finc 1

Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period. t/f

False

A repo in essence is a collateralized: A. commercial paper loan B. Eurodollar deposit C. Banker's acceptance D. Fed funds loan E. certificate of deposit

Fed Fund loan

The _____________ is a network linking over 9,000 banks with the Federal Reserve that is used to transfer deposits and make loan payments between participants. A. Fedwire B. SWIFT C. NASDAQ D. CHIPS E. ACH

A.fedwire

If the Fed wishes to stimulate the economy, it could: I. buy U.S. government securities. II. raise the discount rate. III. lower reserve requirements. A. I and III only B.I, II, and III C. I and II only D. II and III only E. II only

A. 1 and 3 only

You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR? A. 6.52 b. 6.66 C. 6.78 d.698

A. 6,52

The major liability of the Federal Reserve is: A. depository institution reserves. B. gold and foreign exchange. C. U.S. Treasury securities. D. vault cash of commercial banks. E. currency outside banks.

A. depository institution reserves

An annual payment bond with a $1,000 par has a 5 percent quoted coupon rate, a 6 percent promised YTM, and six years to maturity. What is the bond's duration? A. 5.31 years B.4.76 years C.4.16 years D. 3.19 years E. 5.25 years

A.5.31 years

Which of the following is the major monetary policy making body of the U.S. Federal Reserve System? A. FOMAC B. Group of eight C. U.s congress D. FBR bank presidents E. OCC

A.FOMAC

A negotiable CD: A.is a bank-issued time deposit. B. has denominations ranging from $50,000 to $10 million. C.is a bank-issued transactions deposit. D.pays discount interest. E.is a registered instrument.

A.is a bank-issued time deposit.

The _______________ is a nationwide network jointly operated by the Fed and private institutions that electronically process credit and debit transfers of funds. A. Fedwire B. ACH C. CHIPS D. SWIFT E. NASDAQ

B. ACH

The Fed offers three types of discount window loans. _______ credit is offered to small institutions with demonstrable patterns of financing needs, _______ credit is offered for short term temporary funds outflows, and _______ credit may be offered at a higher rate to troubled institutions with more severe liquidity problems. A. extended; adjustment; seasonal B. Seasonal, primary; secondary C. adjustment; extended; seasonal D. seasonal; extended; adjustment E. adjustment; seasonal; extended;

B. Seasonal, primary; secondary

A bankers acceptance is: A. an add-on instrument B. a liability of the importer and the importers bank C. a time draft drawn on the exporter's bank D. a method to help importers evaluate the creditworthiness of exporters.

B. a liability of the importer and the importers bank

The Securities Exchange Commission (SEC) does not: a.monitor the major securities exchanges. b. decide whether a public issue is fairly priced. C. decide whether a firm making a public issue has provided enough information for investors to decide whether the issue is fairly priced. D. attempt to reduce excessive price fluctuations. E.require exchanges to monitor trading to prevent insider trading

B. decide whether a public issue is fairly priced.

For large interest rate increases, duration _____ the fall in security prices and for large interest rate decreases, duration _____ the rise in security prices. A. overpredicts, overpredicts B. overpredicts , underpredicts C. unpredcits, overpredicts D. underpredicts, underpredicts E. none of these options

B. overpredicts , underpredicts

Duration is : A. the elasticity of a security's value to small coupon changes. B. the weighted average time to maturity of the bond's cash flows. C. the time until the investor recovers the price of the bond in today's dollars. D. greater than maturity for deep discount bonds and less than maturity for premium bonds. E. the second derivative of the bond price formula with respect to the YTM.

B. the weighted average time to maturity of the bond's cash flows.

IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public. Morgan Stanley is acting as a(n): A. asset broker. B. government regulator. C. asset transformer. D. foreign service representative.

C. Asset transformer

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because: A. U.S. DIs compete with foreign financial institutions. B.thrifts provide a large amount of credit to finance residential real estate. C. DI deposits are a major portion of the money supply. D. bank and thrift loans are tightly regulated. E. loans to corporations are part of the money supply.

C. DI deposits are a major portion of the money supply.

The major asset of the Federal Reserve is: A. vault cash of commercial banks. B. currency outside banks. C. U.S. Treasury securities. D. gold and foreign exchange. E. depository institution reserves.

C. U.S. Treasury securities.

LIBOR is generally _______________ the Fed funds rate because foreign bank deposits are generally ________________ domestic bank deposits. A. less than; less risky than B. less than; riskier than C. greater than; riskier than D. greater than; less risky than E. the same as; of equal risk to

C. greater than; riskier than

In the T-bill auction process, the competitive bidder is guaranteed a ______________ and a noncompetitive bidder is guaranteed a _______________. A.minimum price; maximum price B. maximum price; minimum price C. maximum price; given quantity D. minimum price; maximum quantity E. none of the options

C. maximum price; given quantity

The diagram below is a diagram of the: user offunds ___> Underwriter ___> Suppliers of funds. a. deriv market b. commodities market c. primary market d. secondary market e. money markets

C. primary markets

Secondary markets help support primary markets because secondary markets. I. offer primary market purchasers liquidity for their holdings. II. update the price or value of the primary market claims. III. reduce the cost of trading the primary market claims. a. 2 only b. 1 only c 1 and 2 only D. 1,2,3 only

D. 1 ,2 ,3

Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because A. FIs can diversify away some of their risk. B. FIs closely monitor the riskiness of their assets. C. the federal government requires them to do so. D. FIs can diversify away some of their risk and closely monitor the riskiness of their assets. E. FIs can diversify away some of their risk and the federal government requires them to do so.

D. FIs can diversify away some of their risk and closely monitor the riskiness of their assets.

Which one of the following statements about commercial paper is NOT true? Commercial paper issued in the United States: A. has no secondary market. B. is virtually always rated by at least one ratings agency. C. has a maximum maturity of 270 days. D. carries an interest rate above the prime rate. E. is an unsecured short-term promissory note.

D. carries an interest rate above the prime rate.

Liquidity risk at a financial intermediary (FI) is the risk: A. incurred by an FI when the maturities of its assets and liabilities do not match. B. incurred by an FI when its investments in technology do not result in cost savings or revenue growth. C. risk that an FI may not have enough capital to offset a sudden decline in the value of its assets. D. that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices. E. that promised cash flows from loans and securities held by FIs may not be paid in full.

D. that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices.

A four-year maturity 0 percent coupon corporate bond with a required rate of return of 12 percent has an annual duration of _______________ years. A. 3.05 B. 2.97 C. 3.22 D. 3.71 E. 4.00

E. 4.00

The largest capital market security outstanding in 2010 measured by market value was: A. corporate bonds. B. securitized mortgages. C. municipal bonds. D. Treasury bonds. E. corporate stocks.

E. Corporate stocks

Which of the following are capital market instruments? a. 0-year corporate bonds b.30-year mortgages c.20-year Treasury bonds d15-year U.S. government agency bonds e.All of the options

E. all

The fed funds rate is the rate that: A. banks charge to lend foreign exchange to customers B. banks charge securities to finance their inventory. C. banks charge for loans to corporate customers D. the fed reserves charges on emergency loans to commercial banks E. banks charge each other on loans of excess reserves

E. banks charge each other on loans of excess reserves

The Federal Reserve System is charged with: A. regulating securities exchanges. B. conducting monetary policy. C. providing payment and other services to a variety of institutions. D. setting bank prime rates. E. conducting monetary policy and providing payment and other services to a variety of institutions.

E. conducting monetary policy and providing payment and other services to a variety of institutions.

The primary policy tool used by the Fed to meet its monetary policy goals is: A. changing bank regulations B. changing the discount rate C. changing reserve requirements D. devaluing the currency E. open market operations

E. open market operations

The discount rate is the rate that: A. banks charge to lend foreign exchange to customers. B.banks charge each other on loans of excess reserves. C. banks charge securities dealers to finance their inventory. D.banks charge for loans to corporate customers. E. the Federal Reserve charges on loans to commercial bank

E. the Federal Reserve charges on loans to commercial bank

Money market securities exhibit which of the following? I. Large denomination II. Maturity greater than one year III. Low default risk IV. Contractually determined cash flows A. I, II, and III B. II, III, and IV C. I, II, III, and IV D. II and IV E. I, III, and IV

E.I, III, and IV

Nationally chartered banks are required to become members of the Federal Reserve System. T.f

True

Primary markets are markets in which users of funds raise cash by selling securities to funds' suppliers. t.f

True

A negotiable CD is: a.a time draft payable to a seller of goods, with payment guaranteed by a bank b.a short-term unsecured promissory note issued by a company to raise funds for a short time period. c.a loan to an individual or business to purchase a home, land, or other real property. d.a marketable bank issued time deposit that specifies the interest rate earned and a fixed maturity date

d.a marketable bank issued time deposit that specifies the interest rate earned and a fixed maturity date

Federal Reserve interest rate decisions can be vetoed by the U.S. president or the Congress. t/f

false

For a given interest rate change, a 20-year bond's price change will be twice that of a 10-year bond's price change. t.f

false

The major asset of the Federal Reserve is currency outside banks and the major liability is U.S. Treasury securities. t/f

false

There are three types of major financial markets today: primary, secondary, and derivatives markets. The NYSE and NASDAQ are both examples of derivatives markets. t.f

false

A decrease in reserve requirements could lead to an: A. Increase in bank lending B. Increase in the money supply C. increase in the discount rate D. increase in bank lending and an increase in the money supply E. increase in bank lending and an increase in the discount rate

increase in bank lending and an increase in the money supply

.A zero coupon bond has a duration equal to its maturity and convexity equal to zero. t/f

true

A bond with an 11 percent coupon and a 9 percent required return will sell at a premium to par. t/f

true

Any security that returns a greater percentage of the price sooner is less price-volatile. t.f

true

Federal reserve board members are appointed by the U.S president and confirmed by the senate for a non renewable 14-year term. t /f

true

Financial intermediaries such as banks typically have assets that are riskier than their liabilities. t/f

true

Four seats on the Federal Open Market Committee (FOMC) are allocated to Federal Reserve Bank presidents on an annual rotating basis. t/f

true

Higher interest rates lead to lower bond convexity, ceteris paribus. t/f

true

If interest rates increase, the value of a fixed income contract decreases and vice versa. t /f

true

If the FOMC wished to generate faster economic growth, they could issue a policy directive to the Federal Reserve Board Trading Desk to purchase U.S. government securities. t/f

true

The duration of a four-year maturity 10 percent coupon bond is less than four years. t.f

true

The greater a security's coupon, the lower the security's price sensitivity to an interest rate change, ceteris paribus. t /f

true

The greater a security's coupon, the lower the security's price sensitivity to an interest rate change, ceteris paribus. t.f

true

The monetary base is the amount of coin and currency in circulation plus reserves. t /f

true

The seven members of the Board of Governors of the Federal Reserve System serves 14-year nonrenewable. Each board members is appointed by the president and confirmed by the senate. t/f

true