Test 2 FINC325
to sell the bond back to the corporation at par
A putable bond gives the bondholders the right
marketing expenses
12b-1 fees help mutual funds pay for
True
A Canadian dollar cost $0.84 in U.S. dollars and later costs $0.86. The U.S. dollar has depreciated relative to the Canadian dollar
demand Canadian dollars
A Mexican importer of computer parts from Canada denominated in Canadian dollars would take which action in the foreign exchange markets?
True
A U.S. Treasury STRIP is a zero-coupon bond
net foreign investment inflows to the U.S. from the foreign sector
A U.S. financial account surplus represents
new plant and equipment
A capital market issue is most likely to finance
B. Reverse annuity mortgage
A contract designed to use the equity in a home for retirement income without making any required payments is called a a. rollover mortgage b. reverse annuity mortgage c. adjustable rate mortgage d. home equity loans
buying the securities and adding them to their own inventory
A customer wishes to sell stock they own and comes to a dealer. Which of the following would a securities dealer engage in?
True
A lender with a fixed rate mortgage bears the risk of future inflation; T/F
True
A major asset of the federal reserve is U.S. Treasury securities, and the major liability is currency outside banks
False
A negotiable CD is a short term unsecured promissory note issued by a nonfinancial corporation
False
A significant move by the Fed toward a "tight" money policy is likely to enhance exports
True
A state turnpike authority is more likely to issue revenue bonds than a city that issues bonds to finance a school expansion
True
All money market instruments are short-term liability securities
will cause U.S. exports to increase
An expansion in the U.S. money supply
False
An increase in the money supply should ultimately cause security prices to decrease all else equal
True
Bankers' acceptances are used primarily for financing international trade.
Yankee bonds
Bonds issued by foreign entities in the United States are called:
False
Callable bonds are the bonds that can be redeemed at par at the option of their holders
True
Capital market interest rates tend to be higher than money market rates for a given issuer
False
Capital market securities are more liquid than money market securities
True
Capital market securities are typically used to finance real capital investments
True
Closed end investment companies securities often sell at a discount to their NAV
False
Closed-end investment companies stand ready to redeem their shares at their NAV less a management fee
True
Decreasing interest rates tend to increase financial wealth and encourage consumer spending
False
Deposits should expand when reserve requirements increase
False
Deposits should expand when the Fed sells securities
False
Easy monetary policy strengthens the dollar
The country's currency should depreciate in value relative to their major trading countries
Everything else equal, significant trade deficits should have what effect on a country's exchange rate
False
Exports grow when foreign currencies depreciate relative to the dollar
True
Fed funds are short term unsecured loans while repos are short term secured loans
False
Finance companies take small consumer deposits and make large consumer loans
selling Euros in return for U.S. dollars
French importers of U.S. merchandise are most likely to be involved in foreign exchange markets by
False
Futures contracts eliminate risk to all participants
True
Hedge funds are typically organized as limited partnerships with the fund manager as the general partner
False
Hedge funds have been popular diversification investments for small investors
True
Home equity credit lines are a form of second mortgage financing T/F
has appreciated against the Canadian dollar
If a Canadian dollar costs $0.84 in U.S. dollars today and traded for $0.86 last year, the U.S. dollar
buy domestic currency in the foreign exchange markets
If a government wanted to promote exports and a trade surplus, it might institute all of the following policies except:
True
If interest rates are higher in Japan than in the United States, the cost of a yen per U.S. dollar in the spot market will typically be higher than in the forward market
investors and consumers are encouraged to invest and spend more
If the Fed decreases interest rates through open market operations then
imports will rise and exports will fall
If the U.S. dollar increases in value then U.S.
The dollar has appreciated against the yen
If the cost of the yen per dollar changes from 100 to 110 yen per dollar,
True
In balance of payments accounting, a deficit in the current account my be offset by a surplus in the financial accounts
False
Increasing interest rates increases wealth and encourages spending
True
Investment bankers help deficit spending units bring new primary security issues to market
False
Like corporate and municipal bonds, mortgages are issued in standard denominations T/F
False
Limited liability of stockholders protects them from losses on their stock portfolio
True
Money market instruments are a form of short term debt
True
Money market securities are all debt securities, while capital market securities are either debt or equity securities
True
Mortgages are capital market debt securities
True
Most mortgage loans are amortized over the maturity of the loan with interest computed on the declining principal
False
Most state and local government bonds are sold to investors in low tax brackets
True
Mutual funds offer diversification and professional investment management for the fees charged
110, 95
On the second Friday of March, the market closing price of Independence & Co. stock is $100. Its March options are about to expire. One of its puts is worth $10 and one of its calls is worth $5. The exercise price of the put must be __________ and the exercise price of the call must be __________.
mutual funds; they can issue an unlimited number of shares to investors.
Open-end investment companies are called _______ and are called "open-end" because
higher yielding long term securities
Pension funds tend to invest in
False
Preferred stocks have more variable prices than common stock
True
Primary markets are markets where users of funds raise cash by selling securities
lenders
Surplus spending units are also called
False
TIPS are designed to primarily protect investors from default risk
inflation
TIPS have less _______ risk than "regular" Treasury securities of the same maturity.
True
Quantitative easing consists of the Fed buying bonds even when interest rates are low
False
Real investment is encouraged by rising interest rates
True
Restrictive monetary policy in the United States may slow down nominal GDP.
True
Revenue bonds are generally considered more risky than general obligation bonds
increase the marketability of securities
Security exchanges provide a valuable function in that they
True
Subprime mortgage is a mortgage made to a borrower who has a below normal credit rating. T/F
True
The Dow Jones INdustrial Average is a price-weighted index
False
The conversion feature of a bond is designed to give the issuer the opportunity to repurchase bonds at a state price prior to maturity
obtain funds in exchange for company ownership
The equity primary capital market is used to
True
The federal reserve decrease the monetary base whenever it sells government securities
Securities and Exchange Commission
The major regulatory body representing mutual fund investors' interest is the
Treasury bills
The most common money market instrument utilized in the Fed's open market operations is
the value of assets minus expenses all divided by shares issued.
The price of a mutual fund share is
False
The secondary market for capital market securities is important because it provides funds directly to deficit spending units
8%
a standard ARM has a cap such that the rate cannot increase more than 1 percent per year and 5 percent over the life of the mortgage. what will the mortgage rate be after three years if the initial rate is 5% and interest rates increase by 2% in each of the first three years of the contract?
exercise the option
What action would the holder of a maturing call option take if an option which cost $300, had a strike price of $50, and the market value of the stock was $52
d. The borrower's payments will decrease
What is most likely to happen to an ARM in a decreasing rate environment:
True
When reserve requirements are increased, interest rates should increase
Finance companies
Which of the following does not take deposits
property and casualty insurer
Which of the following institutions provides risk protection from events such as automobile accidents
commercial paper
Which of the following is NOT an example of capital market securities
life insurance companiy
Which of the following is a contractual institution
a repurchase agreement
Which of the following is not a derivative security
Ba-rated corporate bonds
Which of the following is not a money market security
commercial paper
Which of the following may be a liability of a non-financial business corporation
repurchase agreements
Which of the following money market securities is backed by specified collateral
aggressive growth funds
Which of the following mutual fund types is likely to have the highest risk exposure?
D. Fixed rate mortgage
Which of the following types of mortgages would be most advantageous to have on your house if you expected the annual rate of inflation would be higher than most people thought? A. roll-over mortgage B. interest only mortgage C. adjustable rate mortgage D. fixed rate mortgage
life insurance companies
Which of the following would tend to hold the most corporate bonds as a percent of investments
AA rated callable corporate bond without a sinking fund
Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus?
redemption of shares on demand
Which one of the following services is not provided by closed-end investment companies
Interest on T-bills is tax-deductible for federal income tax purposes
Which statement about Treasury bills is NOT true
open-end investment companies
Which type of company allows shareholders to cash in their shares at their present net asset value?
True
a hedger who is contracted to buy a commodity in the future may wish to reduce their price risk by buying futures contracts on the commodity
the sales of commissions paid to brokers
a mutual fund "load" refers to
a firm to sell securities with the agreement to buy them back later at a higher price
a repurchase agreement calls for
True
a weak U.S. dollar will lead to increased foreign demand for U.S. goods.
taking deposits
all but one of the following is associated with investment banking
a forward contract
an agreement between a business and a large money center bank to sell 10 million dollars of T-Bills in 60 days at a price set today
depository; contractual
credit unions are ___________ institutions; pension funds are ________ institutions
has a call provision
everything else being equal, a bond will sell at a higher yield if it
True
futures involve more standardized contracts compared to forward markets
contractual rate of return
investment funds provide investors all of the following except:
large financial and nonfinancial firms
issuers of commercial paper tend to be
maturity
money market instruments and capital market instruments differ appreciably in:
all of the above
money market securities have very little
false
most forward market contracts are settle before delivery
true
most hedge funds are not investment companies
limited partnerships
most hedge funds are typically organized as
True
on a fixed rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding
true
open end mutual funds have largest share of investment company assets
D. lender
private mortgage insurance protects the a. seller of the home b. FHA c. borrower d. lender e. government
money market securities
the majority of securities owned by open-end mutual funds are:
true
the money market is a dealer market, not an exchange, and has no specific location
credit unions
the only "deposit-type" institutions that do not operate for profit are
underwriter
which of the following is a market participant in the primary equity markets?
a banker's acceptance
which of the following money market instruments would typically be used to finance international trade
index funds
which of the following mutual fund types is likely to have the lowest expense ratio