation means that a. the value of the loans is larger than the value of the issued asset-backed securities. b. the payments to the investors of the asset-backed securities are insured by a third party. c. some investors in the asset-backed securities are paid before other investors. d. the originator replaces illiquid assets with cash.
a
Money market securities are a. an alternative to bank borrowing for corporations' funding. b. long-term securities. c. not traded before maturity date. d. risk free assets.
a
Systematic risk: a. measures a share portfolio's tendency to vary relative to the market as a whole. b. measures the tendency of a share's price to change because of factors particular to that specific share. c. is a risk that exists because the value of an item being hedged may not always keep the same price relationship to contracts purchased or sold in the futures markets. d. none of the above responses are correct.
a
The cash rate is an interest rate prevailing on a. the unsecured interbank market. b. the repo market. c. the Treasury notes market. d. the bank-accepted bills market.
a
The credit rating of a credit-wrapped bond depends on the reputation and financial strength of a. the guarantor b. the investor c. the borrower d. the issuer
a
The transfer of ownership of Treasury notes in Australia is performed by a. Austraclear. b. RITS. c. the Reserve Bank of Australia. d. AOFM.
a
When an investor buys convertible preference shares, the investor a. has a set dividend rate usually for a five-year period. b. can convert into preferred shares at a predetermined ratio. c. can replace fixed dividends by coupons. d. is personally liable for the firm's obligations.
a
Which of the following could be a channel of transmission between the stock market movements and economic activity? a. The change in wealth results in a change in consumption in the same direction. b. The change in consumer confidence results in a change in consumption in the opposite direction. c. The change in share prices affect the cost of raising capital for the issuers in the same direction. d. The change in businesses confidence results in a change in investment in the opposite direction.
a
Which of the following factors would NOT affect the divisor of a price-weighted index? a. Change in the prices of the shares in the index. b. Shares split. c. Change in the list of shares selected in the index. d. Withdrawal of a share from the index.
a
Which of the following money market securities is usually NOT found in a commercial bank's balance sheet? a. Low rated commercial paper b. Treasury notes c. Certificates of deposit d. RMBS
a
Which of the following securities is NOT a one-name paper? a. Bank-accepted bills b. Commercial paper c. Certificates of deposit d. Treasury notes
a
Which of the following statements is NOT correct? Treasury indexed bonds a. pay inflation-adjusted coupons. b. have an inflation-adjusted coupon rate. c. pay coupons semiannually. d. are issued in periods of deflation.
a
Which of the following statements is correct? a. The money market is a dealer market linked by efficient communications systems. b. Money market transactions are seldom over $1 million. c. Market transactions in money market securities include more primary market trades than secondary market trades. d. Most money market transactions involve retail investors.
a
A bond issued in Australian dollars in Japan is called a a. Samourai bond b. Eurobond c. Kangaroo bond d. Matilda bond
b
A forward contract is: a. a contract to buy (or sell) a particular type of security or commodity from (or to) the futures exchange during a predetermined future time. b. a contract that guarantees delivery of a certain amount of goods, such as foreign currency, for exchange into a specific amount of another currency, such as dollars, on a specific day in the future. c. an exchange of assets or income streams for equivalent assets or income streams with slightly different characteristics. d. short financial contact to hedge market risk.
b
A repurchase agreement is like a secured loan because a. it involves a commercial bank and the Reserve Bank of Australia. b. it involves a collateral, which is the underlying security in the repo. c. it is backed by the real estate property of the borrower. d. the Reserve Bank of Australia is the guarantor of the repo.
b
A reverse repurchase agreement calls for a. a firm to sell securities with the agreement to buy them back after a short period at a higher price. b. a firm to buy securities with the agreement to sell them back after a short period at a higher price. c. a firm to sell securities with the agreement to buy them back after a short period at a lower price. d. a firm to buy securities with the agreement to sell them back after a short period at a lower price.
b
All of the following bond terms relate to maturity except a. reset date. b. indenture. c. sinking fund. d. call provision.
b
An intraday margin calls is: a. margins called for daily after marking to market. b. a margin call made during the day rather than at the end of the day's trading. c. a margin call made at the end of the day's trading. d. a margin call made at the opening of the day's trading.
b
An investor planning to buy ANZ Bank shares in 30 days can protect himself against price risk by: a. selling an ANZ Bank put option that matures in 30 days. b. buying an ANZ Bank call option that matures in 30 days. c. selling an ANZ Bank call option that matures in 30 days. d. None of the above options are correct.
b
Basis risk is: a. a risk that exists because the value of an item being hedged is insulated from market volatility. b. a risk that exists because the value of an item being hedged may not always keep the same price relationship to contracts purchased or sold in the futures markets. c. a risk that exists because the value of an item being hedged may keep the same price relationship to contracts purchased or sold in the futures markets. d. a risk that exists because the value of an item being hedged is protected from market risk.
b
Book build is a system a. electronically linking equity dealer and exchange markets. b. in which larger institutions submit bids for blocks of shares in an IPO and, from these bids, the firm and its advisers decide what price to charge the public and the institutions. c. in which larger institutions submit bids for blocks of shares in an IPO and, from these bids, the firm and its advisers decide the allocation of the issue. d. in which the U. S. stock exchanges have extended (after hours) their normal trading hours in which shares are traded electronically, linking U. S. with international markets.
b
Hybrid securities are financial products that have characteristics of a. credit-wrapped bonds. b. debt and equity. c. discount securities. d. government bonds.
b
Nonparticipating preference shares imply that a. the firm cannot pay a dividend on its ordinary shares until it has paid the preference shareholders the dividends in arrears. b. the preference dividend remains constant regardless of any increase in the firm's earnings. c. the issuer has the right to buy back shares from the holders. d. the dividend adjusts in response to a change in market interest rates.
b
Nonrenounceable rights a. may be sold on the market if shareholders do not want to subscribe to a rights issue and increase their shareholdings. b. cannot be sold on the market and shareholders have the option to subscribe to the rights issue or let the offer lapse. c. trade in a secondary market until the exercise date. d. are rights given to an investor who acquired them from the issuer or from another investor to purchase additional shares at a slightly below-market price.
b
Nonrenounceable rights a. may be sold on the market if shareholders do not want to subscribe to a rights issue and increase their shareholdings. b. cannot be sold on the market and shareholders have the option to subscribe to the rights issue or let the offer lapse. c. trade in a secondary market until the exercise date. d. are rights given to an investor who acquired them from the issuer or from another investor to purchase additional shares at a slightly below-market price.
b
Senior debt a. is the debt issued by good credit rated companies. b. is debt that has priority in the event of default of the issuer. c. has a higher probability of payment than junior debt. d. is debt issued by the Commonwealth government.
b
Share-index futures contracts are: a. futures that derive their value from averaging the prices of all underlying shares included in the share index. b. futures that derive their value from averaging the prices of a basket of underlying shares included in the share index. c. currently only traded in the US. d. the least actively traded contracts in future markets.
b
Some futures exchanges impose position limits on speculators. These are a. minimum numbers of contracts that speculators may hold for any individual type of commodity or asset. b. maximum numbers of contracts that speculators may hold for any individual type of commodity or asset. c. unlimited numbers of contracts that speculators may hold for any individual type of commodity or asset. d. constraints which speculators face when buying futures contracts.
b
The RBA is a large investor in Treasury bonds and notes due to its role a. as the bank of the government. b. in the conduct of monetary policy. c. in the stability of the government d. as a supervisor of the financial system.
b
The expected return on a share with a beta equal to 1 is a. the return on a risk-free asset. b. the market expected return. c. the return on a risk free asset plus a premium to compensate for the unsystematic risk. d. the market expected return plus a premium to compensate for the unsystematic risk.
b
The security market line represents the expected return demanded as a function of a. quantity of share. b. systematic risk. c. unsystematic risk. d. market risk premium.
b
What action would the holder of a maturing call option take with an option which cost $300, had a strike price of $50 and the market value of the stock was $52? a. Let the option expire unexercised b. Exercise the option c. Request that the $300 be returned d. None of the above
b
When firms issuing commercial paper (CP) use a backup line of credit offered by banks, it: a. increases the credit risk for CP investors. b. decreases the credit risk for CP investors. c. has no impact on CP investors. d. decreases the marketability of CP.
b
Which of the following is NOT a characteristic of money market instruments? a. Short term to maturity b. Small denomination c. Low default risk d. High marketability
b
Which of the following is the largest class of participants in the Australian money markets? a. The Reserve Bank of Australia b. Commercial banks c. The Commonwealth government d. Non-financial corporations
b
Which of the following money market instruments would typically be used by low credit rated commercial companies to raise funds? a. Treasury notes b. Bank-accepted bills c. Commercial paper d. Negotiable CDs
b
Which of the following statements is NOT correct? a. Money markets interest rates move closely together over time. b. The spreads between money market interest rates fluctuate all the time. c. Treasury notes and bank bill interest rates move closely together following the movements of the cash rate. d. Sophisticated traders take advantage of any abnormality in the spread between money market interest rates.
b
Which of the following statements is NOT correct? a. The Reserve Bank of Australia uses reverse repos to inject ESF in the banking system. b. Commercial banks use the money markets exclusively for raising funds. c. The Commonwealth government short-term needs for funding are managed by AOFM. d. The Commonwealth government resumed its issues of Treasury notes during the Global Financial Crisis.
b
Which of the following statements is NOT correct? ABCP is a. issued by conduits. b. liability in originators' balance sheets. c. backed by assets held in the conduit's portfolio. d. usually rolled over at maturity.
b
Which of the following statements is NOT correct? An ordinary shareholder in a troubled corporation a. receives the proceeds from the sale of the assets after the creditors and the preference shareholders are paid if the company goes bankrupt. b. may lose his/her house. c. does not receive dividends. d. records a decrease in the value of his/her assets.
b
Which of the following statements is NOT correct? Commercial paper a. is a very old financial instrument. b. can get a bank acceptance to be more attractive. c. is an unsecured promissory note. d. trades at a discount of its face value.
b
Which of the following statements is NOT correct? The systematic risk of a share a. is measured by its beta. b. can be reduced through diversification. c. is captured by the correlation of the share's returns with the market returns d. is not offset by the introduction of other shares in the portfolio.
b
Which of the following statements is NOT correct? The tranches of ABS have different a. default risks b. maturities c. credit ratings d. coupon rates
b
A hedger in the financial futures market: a. only buys futures contracts. b. only sells futures contracts. c. aims to reduce their price risk. d. either buys or sells future contracts in the expectation of earning a high return.
c
After loan securitization, the interests paid by the borrowers of the securitized loans are an income for a. the originator of the loans. b. the Special PurposeVehicle. c. the investors in the Asset-backed securities. d. the issuer of the Asset-backed securities.
c
Commercial paper is a discount security because a. it is cheaper than other money market instruments. b. it can get a backup line of credit from a bank. c. its interest is not paid separately from the face value. d. its face value is lower than its trading price.
c
Initial public offerings of shares are a. issues of new shares to existing shareholders. b. offerings of new issues of shares privately to a specific institutional investor. c. issues of shares that have never before being offered to the public. d. rights issues.
c
Kangaroo bonds are a. issued by Australian companies offshore. b. issued by foreigners in Australia in a currency different from the Australian dollar. c. issued by foreigners in Australia in Australian dollars. d. issued by Australian companies in Australia in a foreign currency.
c
Mandatory-settled contracts are: a. contracts in which the goods involved may be delivered or purchased. b. price at which an open futures contract is settled in lieu of delivery or physical purchases. c. contracts which are nondeliverable and are settled in cash. d. last day on which trading occurs in a particular contract.
c
Some corporate bonds have sinking fund provisions or call provisions that a. make the bond secured. b. reset the terms of the bond. c. require that the bond issuer provide funds to a trustee to retire a specific dollar amount (face amount) of bonds each year. d. allow the investors to convert the bond into shares.
c
State government bonds ________ than Commonwealth government bonds. a. have higher marketability b. have higher liquidity c. pay higher yields d. have lower default risk
c
Stocks with beta values of one a. have very predictable rates of return. b. have little risk compared to the market portfolio. c. have price variability similar to the market. d. have a constant rate of return.
c
The Hang Seng is a share index for the 4 largest companies by market value in a. Japan. b. Singapore. c. Hong Kong. d. Mainland China.
c
The cash rate is the interest rate paid by borrowing commercial banks to lending commercial banks for a. an intra day Repo. b. a secured overnight loan. c. an unsecured overnight loan. d. a 90 day Repo.
c
The extent to which orders exist both above and below the price at which the share currently trades reflects the share market a. breadth b. resilience. c. depth. d. short position.
c
The forward price for an asset is that price that makes the forward contract: a. have positive net present value. b. have negative net present value. c. have zero net present value. d. have zero or positive net present value.
c
The price paid by investors to buy Treasury notes from a dealer is a. the market-clearing price. b. the bid price. c. the ask price. d. face value.
c
The prospectus that accompanies the issue of bonds is registered with a. Austraclear b. APRA c. ASIC d. ASX
c
The purchase of one million dollars of Treasury Bonds, delivered in 60 days, from a government securities dealer is: a. a call. b. a swap. c. a forward contract. d. a put.
c
The sale of securities to the public via an investment banker by a privately owned corporation raising funds is called a. a seasoned offering. b. a secondary offering. c. an initial public offering. d. a best efforts offering.
c
To enter a long position in a certain share with certainty on the cost, the investor should put a. a market buy order. b. a market sell order. c. a limit price buy order. d. a limit price sell order.
c
Which of the following characteristics is NOT associated with ordinary shares? a. Residual claim on income and assets b. Vote by proxy c. Cumulative dividends d. Limited liability
c
Which of the following is NOT an example of capital market securities? a. Commonwealth government bonds b. Shares c. Commercial paper d. Corporate bonds
c
Which of the following statements best describes marking to market? a. The process of setting up a contract with a clearinghouse to operate as a counterparty between the buyer and seller of a futures contract. b. The process of personalizing futures contracts. c. The requirement of a futures exchange for daily cash settlement of all contracts. d. The final day on which trading occurs in a particular contract.
c
Which of the following statements is NOT correct? A stock market crash can lead to an economic recession through a. the decrease in wealth resulting in a decrease in consumption. b. the decrease in consumer confidence resulting in a decrease in consumption. c. the decrease in share issuers' equity resulting in a decrease in investment. d. the rise in the cost of raising capital resulting in a decrease in investment.
c
Which of the following statements is NOT correct? Reverse repurchase agreements made by the Reserve Bank of Australia (RBA) with the commercial banks a. are a form of secured borrowing by a bank. b. are settled in ES funds. c. are seldom used by the RBA for making temporary reserve injections in the banking system. d. often use Treasury securities but some specific bank issued private securities can be accepted as well.
c
Which of the following statements is NOT correct? Certificates of deposit a. are short term financial instruments. b. are issued exclusively by ADIs. c. can be redeemed on demand at the issuing bank any time before maturity date. d. can trade in a secondary market if negotiable.
c
Which of the following statements is NOT correct? Commercial paper a. is a very short term financial instrument. b. can get a backup line of credit from a bank. c. does not require credit rating as it is only issued by companies of very good quality. d. has interest paid thanks to a positive difference between its face value and its trading price.
c
Which of the following statements is NOT correct? In a repo a. the seller of the security is the borrower of funds. b. the difference between the repurchase price and the selling price is the interest on the loan. c. if the borrower defaults on the repayment of the loan he/she then has to deliver the underlying securities to the lender. d. the price of repurchase is known from the beginning of the financial arrangement.
c
Which of the following statements is NOT correct? Money markets instruments a. are close substitutes. b. have short term maturity. c. are highly risky investments. d. allow an efficient management of liquidity.
c
Which of the following statements is NOT correct? Securitization of loans a. frees up regulatory capital. b. brings forward the income of the loans' originator. c. removes the asset-backed securities from the balance sheet of the loans' originator. d. removes the credit risk of the loans from the originator's balance sheet.
c
A Euros eurobond is a bond a. issued in Euros in the Euro zone. b. issued in the Euro zone in a currency different from the Euro. c. issued by a company from the Eurozone in a country outside the Euro zone. d. issued in Euros outside the Euro zone.
d
A limit sell order at $20 for a particular share means that a. the investor only accepts to sell for a price of $20. b. the investor will not trade for prices higher than $20. c. the investor accepts to sell for prices equal or lower than $20. d. the investor accepts to sell for prices equal or higher than $20.
d
Australian futures and options markets are: a. not subject to any regulators. b. regulated entirely by the ASX c. subject to regulation by the ASX, ASIC and the RBA d. subject to regulation by the ASX, ASIC, the RBA as well as international regulators.
d
Bonds issued by foreign entities in Japan in yens are called a. eurobonds b. Kamikaze bonds c. Kangaroo bonds d. Samurai bonds
d
Cross hedging is: a. currently not permitted by the ASX b. designed to eliminate systematic risk c. used by companies to eliminate foreign currency risk d. Hedging with a traded futures contract whose characteristics do not exactly match those of the hedger's risk exposure
d
In a Treasury note offering, a. the yield is fixed and announced before the tender. b. bidders bid only quantities of securities. c. AOFM is committed to buy the unsold Treasury notes. d. the bidders with the lowest yield in their bid are allocated the notes first.
d
In a bank-accepted bill, the bank is a. the issuer of the bill. b. the borrower of funds. c. the lender of funds. d. the payer of the face value to the investors if the issuer defaults.
d
In its capacity as the regulator of the financial markets, ASIC a. supervises the entities listed on the ASX. b. conducts surveillance to detect market manipulations on ASX. c. conducts surveillance to detect insider trading on ASX. d. investigates and prosecutes in case of illegal activities in the share market.
d
In the tenders organized by the AOFM to issue Treasury bonds a. bidders bid quantities at the yield announced by AOFM. b. bidders win if the yield in their bid is among the highest. c. bidders win if the quantity in their bid is among the highest. d. AOFM serves the bidders with the lowest yields first and then accepts highest yields up to the exhaustion of the quantity on issue.
d
Novation in futures exchange means: a. a requirement that gains or losses on futures positions be taken into account in determining the value of all contracts each day. b. the back office that records, clears and settles contracts and acts as counterparty in futures trading. c. a place in which buyers and sellers can exchange futures contracts. The exchange keeps the books for buyers and sellers when contracts are initiated or liquidated. d. the process of setting up a contract with a new party, such as occurs when clearinghouses insert themselves between the buyer and seller of a futures contract.
d
Put options: a. give the option buyer the right to buy a security at the strike price b. give the option buyer the right to buy or sell a security at the strike price c. give the option buyer the right to sell a security at the mark to market price d. give the option buyer the right to sell a security at the strike price
d
Settlement date in a forward contract means: a. the contracted party that exchanges one item for another for a predetermined price at a predetermined point in time. b. forward prices are always higher than spot prices. c. spot prices are always higher than forward prices. d. the future date on which the buyer pays the seller and the seller delivers the assets to the buyer.
d
The ASX trades options on: a. all commodity futures, share indices and all companies listed on the ASX. b. all commodity futures, share indices and many companies listed on the ASX. c. some commodity futures, share indices and all companies listed on the ASX. d. some commodity futures, share indices and many companies listed on the ASX.
d
The biggest net supplier of funds in the capital markets are a. financial institutions. b. state and local governments. c. federal government. d. individuals and households.
d
The insurer in a financial guarantee receives an upfront fee paid by a. the investor. b. the proceeds of the asset sales of the defaulting company. c. the bond market operator. d. the issuer of the bond.
d
The issuer of asset-backed securities in the process of securitization of loans is a. the originator of the loans. b. the investors in the securities. c. financial guarantor. d. the Special Purpose Vehicle.
d
The prospective issue of corporate bonds in Australia a. always require a prospectus. b. requires a prospectus if the bonds are issued to institutional investors. c. requires a memorandum if the bonds are issued to retail investors. d. requires a prospectus if the bonds are issued also to retail investors and a memorandum if they are issued exclusively to institutional investors.
d
The slope of the security market line is a. the return on a risk free asset. b. the security's risk premium. c. the security's beta. d. the market risk premium.
d
The sponsoring banks of conduits issuing ABCP a. are the exclusive investors in ABCP. b. rate the ABCP. c. buy the assets backing the ABCP. d. provide backup liquidity facility if the conduit cannot rollover its ABCP at maturity.
d
The value of an option varies directly with: a. the price variance of the underlying commodity. b. the time to expiration. c. the level of interest rates. d. all of the above.
d
To enter a long position in a certain share with a higher probability, the investor should put a. a limit price buy order. b. a limit price sell order. c. a market sell order. d. a market buy order.
d
Which of the following arrangements is NOT associated with credit enhancements for asset-backed securities? a. Overcollateralisation. b. Financial guarantees from bond insurance companies. c. Subordination of tranches. d. Government financial guarantees.
d
Which of the following companies does NOT provide a secondary market for Australian shares? a. ASX b. Chi-X c. NSX d. NZX
d
Which of the following statements is NOT correct? a. The S&P/ASX 20 captures the largest 20 companies by market capitalisation. b. The All ordinaries index captures the price movements of the largest 500 companies by market capitalisation. c. The S&P/ASX Mid cap 50 tracks firms numbered 51-100 in the list of the top 100 firms by size. d. The S&P/ASX indices are price-weighted indices.
d
Which of the following statements is NOT correct? a. The Reserve Bank of Australia undertakes reverse repos with commercial banks to provide them with ESF. b. Commercial banks receive a higher interest rate on interbank market loans than on their balances in their ESA. c. The RBA uses the money markets to implement its open-market operations. d. Reverse repo undertaken by the Reserve Bank of Australia with commercial banks exclusively use government bonds.
d
Which of the following statements is NOT correct? A reverse repo allows the lender a. to invest in a shorter maturity than the maturity of the underlying securities. b. to know in advance the capital gains/loss between the purchase and the resale of the underlying security. c. to make a secured loan. d. to make a variable rate loan.
d
Which of the following statements is NOT correct? In the bidding process in a Treasury notes auction, a. the bidder specifies the quantity of notes desired. b. the bidder specifies the yield he/she is willing to get. c. only registered bidders can participate to the auction. d. the minimum bid is $1,000,000.
d
Which of the following statements is NOT correct? The insurers in the Australian credit- wrapped bond market a. are monolines in the US. b. have been downgraded since the global financial crisis. c. pay principal and coupons to investors if the issuer defaults. d. provides the insured bonds with a AAA rating.
d
