FIN360 2

I always consider, whether it is a CFA case or not, the ethical decision making framework of identification of key information, duties and conflicts, and neutralize negative situational influences with training, disclosure and consultation with compliance officers

true

In buying on margin the debt is fixed, and short-selling the debt in equity to assets ratio is variable true or false?

true

The dual mandate of the Fed is employment maximization and stability of prices

true

The greatest value in the cryptocurrencies available now in the U.S. is in being blockchain-based

true

The main obstacle to finance contracts is asymmetric information

true

Future regulation of high frequency trading is likely to a) consider academic research findings b) include protections for retail investors c) exclude protections for "dark pool" investors d) all answers are correct

d) all answers are correct

When I receive a credit card offer a) I check online for client feedback b) I consider especially the cash bonus and other perks c) all answers are correct d) i pay close attention to fee conditions

d) i pay close attention to fee conditions

The origin of behavioral finance is a) in economists studying stock mispricings in the U.S. b) all answers are correct c) in the growing demand for green securities d) in psychologists in Israel trying to understand the world

d) in psychologists in Israel trying to understand the world

Not selling losing shares at the end of the calendar year is an example of a) representativeness b) hindsight c) confirmation d) prospect theory

d) prospect theory

The most common behavioral bias/heuristic, that also limits out decision making in terms of moral malleability, is overconfidence

true

Inequality reports affect investor decisions

true; Poor are too poor, the rich are too rich

The most prevalent behavioral finance heuristic is overconfidence

true; You are especially overconfident when you are stressed or rushing

commercial paper growth

true; are used by safe banks, there's riskier borrowers and they can't use this anymore

PMI is the macroeconomic variable that most moves markets and affects monetary policy

true; earliest and monthly, not controlled by govt

Robo-advisors help avoid mistakes financial advisors make in their own investment portfolios

true; financial advisors are subject to behavioral finance

Inequality is source of concern for investors

true; leads to social instability

Arbitrage opportunities offer the possibility of returns with no risk

true; this is the direct definition, you use this when you have no access to technology to trade (phone), definite profits with no risk

Behavioral finance is a) the explanation for efficient markets b) the explanation for rational investors c) a long-accepted set of theories d) the explanation for market bubbles

d) the explanation for market bubbles

The detractors (people who put down an idea) of high-frequency trading discuss a) all of the above b) the democratization of financial markets c) the opportunities in some 'dark pools' d) the insufficient regulation of financial innovations

d) the insufficient regulation of financial innovations

Prospect theory explains a) why we extrapolate recent events b) why we rely on anchors c) why we tend to be over-optimistic d) why we fear losses more than become happier with gains

d) why we fear losses more than become happier with gains

Depository institutions include investment banks, credit unions and thrifts

false; include commercial banks, savings&loans (thrifts) and credit unions

The macroeconomic statistic that most moves monetary policy decisions and financial markets is GDP

false; it's PMI not GDP, you don't trust GDP bc the govt has an incentive to manipulate it

Buying on margin strategy involves borrowing shares to sell high first and then buy low to repay

false; money, not shares

In short-selling equity considers fixed debt, while in buying-on margin, the debt is shares that are owed and variable in price

false; the debt isn't fixed

in moral hazard we have risk and return tradeoff

false; there's insurance in moral hazard, there's no downside and no tradeoff

Moral hazard refers to an incomplete form of risk and return trade-off where there is no upside for extra-risk bc someone else bears the potential losses true or false

false; there's no "downside"

The trend world-wide is for central banks to be

independent from executive powers

Glass-steagall act fully separated investment and commercial banking btwn 1933 and 1999, and its repeal exacerbated the risks of the 2007-2009 great recession

true

Heuristics, or rules of thumb, make decision-making easier but can sometimes lead to suboptimal investment decisions

true

High frequency trading advocates note liquidity contributions while others are concerned about manipulation and lack of inclusion

true

The monetary policy tools of the Federal Reserve are

- Changes in fed rate target - changes in bank capital reserve levels - discount window being the lender of last resort

One solution to the variations in marketing of credit card fees depending on income could be

- Increase awareness of different ways fees are presented - regulate to anticipate class action litigation - increase financial literacy of general population

Investors keep a close eye on inequality indexes beyond GDP and other macroeconomic variable such as PMI because

- Increases in inequality increase investment risk - increases in inequality increase political risk - increases in inequality lead to deterioration of other variables

Which are the rationalizations for unethical (even if legal) behavior as per the Certified Financial Analyst Institute?

- Social Weighting - Deny responsibility, injury and victim - The ledger

The most heavily regulated financial institutions are the depository institutions because they

- Take deposits - Provide maturity inter-mediation - Transmit monetary policy

To support crisis economies, the Fed

- has greater access to cash, Fed as lender of last resort and cash in exchange for treasuries that helps lower interest rates - buys treasury securities from member banks, increasing their access to cash - is likely to change reserve levels if the crisis is severe and motivated by deregulation

Which are common negative situational influences?

- obedience - conformism - incentives-framing - incrementalism - overconfidence

Digital footprint data is used to enhance credit algorithms because

- on average it helps predict better the likelihood of default - it is easy to collect and not expensive to buy - fintech regulation is still in its infancy

Moral malleability is defined as

- temporary flexing of moral standards - with a purpose of justifying (consciously or unconsciously) immoral choices and behavior - when it is legal in the short or long run

The Fed is a hybrid structure because

- the Fed Board is an independent government agency - the regional Feds are private corporations - member banks own stock of the regional Feds

The depository institutions are

commercial banks, credit unions, and thrifts

Finance assists investors and firms establish contracts in their quest for fair efficient allocation of capital, by alleviating

Adverse selection problems <-- this is before contract

The 2007-2009 great recession was caused by

Lack of financial literacy, moral hazard, deregulation

Behavioral finance examines

Emotional and cognitive biases first studied by psychologists

The dual mandate of the Fed is

Employment maximization and price stability

In a recession, GDP declines by more than 10% and lasts longer than 3 years

False

The big umbrella-term for obstacles to finance contracts is

Information asymmetries

The problem with GDP is that

It is a quarterly measure

The macroeconomic variable that most moves the markets and guides decisions by the Fed is

PMI

Robo-advisors in wealth management and investments are already common in

Peer-to-peer lending platforms

PMI estimation follows a survey to

Purchasing managers in private manufacturing companies bc they are credited with being accurate forecasters of market confidence

Traditional financial institutions can be useful partners to fintechs because of their expertise in

Regulation Litigation Customer service

When I take a loan, if I choose to repay in a longer period of time a) all answers are correct b) the lender considers me to be a safer borrower c) the monthly payments will be lower, but interest payments higher d) the monthly payments will be lower, and interest payments lower

c) the monthly payments will be lower, but interest payments higher

When the fed backed the rescue of Bear Stearns in Spring 2008

They punished moral hazard by pricing shares at $2

Financial institutions include mutual funds, banks, insurance, hedge funds and others

True

Fintech is changing finance from cradle to grave, all types of services

True

Procrastination and financial literacy are personal topics examined by behavioral finance

True

The greatest strength of bitcoin is its underlying blockchain technology

True

Keeping a budget of expenses is an important step to financial health

True, even if your income is very limited

One of the most important financial decisions is considering insurance. Many New Orleans residents did not have home insurance before Katrina because the premiums had increased, not because of being unaware of risks or relying on assistance

True; it was because they could not afford the insurance

The nation currently leading in fintech is

china

High frequency trading refers a) all answers are correct b) trading at the speed of light c) the need to trade close to market servers d) the need for powerful algorithms

a) all answers are correct

On average banks started the 2007-2008 crisis with about half their assets off the balance sheet because a) all answers are correct b) it was legal c) it allowed them to maximize profits d) it allowed them to minimize capital requirements

a) all answers are correct

The causes of the 2008 crisis include a) all answers are correct b) structural problems in supply and demand of safer securities c) deregulation d) moral hazard by banks e) conflicts of interest of rating agencies

a) all answers are correct

Confidence in financial institutions and regulation is key to the stability of financial markets and economic growth a) true b) false

a) true

Information asymmetries (please choose 2) a) refer to having more information about the other party b) refer to having more information about one-self c) refers to an array of obstacles to financial contracting d) can be ex-ante or ex-post

c) refers to an array of obstacles to financial contracting d) can be ex-ante or ex-post

Equity to assets maintenance margin is defined as a)Cash from down-payment and sale proceeds minus variable debt (price x number of shares), all divided by variable value of shares in buying on margin b) Variable value of shares minus constant debt, all divided by variable value of shares (price x number of shares) in buying on margin c) Variable value of shares minus constant debt, all divided by variable value of shares (price x number of shares) in short-selling

b) Variable value of shares minus constant debt, all divided by variable value of shares (price x number of shares) in buying on margin

Short-selling involves a) borrowing cash b) believing stock prices will fall c) manipulation of stock market d) all answers are correct

b) believing stock prices will fall

Buying on margin involves a) borrowing shares with minimum cash b) borrowing cash to buy shares c) the belief that stock prices will fall d) all answers are correct

b) borrowing cash to buy shares

Behavioral finance experts have been awarded Nobel Prizes since the 60s a) true b) false

b) false

moral hazard is a term coined for banks a) true b) false

b) false

Fedcoin would change the value of other cryptocurrencies based on blockchain technology given the support from

both Fed and Treasury

We need to understand the limitations of credit score algorithms that use digital footprint in order to anticipate...

both litigation and regulation

When I make financial decisions a) I seek short-term satisfaction over long-term one b) I am persuaded by what others around me choose c) I consider my needs, including safety savings, before wants

c) I consider my needs, including safety savings, before wants

Moral hazard refers to a) not having an incentive to limit risk because somebody else bears the additional potential losses b) a type of ex-post information asymmetry problem c) all answers are correct d) not having an incentive to limit

c) all answers are correct

When buying a car a) we need to consider budget and needs even if it is a "deal" b) it is not a good idea to borrow to buy a car because of depreciation c) all answers are correct d) we need to justify the needs vs wants, advertising and social pressure

c) all answers are correct

The advocates of high frequency trading consider a) more over-the-counter trading b) faster execution in market-hubs c) all of the above d) higher liquidity for financial securities

c) all of the above

Adverse selection refers to (please choose two) a) knowing more about ourselves than about the other party b) an ex-post information asymmetry problem c) an ex-ante information asymmetry problem d) knowing more about ourselves than the other party does

c) an ex-ante information asymmetry problem d) knowing more about ourselves than the other party does

In buying-on-margin and short-selling there is a broker call if a) stock prices decline b) equity to assets initial margin is violated c) equity to assets maintenance margin is violated d) stock prices go up

c) equity to assets maintenance margin is violated

Generalizing recent outcomes is an example of a) anchoring b) confirmation c) representativeness d) hindsight e) prospect theory

c) representativeness

Behavioral finance assumes rational behavior

false

Limits of arbitrage means we can make money without incurring risk

false

The Treasury was blamed for the 2008 crisis

false

The discussion of high frequency trading includes those that claim it has decreased liquidity vs those concerned about less democratization of capital markets

false

When things change, people may underreact because of representativeness, or overreact because of conservatism

false

When we choose to repay debt over a longer period of time, out monthly payments and interest are smaller

false

The dual mandate of the Fed is 2% inflation and about 5% unemployment

false; About 6% unemployment, not 5%

Financial institutions provide broker and maturity intermediation services

false; Broker and ASSET TRANSFORMATION services, Maturity intermediation is a TYPE of asset transformation

The most frequently used monetary policy tool by the Fed is changing capital requirements

false; It's changing target interest rate, not changing capital requirements

PMI is the result of surveying executives in manufacturing companies

false; PMI surveys PURCHASING executives in PRIVATE manufacturing companies

Banks were the only institutions blamed for the 2008 crisis

false; Rating of securities were inflated by rating agencies

The main bank regulators are the Fed, FDIC and SEC

false; The main bank regulators are the fed, the comptroller, the FDIC

The main bank regulators in the US are the Fed and the Treasury

false; The main bank regulators are the fed, the comptroller, the FDIC

Both in the case of buying on margin and short-selling, investors need to observe maintenance margin or assets to equity ratio

false; equity to assets, not assets to equity

Too-little diversification is an example of

overconfidence

When gains make us happier than the increase in unhappiness when we lose the same amount of capital, we have evidence of

prospect theory

The regional banks appoint a percentage of Fed directors because

the Fed was designed as a system with check and balances

"law of small numbers" refers to representativeness, when people put too much weight on recent experience true or false?

true

Buffett does not think markets are rigged, despite HFT

true

Buying on margin is a strategy investors follow when stock prices are expected to rise

true

Fintech is disintermediating finance, but it is expected to co-exist with traditional institutions as competitor, partner or even under the same roof because of complementary strengths true or false?

true