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