Chapter 1 - 6

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Find the value of P1000 corporate bond with annual interest rate of 5% making semi-annual interest payments for 2 years, after which the bond matures, and the principal must be repaid. Yield to maturity is 3% P981.42 P888.49 P92.93 P1000

$981.42

P 1,000.00

. At a discount of 4% for a 90-day Treasury bill, an Investor paid P 970.10. How much will the Investor received at maturity?

What is the Annualized Discount rate of a P1,000 Treasury bill with a 91-day tenor that can be purchased at 995?

1.98%

What is the Annualized Investment rate of a P1,000 Treasury bill with a 91-day tenor that can be purchased at 995?

2.02%

What is the inflation rate if the Consumer Price Indexes are 112 and 116 last year and this year respectively?

3.57%

Following above, if the bond paid no coupon, how much will be its value P981.42 P888.49 P92.93 P1000

888.49

Following above, what is the present value of the face value of the bond P981.42 P888.49 P92.93 P1000

888.49

Following above, assuming again there are no coupon payments, what is the present value of the coupon payments P981.42 P888.49 P92.93 P1000

92.93

Refers to the cost incurred for writing loan agreements and enforcing terms of agreements to the concerned parties a. Contracting Cost b. Information Processing Cost c. Acquisition Process Cost d. Data Processing Cost

This is the process of investing funds in a portfolio of assets that have individual returns that do not move at the same direction together. For example, if return of asset A goes up, return of asset B usually goes down. This usually results in an overall portfolio risk that may be lower than risk of each individual asset. This also allows lenders to share risk from their investments a. Diversification b. Pooling c. Portfolio management d. Investment risk management

This means that prices of financial instruments may vary over time. a. Price Risk b. Volatility c. Price Discovery d. Valuation Risk

Which is not a type of deposit accounts? a. security deposit b. savings deposit c. money market demand account d. time deposits

Which of the following does not belong to sectors of market participants aside from financial intermediary? a. Family and Community b. Government c. Non Profit Organizations d. Corporation

Which of the following does not belong to sectors of market participants aside from financial intermediary? a. Family and Community b. Government c. Non-Profit Organizations d. Corporation

Which of the following statements are correct? a. It is not uncommon that income received by a party or entity does not match required expenditures, hence, resulting in deficits. These deficits may be resolved through transferring funds from fund providers (with excess funds) to fund demanders (with deficits). This can be done either through direct financing or indirect financing. b. Financial Institutions were formed during the time when market conditions make it hard for lenders of funds to transact directly with borrowers of funds. c. Financial intermediation is the process of direct financing using financial intermediaries as the main route to transfer funds from lenders to borrowers. Examples of financial Intermediaries are depository institutions, insurance companies, asset management firms, regulated investment companies and investment banks. d. Most financial intermediaries provide services to suppliers and demanders of funds. The assets these financial intermediaries are limited to the portfolio they are managing and the information they gain to facilitate and support their clients.

______ companies offer a unique service to the individuals, corporations and other entities in a country. _____ companies offer services to assume risk or become underwriters of the risk associated with various insurable occurrences. a. Insurance b. Assurance c. Risk Management d. Underwriting

________ funds are like mutual funds, but the shares of the portfolio funds trade in an exchange like a regular share offered by a company. It possesses characteristics of both open-ended and closed-ended funds. a. Exchange Traded Fund b. Hedge Fund c. Separately managed fund d. Regulated Investment company account

_______raise their funds through offering checking deposit accounts (deposits on which drafts/checks can be written against), savings deposit accounts (deposits that are payable on demand, but checks cannot be written against) and time deposits (deposits that have maturity in fixed terms). a. Commercial banks b. Thrift banks c. Savings banks d. Universal banks

Which of the following is not correct about the importance of a debt instrument? a. It makes the repayment of debt legal b. It increases the transferability of the obligation, giving it increased liquidity and giving creditors a means of trading these obligations on the market c. Without debt instruments acting as a means of facilitating trading, debt would only be an obligation from one party to another d. When a debt instrument is used as trading means, debt obligations can be moved from one party to another quickly and efficiently

A Majority answer base sa forms

True

A mature secondary market for money market instruments allows the money market to be the preferred place for firms to temporarily store excess funds up until such time they are needed again by the organization.(True/False)

True

A repurchase agreement (repo) is a financial contract involving two securities transactions, a sale/purchase of a debt security on a near date and a reversing purchase/sale of the same or equivalent debt security on a future date.(True/False)

False

According to Conceptual Framework for Financial Reporting (2018), a property is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. (True/ False)

Which of the following is not an economic function of financial market? Price Liquidity Reduced Transaction Cost All of the above

All of the above

Which of the following is not an economic purpose of financial instruments?

Allows the money market to be the preferred place for firms to temporarily store excess funds up until such time they are needed again by the organization.

In the Philippines, commercial papers are not required to register with SEC if they meet the following requirements, except:

Amount not exceeding P500 million.

False

Any idle cash becomes an opportunity to investors by means of the interest income not earned by holding on to the cash. To reduce opportunity costs, money markets become a viable option to temporarily invest idle funds.(True/False)

False

As a general rule, as the interest rate rises, the value of the security becomes higher. This means that the market risk is increases thus the impact on the value of the securities also reduces.(True/False)

______ is similar to mortgage-backed security, except that the underlying securities are not mortgage-based a. Asset backed bonds b. non-mortgage backedsecurity c. mortgage bonds d. collateralized debt obligation

Asset backed bonds

P 1,000.00

At a discount of 3% for a one-year Treasury bill, an Investor paid P 970.87. How much will the Investor received at maturity?

False

At the point of issuance of the financial instrument, the issuer usually gives something of value (usually cash) to the investor. The financial instrument then becomes the proof (hence, called as security) of the future claim of the investor from the issuer.(True/False)

Are financial intermediaries that obtain funds at periodic intervals based on an existing contract. Unlike depository institutions, these institutions can project more accurately how much money they need to pay In the future (in the form of benefits promised). a. Depositary Institutions b. Contractual Savings Institutions c. Projection Institutions d. Forward Contract Institutions

Is a standing credit facility offered by the BSP to aid banks to meet temporary liquidity needs through refinancing the loans that banks extend to their clients. a. liquidity fund b. Rediscounting c. Bank Recovery fund d. Overdraft Credit Line

Refers to the cost of acquiring and processing information needed to evaluate purchase or subsequent sale of a financial instrument a. Contracting Cost b. Information Processing Cost c. Acquisition Process Cost d. Data Processing Cost

Small producers such as farmers, cottage industry entrepreneurs, and consumers rely on these banks for the financing of their production and consumption requirements. a. Commercial banks b. Thrift banks c. Savings banks d. Universal banks

This usually organized as a private investment partnership or offshore investment corporation which uses various trading strategies to gain better position in different markets. a. Exchange Traded Fund b. Hedge Fund c. Separately managed fund d. Regulated Investment company account

Which of the following does not belong to Top 5 Commercial banks in the Philippines as of December 31, 2018? a. BDO Unibank Inc. b. Development Bank of the Philippines c. Land Bank of the Philippines d. Philippine National Bank

Which of the following is not correct about banks? a. Banks play a significant roles in transmitting the impact of monetary policy set by a country's central bank to the rest of the economy. Banks also contributes to the efficiency of the financial system by offering payment services that directly benefits the economy and by offering maturity intermediation services. b. Banks often issue five types of deposit accounts (liabilities in their point of view): demand deposits, savings deposits, money market demand accounts and time deposits. c. Banks offer variety of services to their clientele which can be grouped into individual banking, institutional banking and global banking. d. Aside from deposits, banks can procure funds from non-depository sources. Non-depository sources include borrowing through issuing financial instrument in the money and/or bond market and borrowing reserves from the BSP.

Which of the following is not one of the benefits from financial intermediaries? Acceleration of flow of funds between entities. a. Efficient allocation of funds b. Support in price valuation c. Reduced price risk for lenders d. Economies of scale

Which of the following is not true about Depository Institutions? a. Depository Institutions are also known as banks b. The biggest portion of the asset base of a depository institution is deposits c. Deposits comprise also the biggest portion of a bank's liabilities D. Depository institutions are firms that accept cash deposits from individuals, companies, and entities.

Which of the following statements is not correct? a. Financial Intermediaries were formed during the time when market conditions make it hard for lenders of funds to transact directly with borrowers of funds b. Benefits of having financial intermediaries in the Financial System are: (1) acceleration of flow of funds between entities; (2) efficient allocation of funds: and (3) support in price valuation. c. Depository institutions, insurance companies. asset management firms, regulated investment companies and investment banks are common types of Financial Intermediaries. d. Other participants in the financial system are the household sector, government, corporate sector or the non-financial corporations, and the foreign sector

______ is one of me world s largest sources of funding for developing countries. Members of the group are as follows: International Bank for Reconstruction and Development (IBRD), International Development Association (IDA). International Finance Corporation (IPC). Multilateral Investment Guarantee Agency (MICA), and International Center for Settlement of Investment Disputes. a. International Monetary Fund b. World Bank Group c. European Union d. APEC

_______ are organizations whose primary objective is to maximize return from investments in various financial instruments to add value for the investors. a. Asset Management Firms b. Investment Intermediaries c. Regulated Investment Companies d. Financial Intermediaries

It will act as a corporate body that is responsible concerning money, banking and credit.

Bangko Sentral ng Pilipinas

True

Banker's acceptance are usually offered to importers and exporters.(True/False)

Which of the following is not correct about Banker's Acceptance?

Banker's acceptances are usually payable to the order. Hence, this can be subsequently purchased and sold until it matures.

False

Banker's acceptances are usually payable to the order. Hence, this can be subsequently purchased and sold until it matures.(True/False)

True

Banker's acceptances refer to an order to pay a specified amount of money to the bearer on a specified date.(True/False)

Lead agency to promote investment in country and thereby generate local and foreign investment in the country.

Board of Investments

____ manage and measure bond portfolio performance. Many ____ are members of broader indices that may be used to provide and measure the performances of global bond portfolios Bond indices Debt security indices Consumer price indices Market indices

Bond indices

This technique of determining the theoretical value of a bond includes calculating the present value of the bond's future interest payments, also known as its cash flow, and the bond's value upon maturity, also known as its face value or par value. a. Net Present Value b. Capital Budgetting c. Bond Valuation d. Theoretical valuation

Bond valuation

Asset management strategies in portfolios can be further subdivided into two _____ funds (or indexed funds) are managed to mimic movements in the market Index such as the PSE Index _____ funds are managed by asset management firms with the intention to outperform the index fund via actively trading securities in the fund portfolio. a. Active; Passive b. Direct; Indirect c. Passive; Active d. Indirect Direct

Economies of scale occurs when _____ are optimized per unit as a result of sheer volume of transactions a. Total cost b. Variable cost c. Fixed cost d. Uncontrollable

Financial intermediaries that sells shares to the general public in exchange of cash. Once they receive the proceeds, they then invest the money in a diversified portfolio of financial instruments. Normally, asset management firms are contracted to manage the investment portfolio of a. Asset Management Firms b. Investment Intermediaries c. Regulated Investment Companies d. Financial Intermediaries

Instead of investing in a shared fund like a mutual fund, a fund can be made that will be based on the specific necessities of a sole investor. This refers to: a. Exchange Traded Fund b. Hedge Fund c. Separately managed fund

Organized for the purpose of accumulating savings deposits, and investing them for specified purposes, such as readily marketable bonds and securities, commercial papers and accounts receivables, drafts, bills of exchange, acceptance or notes arising from loans, whether secured or unsecured, mortgages on real financing for home building or home development, such other investments and loans as allowed by the Monetary Board of the BSP in pursuit of national economic objectives. a. Commercial banks b. Thrift banks c. Savings banks d. Universal banks

This happens when financial intermediaries create and sell financial assets with risk profile that their clients are comfortable to invest on. Through the proceeds they can collect, financial intermediaries may then sell these financial assets to purchase other assets that may have higher risk and return. This can also be called as asset transformation, since in essence, risky assets are converted into safer assets for the investors. a. Risk Management b. Risk Pooling c. Risk Sharing d. Risk Balancing

Which of the following are activities an investment bank can offer? a. Merchant Banking ' b. Securities Finance and Prime Brokerage Service c. Liability Management d. Research

Which of the following is not a service provided by financial intermediaries? a. Enable trading of financial assets for the customers of the financial intermediary through brokering arrangements b. Enable trading of financial assets through its own capital by buying a stake in a financial asset that its customers want to transact in c. Assist banks in forming financial assets needed by its customers and distribute these to its customers and other market participants as well. d. Provide investment advice and consultation services to customers; Manage financial assets of customers; facilitate payment mechanism between merchants and customers.

The sector of the financial markets where financial instruments issued by governments and corporations that will mature beyond one year from issuance date (long-term) are traded. Long term Market Stock Market Debt Market Capital Market

Capital Market

Is a structured financial product that pools together cash flow generating assets and repackages this asset pool into discrete tranches that can be sold to investors a. Asset backed bonds b. non-mortgage backed security c. mortgage bonds d. collateralized debt obligation

Collateralized debt obligation

Which of the following is true about the participants in the money market?

Commercial banks issues treasury securities; sell certificates of deposits and extends loans; offers individual investor accounts that can be used to invest in money markets. Banks are the primary issuer negotiable certificates of deposits, banker's acceptances and repurchase agreements.

Which of the following are essentially unsecured?

Commercial paper

False

Commercial papers are issued directly to the buyer and usually, there is no primary market for commercial papers.(True/False)

True

Commercial papers may either have a stated interest rate on its face or sold at a discounted basis.(True/False)

Which of the following statements is not correct?

Common types of financial instruments in Money Market are treasury bills, repurchase agreements or repo, negotiable certificates of deposits, short term commercial paper, long term commercial paper and banker's acceptances.

Corporations provide _____ to raise money for different reasons, such as financing ongoing operations or expanding businesses a. corporate bonds b. institutional bonds c. private bonds d. public bonds

Corporate bonds

Internal Market and External Market are classification of Financial Market based on ____________. Instrument traded Market type Country's Perspective financial intermediaries

Country's Perspective

The fixed return that an investor earns periodically until bond matures a. coupon rate b. cost of capital c. return of investment d. coupon bond

Coupon rate

Risk referring to the ability of the payor to meet the full value of its obligation due to unforeseen charges.

Credit Risk

Risk premium is also called a. Credit Spread b. Risk additive c. Debt Spread d. Risk Spread

Credit Spread

This is the prevailing value of bonds based on the level of interest in the environment. This maybe at par, premium, or at a discount a. Current Price b. Premium Price c. Discounted Price d. Par Value

Current Price

The following are activities an investment bank can offer, except? a. Public Offering of Securities b. Private Placement of Securities c. Trading of Securities d. Management Advisory Services

Which of the following Is not a category of services provided by banks based on type of clients? a. individual banking b. Institutional banking c. global banking d. electronic banking

Which of the following is incorrect? a. For banks participating in the clearing operations of the Philippine Clearing House Corporation, BSP offers an overdraft credit line (OCL) facility to cover for any shortfall demand deposit accounts of the banks with the BSP resulting from clearing operations. b. For solvent banks experiencing liquidity problems resulting from causes beyond their control, BSP offers fully secured emergency loans to serve as financial assistance to help in resolving liquidity woes. c. Rediscounting Is a standing credit facility offered by the BSP to aid banks to meet temporary liquidity needs through refinancing the loans that banks extend to their clients. Through this facility, the BSP enables timely delivery of credit to all productive sectors of the economy. d. All of the above are correct.

Which of the following is not a common financial asset that are accepted as payment? a. bank notes such as demand drafts b. coins c. bank deposits d. virtual currency such as bitcoins

Which of the following is not an economic function related to Financial Intermediary as to implementation of monetary policy function of the government? a. maturity intermediation b. risk reduction through diversification c. cost reduction for contracting and information processing d. fiscal intermediation

True

Dealers of government securities commonly use repos to manage liquidity and take advantage of expected changes in interest rates.(True/False)

Risk that payment will be made on time.

Default Risk

In this route of fund flows, the borrower-spenders borrow and deal directly with lenders through selling financial instruments (or securities). Indirect Financing Direct Financing

Direct FInancing

This refers to the market where issuers who are considered residents in a country that issues securities and where these securities are traded afterwards. Internal/National Market Domestic Market Foreign Market Resident Market

Domestic Market

What is the difference between debt securities and equity securities a. Equity securities represent a claim on the earnings and asset of the corporation while debt securities are investments into debt instruments b. Equity securities are in the form of stocks like preferred stock while debt securities are in the form of bonds c. Equity securities represents investment in debt instruments while debt securities are investment in preferred stocks d. Both are negotiable and tradable securities, hence similar

Equity securities represent a claim on the earnings and asset of the corporation while debt securities are investments into debt instruments

Primary and secondary markets can also be classified based on where the financial instruments are traded. Exchange and Over the Counter market Formalized and Informal Primary and Secondary either a or b

Exchange and Over the Counter market

Examples of _____________ includes international market, offshore market and Euromarkets. Internal Market External Market Foreign Market Non-Resident Market

External Market

From a corporate finance perspective, short-term debt instruments come in the form of credit card bills, payday loans, car title loans, and other consumer loans that have repayment terms of less than 12 months.

Deficits may be resolved through transferring funds to fund providers (with excess funds) from fund demanders (with deficits). This can be done either through direct financing or indirect financing.

FALSE

In the Philippines, the government sector includes the national government agencies (NGAs), local government units (LGUs) and government owned and controlled corporations (GOCCs). Normally, the national government raises funds specifically through the Bureau of Internal Revenue

FALSE

For solvent banks experiencing liquidity problems resulting from causes beyond their control, BSP offers fully secured emergency loans to serve as financial assistance to help in resolving liquidity woes. This is pursuant to Section 84 of RA No. 7563

FALSE - 7653

Problem on random selection means that high risk borrowers that would tend to default is more likely to be more active in borrowing funds than low risk borrowers who pay on time.

FALSE - ADVERSE

Symmetric information occurs when potential borrowers have more information about the transaction compared to the bank.

FALSE - ASSYMETRY

The financial system provides the worst mechanism to allow the government to implement its monetary policies to manage ecnomic growth, steady employment rate, equilibrium of balance of payments and inflation

FALSE - BEST

The BSP's rediscounting is administered by the Department of Loans, Credit and Cooperative

FALSE - CREDIT LANG WALANG COOPERATIVE

Banks are firms that accept cash deposits from individuals, companies, and entities.

FALSE - DEPOSITORY INSTITUTIONS

Non-profit organizations are businesses that exist to respond to specific causes like humanitarian aids, socio-civic causes, environment, arts and many more. These operate to generate profit or monetary for its investors. Non-profit organizations include foundation and endowments.

FALSE - DOES NOT OPERATIE TO GENERATE PROFIT

Loans can be divided into five categories: business, commercial or industrial loan; commercial or residential real estates lands; individual loans for vehicle or credit card purchases and all other loans. Loans are the main revenue-generating assets for banks

FALSE - FOUR

Financial intermediaries were formed during the time when market conditions make it easy for lenders of funds to transact directly with borrowers of funds.

FALSE - HARD

Most financial intermediaries are exposed to low levels of liquidity risk. Liquidity risk refers to the risk that liability holders may require cash in exchange of the financial claims they have from the institution.

FALSE - HIGH

The family and community sector are composed of individuals and families, including families serving charitable, religious and non-profit organizations

FALSE - HOUSEHOLD

Assurance companies offer services to assume risk or become underwriters of the risk associated with various insurable occurrences

FALSE - INSURANCE

Exchange traded funds possess characteristics of both open-ended and closes-ended funds. They are close-end funds, but the share pricing has small premiums/discounts from NAV, like an open-ended fund.

FALSE - OPEN; CLOSE

For banks participating in the clearing operations of the Philippine Clearing House Corporation, BSP offers an underdraft credit line (UCL) facility to cover for any shortfall demand deposit accounts of the banks with the BSP resulting from clearing operations..

FALSE - OVERDRAFT; OCL

Hedge funds are usually organized as a public investment partnership or offshore investment corporation which uses various trading strategies to gain better position in different markets.

FALSE - PRIVATE

Discounting is a standing credit facility offered by the BSAP to aid banks to meet temporary liquidity needs through financing the loans that banks extend to their clients

FALSE - REDISCOUNTING

Thrift banks are organized for the purpose of accumulating savings deposits, and investing them for specified purposes, such as readily marketable bonds and securities, commercial papers and accounts receivables, drafts, bills of exchange, acceptance or notes arising from loans, whether secured or unsecured, mortgages on real financing for home building or home development, such other investments and loans as allowed by the monetary board of the BSP in pursuit of national economic objectives.

FALSE - SAVINGS

All types of financial intermediaries offer protection to individuals and organizations against adverse incidents that may occur.

FALSE - SOME

Savings banks are banks primarily mobilized small savings and provide loans at generally longer and easier terms than do commercial banks as they cater to the lower income groups.

FALSE - THRIFT

Investment banks are highly liquid institutions that have significant influence on how primary and secondary markets work

FALSE - di ko mabasa yung nakasulat na annotation

Financial intermediation is the process of direct financing using financial' intermediaries as the main route to transfer funds from lenders to borrowers. Examples of financial intermediaries are depository institutions, insurance companies, asset management firms, regulated investment companies and investment banks.

FALSE- INDIRECT

A credit card bills, and payday loans are example debt securities

False

Assurance Commission mandated by virtue of Executive Order No. 192 s. 2015 to ensure enforcement of the provisions of the Insurance Code or Republic Act 10607, i.e. to regulate and supervise the insurance, pre-need, and health maintenance organization industry. It is governed by Department of Finance that supervises and regulates the operations of life and non-life companies, mutual benefit associations, and trusts for charitable uses.

False

Bangko Sentral ng Pilipinas shall be governed by the Monetary Board. The Monetary board is composed of nine members

False

Because a bond's par value and interest payments are not fixed, an investor uses bond valuation to determine what rate of return is required for a bond investment to be worthwhile

False

Bond valuation is a technique for determining the true fair value of a particular bond

False

Core inflation on the other hand captures the changes of the cost of living based on the movement of the basket of commodities as a whole.

False

Debt can be short term or long term that is why it can be within capital market definition if short term, while in money market if long term

False

Financial sector has an important role in shaping the overall economy of a country hence it is a must that this must not be regulated.

False

Firms in the financial market must be able to understand how to respond and minimize their leverage in the industry and compete.

False

Given that financial market is heavily a product providing industry, information symmetry is a plus to all customers/clients that enable them to make sound decision.

False

If the interest rate increases, the value of a bond will decrease since the coupon rate will be lower than the interest rate in the economy. When this occurs, the bond will trade at a premium, that is, above par

False

In broader scope, the policy should take into consideration the alignment in the objectives of the society or what is factored as cultural objectives.

False

Money is the basic form of the financial system. Money demand is the availability of financial resources for deployment in the system.

False

National government provides corporate bonds to raise money for different reasons, such as financing ongoing operations or expanding businesses

False

Per the BSP, headline inflation is used for most of the economic estimates where it excludes in the equation the movement of the commodities or incidents with very volatile movement or outliers.

False

Philippine Economic Zone Authority is the lead agency to promote investment in country and thereby generate local and foreign investment in the country. It is an attached an agency of the Department of Trade and Industry. The agency provides advisory, actualization and post services to the investors.

False

Practitioners commonly use two models in cases of bonds with embedded options: the traditional model and Monte Carlo simulation model.

False

Public corporations issue government bonds and entice buyers by providing the face value on the agreed maturity date with periodic interest payments. This characteristic makes government bonds attractive for conservative investors

False

Systematic risk is the probability of a firm to fail its objective that will result to ripple effect

False

Systemic stability is a challenge or threat whereby it arises where a segment or firm was not able to meet its commitment because of their failure to address the risks of the market.

False

The Bangko Sentral ng Pilipino is created under the New Central Bank Act or Republic Act 7653 and an attached agency of the Department of Finance. Under the Philippine law, this will act as the central monetary authority which will act as a corporate body that is responsible concerning money, banking and credit.

False

The lattice model to valuation has been to discount every cash flow of a bond by the same interest rate (or discount rate)

False

The risk-free rate should be the rate that assumes zero default in the market where this is more or less equivalent to the rates offered by the sovereign.

False

When an investor buys a stock, he is essentially loaning the corporation money, and he has the right to be repaid the principal and interest on the bond. In contrast, when someone buys a bond from a corporation, he essentially buys a piece of the company

False

When the bond matures, the bond issuer repays the investor the full discounted value of the bond

False

a security represents an ownership position in a publicly traded corporation (via bonds), a creditor relationship with a governmental body or a corporation (represented by owning that entity's stock), or writes to ownership as represented by an option

False

all financial instruments are financial securities

False

debt securities represent a claim on the earnings and assets of a corporation, while Equity securities are investments into debt instruments

False

usually financial instruments and financial securities are interchangeably used, and these are indeed similar

False

Finance came from the French word "finens" which means "to end and settle a debt"

False, "finer"

Tap Issue is usually used for issuance of treasury bills, bonds and other securities issued by the government and are commonly executed exclusively with market makers. Auction is a method that occurs when issuers are open to receive bids for their securities at all times.

False, Auction; Tap Issue

In a dealer market, the buyer and the seller of the securities are brought together by a broker and the trade occurs at that point. In a broker market, the buyer and seller are not brought directly together by a third party.

False, Broker; Dealer

Money market is the sector of the financial markets where financial instruments issued by governments and corporations that will mature beyond one year from issuance date (long-term) are traded.

False, Capital market

Price Valuation refers to the interaction between buyers and sellers in the financial market in order to come up with price of the traded financial instrument.

False, Price Discovery

Transaction costs in the financial market can be classified into two types: Finder's fee and information costs.

False, Search cost

Primary market refers to the market wherein the securities issued in primary market are subsequently traded i.e. resold and repurchased (secondhand)

False, Secondary

All types of financial markets offer the similar degrees of liquidity.

False, different

In indirect financing, the borrower-spenders borrow and deal directly with lenders through selling financial instruments (or securities).

False, direct financing

In direct financing, the borrowing activity between both parties still happens though indirectly through the intervention og a financial intermediary.

False, indirect financing

Information symmetry occurs when one stakeholder to a transaction holds superior information than the other party.

False, information asymmetry

With the flow of financial instruments, price is created. Price is used to either be reinvested or earned out from the system flows.

False, money

Capital market is the sector of the financial system where financial instruments that will mature or be redeemed in one year or less from issuance date are traded.

False, money market

Lenders and Borrowers are also known as fund demanders and fund providers, respectively.

False, provides; demanders

Finder's fee are costs incurred to look for financial instruments that can be purchases or sold by a party.

False, search cost

True

Financial instruments are the main vehicle used for transactions in the financial market. For the purposes of presentation in financial statements, financial instruments may be presented under cash equivalents or investments. (True/False)

True

Financial instruments are the primary subject of trading in a money market (True/False)

True

Financial instruments traded in the money market are short-term and highly liquid, that it can be considered close to being money. (True/False)

This refers to the market where issuers who are not residents of a country can sell or issue securities and subsequently traded. Internal/National Market Domestic Market Foreign Market Non-Resident Market

Foreign Market

National governments issue government bonds and entice buyers by providing the face value on the agreed maturity date with periodic payments a. corporate bonds b. institutional bonds c. private bonds d. government bonds

Government bonds

True

Government securities, particularly treasury bills, are the safest investment instrument in the market. Because they are backed by the full taxing power of the government, they are practically default risk-free.(True/False)

False

Holding on to cash is a very viable option for investors as this does not generate any return(True/False)

P 24,390.24

How much is Investor willing to pay for a P 25,000 Treasury bill with 10% interest rate which will mature in 90 days?

True

If investors believe that the prevailing market conditions do not justify a stock purchase or there might be a possible interest rate hikes impacting bonds, then they can choose to invest on money market instruments in the meantime.(True/False)

Which of the following is not an economic function of Secondary Market Price discovery Liquidity and reduction in borrowing costs Support to Primary market Implementation of fiscal policy

Implementation of fiscal policy

True

In auctions, the Bureau of Treasury announces quantity and type of securities that they will sell. Interested parties give bid offering and the Treasury accepts the highest bids.(True/False)

True

In noncompetitive bidding, bidders only give the amount of securities that they want to buy. The Treasury accepts all noncompetitive bids. The price for all the securities under noncompetitive bids is set at the highest yield paid to any accepted competitive bid.(True/False)

Which of the following is incorrect about bond market a. Also known as debt securities or credit market b. The bond market primarily includes government-issued securities and corporate debt securities, facilitating the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations c. In the bond market, participants can issue new debt in the market called the initial public offering or trade debt securities in the market called the secondary market d. The goal of the bond market is to provide long-term financial aid and funding for public and private projects and expenditures

In the bond market, participants can issue new debt in the market called the initiate public offering or trade debt securities on the market called the secondary market

In this route of fund flows, the borrowing activity between both parties still happens through the intervention of a financial intermediary Indirect Financing Direct Financing

Indirect Financing

The degree of movement of the Consumer Price Index from a period to another

Inflation Rate

Private companies who will sell shares to the general public for the very first time is said to undergo an ____________. Public Market Offering Initial Public Offering New Market Issuance Primary Market Offering

Initial Public Offering

Money Market and Capital Market are classification of Financial Market based on ______________. Instrument traded Market type Country's Perspective financial intermediaries

Instrument traded

Issues licenses to insurance agents, general agents, resident agents, underwriters, brokers, adjusters and actuaries. It has also the authority to suspend or revoke such licenses. on

Insurance Commission

False

Intangible assets are assets that has physical properties and can be easily seen, touched or perceived by the five senses. (True/False)

True

Interest rates are very relevant in deciding which money market securities to invest since this dictate the potential return that can be received from the investment.(True/False)

False

Investors look at the money market as a permanent investment that will provide a slightly higher return than holding on the money or depositing it in banks.(True/False)

Repurchase agreement

Is a financial contract involving two securities transactions, a sale/purchase of a debt security on a near date and a reversing purchase/sale of the same or equivalent debt security on a future date.

Which of the following approaches is appropriate for bonds with embedded options? a. Traditional Valuation b. Arbitrage free valuation c. Risk free valuation d. Lattice Model

Lattice Model

Changes in rules and regulations affecting the payment system

Legal Risk

Timing difference on posting may affect the visibility of the user or a party to determine that full amount due and end up its ability to calculate currently maturing obligation

Liquidity Risk

True

Liquidity refers to how quick, efficient and cheap to convert a security into cash. Treasury bills, that have a ready secondary market, are considered to be more liquid than commercial papers which do not have a developed secondary market.(True/False)

False

Long term commercial paper means an evidence of indebtedness of any person with a maturity of three hundred and sixty five (365) days or less.(True/False)

True

Market for Treasury bills is both deep and liquid. Deep market means that the market has numerous different buyers and sellers while liquid market means that securities can be quickly traded at low transactions costs.(True/False)

Primary Market and Secondary Market are classification of Financial Market based on ______________. Instrument traded Market type Country's Perspective financial intermediaries

Market type

The date when the bond issuer repays or pays the investor the full face value of the bond. a. payment date b. repayment date c. maturity date d. bond amortization date

Maturity Date

The sector of the financial system where financial instruments that will mature or be redeemed in one year or less from issuance date are traded Current or Short-Term Market Debt Market Money Market Long term Market

Money Market

The availability of financial resources for deployment in the financial system.

Money Supply

True

Money market Instruments took the form of short-term deposits, government securities, commercial papers and certificates of deposit which form part of the Philippine interest rate market(True/False)

True

Money market instruments are governed by Philippine regulations and are influenced by market movements.(True/False)

Money market securities have fundamental characteristics, except:

Money market securities commonly have an active secondary market.

True

Money market securities may be evaluated based on the interest rates and liquidity(True/False)

_____ are locked in by the pledge of particular assets a. corporate bonds b. municipal bonds c. mortgage bonds d. government bonds

Mortgage bonds

Which of the following is not correct about money market and money market instruments?

Most transactions in the money market are very large, hence, they are considered as retail markets.

False

Most transactions in the money market are very large, hence, they are considered as retail markets.(True/False)

Local governments and their agencies, states, cities, special purpose districts, public utility districts, school districts, publicly owned airports and seaports, and other government-owned entities issue _______ to fund their project a. corporate bonds b. municipal bonds c. private bonds d. government bonds

Municipal bonds

True

Negotiable certificate of deposit is also classified as a bearer instrument. As a bearer instrument, whoever person or entity which possesses the instrument upon maturity will receive the principal and interest.(True/False)

The following statements are true about Negotiable Certificates of Deposits, except:

Negotiable certificate of deposit is also classified as an order instrument. As an order instrument, whoever person or entity which possesses the instrument upon maturity will receive the principal and interest.

True

Negotiable certificates of deposit are securities issued by banks which records a deposit made(True/False)

Which of the following statements is correct about Commercial Paper?

Nonbank corporations like financing companies usually invest in commercial papers and use the proceeds to fund loans that they extend to their clients.

What is the difference between debt instrument and debt security a. They can be interchangeably used hence similar. b. Not all debt instruments are debt securities, however debt securities are all debt instruments c. Not all debt securities are debt instruments, however debt instruments are all debt securities d. Debt instruments are negotiable and tradable debt securities

Not all debt instruments are debt securities, however debt securities are all debt instruments

False

On an accounting perspective, investors recognize financial instruments as a liability. (True/False)

True

One primary misconception is that money or currency is the security being traded in a money market.(True/False)

Holding on to cash is a very expensive option for investors as this does not generate any return. Any idle cash becomes an ______________ to investors by means of the interest income not earned by holding on to the cash.

Opportunity cost

The market structure where the buyers and sellers propose their price through their brokers who conveys the bid in a centralized location. Secondary market Order Driven market Quote Driven market Auction

Order Driven market

Using the present value approach, what is the return of one-year Treasury bill is at P1,000 with an annual interest rate of 3%?

P 29.13

Using the present value approach, what is the return of 90-day Treasury bill is at P1,000 with an annual interest rate of 4%?

P 9.90

Using the present value approach, what is the market security value of 90-day Treasury bill is at P1,000 with an annual interest rate of 4%?

P 990.10

WHich of the following is not a debt security a. pay day loans evidenced byloan agreement b. government bond c. preferred stock d. collateralized debt obligations

Payday loans evidenced by loan agreement

A set of interrelated processes of settlement of goods or services rendered in exchange for a set of instrument that will undergo either a banking or non-banking procedures.

Payment System

Market wherein fund demanders such as corporation or a government agency raise funds through new issuances of financial instruments e.g. bonds and stocks. New Market Internal Market Initial Public Offering Market Primary Market

Primary Market

Practically based on the consumer price index. In economics, the consumer price index or CPI is the weighted average value of the basket of prices of all commodities representing the market

Purchasing Power

Also called as primary dealer markets, professional markets or market-made markets. Secondary market Order Driven market Quote Driven market Auction

Quote Driven market

The market structure (secondary market) where the market makers establish a price quote at which the market participants should trade with. Secondary market Order Driven market Quote Driven market Auction

Quote Driven market

Which of the following is not an element of the Financial System? Financial Market Financial Intermediaries Financial Instruments Regulatory Compliance

Regulatory Compliance [correct - Regulatory Environment]

True

Repos are a key component of the debt securities market that produces short-term cash or securities liquidity critical to price-making activity of fixed income dealers.(True/False)

This refers to the market wherein the securities issued in primary market are subsequently traded Primary market Secondary market Consequent Market Trading Market

Secondary Market

National government regulatory agency to administer oversight on the corporate sector, capital market participants and securities and investment instrument and promote corporate governance over these.

Securities and Exchange Commission

False

Short term commercial paper is an evidence of indebtedness of any person with a maturity of more than three hundred sixty five (365) days.(True/False)

A credit card bill is an example of a. short term securities b. money market securities c. short term debt instruments d. short term equity instruments

Short term debt instruments

True

Since commercial papers are unsecured, only large and creditworthy corporations can issue this security. Lenders will not accept commercial papers from small companies since they are going to assume high level of risk since this security is not secured.(True/False)

Which of the following is not true about Repurchase Agreement?

Since repos are collateralized by the accompanying securities, these usually are treated as low-risk investments with high interest rates.

Which of the following is not a classification of financial market a. Based on Instrument traded: Stock and Debt Market b. Based on Market type: Primary and Secondary Market c. Based on Country's Perspective: National and External Market d. Based on Manner of Financial Intermediaries: Broker and Dealer Market

Stock and Debt Market

In corporate finance, short-term debt usually comes in the form of revolving lines of credit, loans that cover networking capital needs and treasury bills.

Aside from the financial intermediaries, there is a significant number of participants who interact with each other to buy or sell different kinds of financial instruments

TRUE

Commercial banks are banks authorized to accept draft/checks and issue letter of credit; discount and negotiate promissory notes, drafted, bills of exchange, and other evidences of debts; receive deposits; buy and sell foreign exchange and gold or silver bullion; and lend money against securities consisting of personal property or first mortgages on improved real estates and the insured improvement thereon.

TRUE

Contractual savings institutions are financial intermediaries that obtain funds at periodic intervals based on an existing contract. Unlike depository institutions, contractual savings institutions can project more accurately how much money they need to pay in the future (in the form of benefits promised)

TRUE

Diversification is the economic function exercised by financial intermediaries which converts more risky assets to less risk assets through sharing of risks. One good examples of diversification is the activities performed by mutual funds

TRUE

Diversification is the process of investing funds in a portfolio of assets that have individual returns that do not move at the same direction together.

TRUE

Finance companies raise their funds through issuing stocks and bonds or selling commercial papers. Finance companies then lend out the funds to individual consumers (to buy furniture, vehicles, home improvements) and small businesses

TRUE

Financial intermediaries also serve a savings and wealth storage function. allowing parties with excess funds to store their funds in risk-free/low-risk financial instruments

TRUE

Financial intermediaries exist to foster a more favorable transaction terms between fund providers and fund demanders compared if the two parties directly deal with each other.

TRUE

Financial intermediaries play the roles as experts and facilitators to enable to assign values to financial instruments based on different factors

TRUE

Financial intermediaries possess the expertise to make sure that funds will flow in the economy in the most effective manner. To ensure efficient allocation, financial intermediaries manage asymmetric information to a certain degree in its operations.

TRUE

In order to maximize return from their available funds, investors should be able to develop skills essential to assess risk and return characteristics of their financial instrument alternatives. Once they develop these skills, investors can use these to evaluate whether to buy or sell a financial instrument.

TRUE

In separately managed account, instead of investing in a shared fund like a mutual fund, a fund can be made that will be based on the specific necessities of a sole investor. Investments done through the fund will sui the specific objectives required by the sole investor

TRUE

Investment intermediaries are organizations whose primary objective is to maximize return from investments in various financial instruments to add vale for the investors.

TRUE

It is not uncommon that income received by a party or entity does not match required expenditures, hence, resulting in deficits.

TRUE

Maturity intermediation gives fund providers / investors more alternatives in terms of hod lown they want to invest in financial instruments and borrowers have more choices on the length of maturity of their debts.

TRUE

Moral hazard occurs when borrowers have the tendency to take undesirable or immoral risks (for the lender) with the money, once they receive it, not disclosed during the loan granting process

TRUE

Non-financial corporations issue financial instruments to raise funds for their business requirements and trade financial instruments in the money market (for short-term) or capital market (for long-term) as investment in case they have excess funds

TRUE

One of the roles of financial market is to provide efficient allocation of resources between fund providers and fund demanders.

TRUE

Price risk means that prices of financial instruments may vary over time

TRUE

RICs allow individual shareholders to combine their resources to take advantage of lower transactions costs when purchasing large number of stocks or bonds

TRUE

Solvency of ultimate lenders is enhanced through the presence of financial intermediaries. For examples, a borrower receives money from an ultimate lender through a vehicle like loan, the lender's cash position is zero up until the loan matures and the lender receives the payment.

TRUE

The existence of financial intermediaries is also beneficial for the economy. Services provided by financial intermediaries creates opportunities to financial savvy people. Not to mention other economic benefits that this will help as well as managing the risk on the part of the investors.

TRUE

The financial system serves as the main structure for making payments for any goods, service, or securities that are purchased.

TRUE

The foreign sector consists of all entities, individuals, assets and organizations that are situated outside of the jurisdiction of a certain country. Supranational institutions refer to an international entity formed by two or more central governments via international treaties.

TRUE

There are two main economies of scale that are optimized by the financial intermediaries: transaction costs and research costs.

TRUE

Through financial intermediaries, individuals and firms may put their money in trustworthy banks financial intermediaries rather than directly to borrowers. Financial intermediaries are also better equipped at screeding out bad borrowers from good borrowers which may reduce risk of random selection

TRUE

Through its depository function, financial intermediaries, specifically banks, allow creation of money through its bank loan services. This allows existing and new funds to be allocated efficiently.

TRUE

Fitch Ratings was founded in 1914 in New York, USA. The company was owned by Hearst. Hearst is a global information and services company.

TRue

False

Tangible assets are identifiable assets that do not have physical substance and usually represents a legal claim to some future economic benefit. (True/False)

This method occurs when issuers are open to receive bids for their securities at all times. Tap issue government bidding auction money market placement

Tap issue

System downtime and system "bugs" may occur.

Technological Risk

False

The Bureau of Treasury purchases government securities from a bank with a commitment to sell it back at a specified future date at a predetermined rate. In effect, a repo transaction expands the level of money supply as it increases the bank's level of reserves.(True/False)

Which of the following is not correct about financial instruments?

The investor is the party that issues the financial instrument and agrees to make future cash payments to the investor.

False

The investor is the party that issues the financial instrument and agrees to make future cash payments to the investor. (True/False)

True

The investors usually have surplus funds that are not earning anything and are willing to bear some risk to earn something from their surplus funds. (True/False)

False

The issuer is the party that receives and owns the financial instrument and bears the right to receive payments to be made by the issuer. (True/False)

The following statements are correct about Treasury bills, except:

There are three tenors of Treasury Bills: (1) 91 day (2) 182-day (3) 364-day Bills. The number of days is based on the universal practice around the world of ensuring that the bills mature on a business day.

True

There are three tenors of Treasury Bills: (1) 91 day (2) 182-day (3) 364-day Bills.(True/False)

True

Transactions in the money market are not confined to one singular location. Instead, the traders organize the purchasing and selling of the securities among participants and closes the transactions electronically. (True/False)

False

Treasury Bills are government securities issued by Bangko Sentral ng Pilipinas which mature in less than a year.(True/False)

Which of the following is the safest (less risky) investment a. Treasury bills b. Investments of common stock with voting rights c. Preferred stock non-cumulative d. Corporate bonds

Treasury bills

True

Treasury bills can be sold via two methods: auctions or competitive bidding and noncompetitive bidding.(True/False)

True

Treasury bills have virtually zero default risk since the government can always print more money that they can use redeem these securities at maturity(True/False)

Which of the following are money market debt securities a. Treasury bills and Certificate of Deposits b. Treasury bills, notes and bonds c. Certificate of Deposits and Preferred stocks d. Credit Card bills and Pay Day Loans

Treasury bills, and certificate of deposits

Which of the following are capital market debt securities a. Treasury bills and Certificate of Deposits b. Treasury bills, notes and bonds c. Certificate of Deposits and Preferred stocks d. Treasury notes and bonds

Treasury notes and bonds

A collateralized debt obligation (CDO) is a structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors

True

A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract.

True

A stock is an equity security, while a bond is a debt security

True

According to Fabozzi and Drake, there are two economic theories that drives the interest rates. These are loanable funds theory and liquidity preference theory.

True

Also known as fixed income securities most debt securities are traded over the counter

True

An ABS is similar to a mortgage-backed security, except that the underlying securities are not mortgage-based

True

Another way on how to calculate the interest rate is by the function of the market value, par value and the interest expense paid by debt securities or bonds.

True

Asset-backed security (ABS) is a financial security collateralized by a pool of assets such as loans, leases, credit card debt, royalties or receivables

True

BSP defined interest rates to be a type of price. Interest are set to compensate the risk of allowing the finances to flow into the financial system.

True

Bangko Sentral ng Pilipinas is the top financial regulator in the Philippines. Together with it are: Philippine Securities and Exchange Commission, Insurance Commitments, and Board of Investments

True

Biased expectation theory includes that there are other factors that affect the term structure of the loans as well as the interest to be perceived moving forward.

True

CARE Ratings started its operation in 1993 based in India. The company is based in Mumbai with partners in Brazil, Portugal, Malaysia and South Africa.

True

Capital market securities are classified into two: equity (which represent ownership interest) and debt

True

Characteristics for an Effective Payment System is that it should have (1) standard methods of transmitting payment message; (2) agreed means of settlement; (3) common operating procedures and rules.

True

Consumer protection on the other hand is a factor to consider that policies enforced assumes the effect to the consumers' welfare.

True

Credit risk also affects the valuation of accounts receivable.

True

Credit risk is one type of business risk that the borrower was not able to repay its obligation.

True

Currently, certain platforms are integrated with online brokerage companies to (1) facilitate opening an account; (2) facilitate purchase or sale of the transactions; and (3) reduce human intervention provides objective approach to manage financial market transactions.

True

DBRS was established in 1976 in Toronto, Canada. The company was considered as the fourth largest ratings agency.

True

Debt market or debt securities market is also known as bond market is a financial market in which the participants are provided with the issuance and trading of debt securities

True

Debt market or debt securities market is the financial market where the debt instruments or securities are transacted by suppliers and demanders of funds

True

Debt security refers to a debt instrument, such as government bond, corporate bond, certificate of deposit, municipal bond or preferred stock, that can be bought or sold between two parties and has basic terms defined, such as notional amount ( amount borrowed), interest rate, and maturity and renewal date

True

Default risk arise on the inability to make payment consistently.

True

Drivers in the market that led to failure for businesses are: competitiveness, market behavior, consistency, and stability.

True

Efficiency enhancement is a factor that is considered to ensure the dynamism and agility of the policy to adopt in a fast-changing environment

True

Every country must implement its regulatory system to ensure controls and governance.

True

Expectation theories is that the interest rates are driven by the expectation of the lender or borrowers in the risks of the market in the future. These maybe a pure expectation theory and biased expectation theory.

True

Financial Activities has been referred to activities that deals on funding certain transaction or expenditures. In the financial market, the financial activities are focused on the trading of securities and financial instruments.

True

Financial Markets is same with the other economic markets where suppliers and buyers of financial instrumens meet.

True

Financial Regulation set rules and standards to oversight the ability of the companies to establish and maintain appropriate level of capital to sustain in the operation.

True

Financial System is a set of arrangements or conventions embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments including their derivative so that the price and allocation of funds are determined efficiently.

True

Financial instruments are called securities since securities carry some value on them. when they are exchanged in the market, the realization will be informed of cash and a benefit for the holder of the securities

True

Financial instruments are medium of exchange of contractual obligation of a party, where such contract can be traded

True

Financial intermediary are special type of financial entity that acts as a third party to facilitate the borrowing activity between lenders and borrowers

True

Financial market is a forum or market that enables suppliers and demanders of funds to make transactions

True

Financial market refers to channels or places where funds and financial instruments such as stocks, bonds and other securities are exchanged between willing individuals an/or entities.

True

Financial regulation is a type of regulation whereby rules and standards were set to oversight the ability of the companies to establish and maintain appropriate level of capital to sustain its operation. It also includes setting controls over the market factors that will affect the financial sustainability of the firms and players in the industry.

True

Financial system is composed of network of inter-related systems of financial markets, intermediaries and services.

True

Fitch Ratings classify the credit standing into the ratings AAA to D

True

Forward rates are normally contracted rates that fixed the rates and allow a party to assume such risk on the difference between the contracted rate and the spot rate.

True

Funds can flow from lender-savers to the borrower-spenders in two routes: via direct financing or indirect financing

True

Government role is to set standards to regulate and ensure that information provided in the market are fair, consistent, and conservative

True

In 2019, Philippines was assessed by S&P at BBB with a stable outlook while Fitch last evaluation was in 2017 at BBB also with stable outlook. Moody's on the other hand, rated the country in 2014 at Baa with stable rating.

True

In bond markets, the participants are either buyers of funds (that is, debt issuers) or sellers of fnds (institutions)

True

In commerce, risk is a very important factor to consider that may drives the business up or down. Risk relates to the volatility of return patterns in the business.

True

In finance, interest can be determined by the function of the risk and the compensation of the investor on the difference between the risk-free rate and the market fluctuations

True

In order to mitigate the risk, most businesses hedge forward rates or enter into a swap rate agreement. It is important for the borrowers and lenders to know what the spot rate in the prevailing market is and employ certain expectations in the future.

True

In the bond market, participants can issue new debt in the market called the primary market or trade debt securities in the market called the secondary market

True

In the emergence of the e-banking system that serves as the platform of the payment system facilities. The payment system may facilitate the settlement of the financial market transaction.

True

Information costs are costs related in evaluating investment characteristics of a financial instrument

True

Internal or National market refers to the financial market operating in a certain country

True

It is theoretically assumed that the cost of financing is affected by the availability of loanable funds which is the Loanable Funds Theory and the maturity of the loans, where the longer the life of the loans the higher the rate is Liquidity Preference Theory.

True

LIBOR or London Interbank Offered Rate is used to benchmark interest rates which is used as reference for international banks to borrow. It is calculated using the Intercontinental Exchange or ICE.

True

Legal risk is dependent on the covenants set and agreed in between the lenders and the borrowers.

True

Liquidity Risk is identified by ensuring the business to be capable of meeting all its currently maturing obligation.

True

Liquidity preference theory was introduced by John Maynard Keynes, that the interest rates are dependent on the preference of the household whether they hold or use it for investment.

True

Liquidity premium increases as the maturity lengthens. This theory is called the liquidity theory.

True

Loanable funds theory assumes that it is ideal to supply funds when the interests are high and vice versa. This theory was introduced b Knut Wicksell in 1900s

True

Local governments and their agencies, states, cities, special-purpose districts, public utility district, school districts, publicly owned airports and seaports, and other government-owned entities issue municipal bonds to fund their projects

True

Long-term debt instruments are obligations to do in one year or more, normally repaid through periodic installment payments

True

Market Segmentation Theory assumes that the driver of the interest rates are the savings and investment flows.

True

Market risk is the impact of the market drivers to the ability of the borrowers to settle the obligation.

True

Market stability is an external and fatal factor to be considered by the firms in the financial market

True

Money is expected to be regulated somehow to enable the sovereign to have control to its economy.

True

Money supply is the availability of financial resources for deployment in the financial system. It is making the money available for use or for trade or investment.

True

Moody's Investors Services or Moody's is credit rating company particularly on debt securities established in 1909 in New York, USA.

True

Moody's classify the credit standing into the ratings Aaa to C

True

Normal basis of the risk-free rate is the Treasury bills issued by the Republic.

True

One of the challenges in financing is to ensure the ability of the borrowers to settle the obligation. The risk involve in financing are: default risk, liquidity risk, and market risk among others.

True

Payment System is a set of interrelated processes of settlement of goods or rendering of service in exchange for set of instrument that will undergo either a banking or non-banking procedures.

True

Pooled mortgages on real estate properties provide mortgage bonds. Mortgage bonds are locked in by the pledge of particular assets

True

Preferred habitat theory does not only consider the liquidity but the risk premium as well but disregarding the consensus of the market on the future interest rates.

True

Primary market is a type of financial market wherein fund demanders such as corporation or a government agency raise funds through new issuances of financial instruments e.g. bonds and stocks

True

Private placement occurs when the issuer looks for a single investor, an institutional buyer or group of buyers to purchase the whole securities issuance instead of offering it to the general public

True

Public Utility Research Center in the University of Florida defined regulation is a process whereby the designated government authority provides oversight and establishes rules for firms in an industry

True

Public offering occurs when securities are offered for sale to the general public.

True

Pure expectations theory is based on the current data and statistical analysis to project the behavior of the market in the future.

True

Regulation was designed to set rules and guidelines to be followed that is designed to ensure balance among the individuals, firms and/or citizens as the case maybe.

True

Regulatory environment is the governance body o ensure that the transactions that occur within the financial systems complies with the laws and regulations imposed to the actors as well as the elements that plays within the system

True

Security is fungible, negotiable financial instrument that holds some type of monetary value

True

Setting rules to set standards, control and order on the financial activities, regardless of the source, is called as financial activity regulation.

True

Short-term debt instruments, both personal and corporate, come in the form of obligations expected to be repaid within one calendar year.

True

Since the BSP is the main supplier of the bank reserves, it cannot set the real interest rates because it cannot set the inflation expectations. Hence, it is more appropriate to say the real risk free rate can be determined by deducting the prevailing inflation.

True

Since the interest rate is dependent on the inflation, tenor and other market risks. Companies should consider and make reasonable estimates to mitigate these risks.

True

Since the payment system facility, nowadays, involve well defined parties and rules. The payment system facilities have verification process to allow the users to validate the transaction before completing the authority to make payments. Also, one advantage for established payment system is the absence of physical cash or financial instrument, everything can be made virtually or if applicable electronically, this minimizes the risk of loss, theft and misappropriation.

True

Standard and Poor's Corporation or S&P is an American financial services corporation was founded in 1941 by Henry Varnum Poor in New York, USA.

True

Swap rate is another contract rate where a fixed rate exchange for a certain market rate at a certain maturity.

True

The PDS Group is an organized market that was formed out of the financial distress in 1997.

True

The PDS group is composed of four corporation: Philippine Dealing and Exchange Corporate (PDEx) their trading services arm, Philippine Depository and Trust Corp. (PDTC) for the securities services, Philippine Securities Settlement Corp. (PSSC) for their payments and transfer services, and the PDS Academy for Market Development Corp. (PDSA) as their training center.

True

The Securities and Exchange Commission is the national government regulatory agency to administer oversight on the corporate sector, capital market participants and securities and investment instrument and promote corporate governance over these. It was created on October 26, 1936 under the Commonwealth Act No. 83.

True

The adjustment increase on the interest rate is called the liquidity premium.

True

The behavior of the firms in the industry can be regulated by their behavior. Their behavior in the market can be demonstrated on their: (1) integrity on their activities; and (2) integrity on their representation.

True

The bond market primarily includes government-issued securities and corporate debt securities, facilitating the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations

True

The central bank, BSP for the case of the Philippines, is authorized by the republic under R.A. 7653 that they have the sole power to issue currency, within the territory of the Philippines. Given it is a sole authority, no one is allowed to issue or reproduce any document or object for general monetary circulation

True

The common defaults in the covenants are as follows: (1) maintaining the financial ratios; (2) significant acquisition or disposal of assets; (3) repayment of other obligation; or (4) declaration of dividends of any form without the consent of the lenders.

True

The coupon rate is the fixed return that an investor earns periodically until it matures

True

The credit ratings are determined by companies that are recognized globally that objectively assigns or evaluates countries and companies based on the riskiness of doing business with them.

True

The credit ratings provided by S&P were categorized to Investment Grade and Non-Investment Grade and scaled from AAA to D

True

The e-banking with the other features allows payment and money transfers. This shows that payment system works within an infrastructure providing efficient solution and real-time processing of payment with reduce risk.

True

The general bond market can be classified into corporate bonds, government and agency bonds, municipal bonds, mortgage-backed bonds, asset-backed bonds, and collateralized debt obligations

True

The importance of a debt instrument is twofold. First, it makes the repayment of debt legally enforceable. Second, It increases the transferability of the obligation, giving it increased liquidity and giving creditors a means of treating these obligations on the market.

True

The interest as a price is different on the perspective of the lender or borrower. For lenders, interest rate is called as lending rate or return.

True

The interest as a price is different on the perspective of the lender or borrower. For the borrowers, these will serve as cost of debt.

True

The payment system is a set of interrelated processes of settlement of goods or services rendered in exchange for a set of instrument that will undergo either a banking or non-banking procedures.

True

The price is normally driven by the level of risk on how the issuer of the financial instruments

True

The purchasing power is practically based on the consumer price index. In economics, the consumer price index or CPI is the weighted average value of the basket of prices of all commodities representing the market.

True

The tenor of the investment also defines the riskiness of the repayment of debt.

True

There are risks that are inherent in every financing transaction. These are default risk, liquidity risk, legal risks, and market risks, among others.

True

There are two economic theories that affect the term structure of interest rate. These are expectations theory and market segmentation theory.

True

There are two types of inflation: the core inflation and headline inflation.

True

Types of debt instruments include notes, bonds, debentures, certificates, mortgages, leases, or other agreements between a lender and a borrower

True

When the agreement is a spot rate the applicable interest rate is based on the prevailing market rate at the particular time.

True

While most people are more familiar twitch the market for equity securities, the debt market is nearly twice its size, globally

True

Without debt instruments acting as a means of facilitating trading, debt will only be an obligation from one party to another

True

alternately we can call financial instruments are called securities, since they are backed by corporations or government

True

capital market debt securities are debt securities with maturities of longer than one year. examples are notes, bonds, and mortgage backed securities.

True

debt securities are negotiable and tradable debt instruments which carry value on them

True

debt securities sometimes referred to as fixed income securities, include money market securities and capital market debt securities such as note, bond, and mortgage backed securities

True

interest rate on a debt security is largely determined by perceived repayment ability of the borrower; higher risks of payment default almost always lead to higher interest rates to borrow capital

True

long term debt instruments in personal finance are usually mortgage payments or car loans.

True

money market securities are debt securities with a maturity of less than one year. money market securities of most interest to individual investors are treasury bills (T-bills) and certificate of deposit (CDs)

True

Debt securities have an implicit level of risk simply because they ensure that the principal amount that is returned to the lender at the maturity date or upon the sale of the security

True - 36% False - 63.2% Base sa forms

Debt securities are typically classified by the following except a. level of default risk b. type of issuer c. income payment cycles d. interest rate

Type of issuer

P 970.87

Using the present value approach, what is the market security value of one-year Treasury bill is at P1,000 with an annual interest rate of 3%?

True

Valuation of money market securities is important to determine at what amount an investor is willing to pay in exchange of a security(True/False)

Financial Systems is a network of interrelated factors. Which of the following is not an element of financial system? Value Creation Regulatory Environment Financial Intermediary Financial Instruments

Value Creation

Which of the following is not a source of wealth Labor Capital Wages Entrepreneurship

Wages

False

When a P1,000 Treasury bill with a 91-day tenor can be purchased at 995, this means that its Annualized DIscount rate is 2.02%(True/False)

False

When a P1,000 Treasury bill with a 91-day tenor can be purchased at 995, this means that its Annualized Investment rate is 1.98%(True/False)

Is a challenge or threat whereby it arises where a segment or firm was not able to meet its commitment because of their failure to address the risks of the market. a. Systemic instability b. Consistency c. Market Stability d. Inefficiency

This economic theory accordingly drives the interest rate assumes that it is ideal to supply funds when the interests are high and vice versa. a. Loanable funds b. Liquidity preference c. Expectation d. Market Segmentation

Which of the following is not addressed by Antithrust/competition policy? * a. systemic risk b. consumer protection c. efficiency enhancement d. social objectives

Which of the following is not one of the risks and social factors being addressed by regulatory measures set by World bank? a. systematic risk b. consumer protection c. efficiency enhancement d. social objectives

Which of the following is not within the scope and responsibilities of Securities and Exchange Commission? a. Have jurisdiction and supervision over all corporations, partnerships, sole proprietorships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government b. Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto c. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications d. Regulate, investigate or supervise the activities of persons to ensure compliance

Asset

a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Which of the following is not correct about Financial System? a. Financial system is a set of arrangements embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments so that the price and valuation of funds are determined effectively. b. Financial system allows households, companies and the government who have available funds to invest these funds in more potentially productive vehicles that can result in faster growth in the economy. c, A properly functioning financial system also enhance welfare of individual consumers as they have immediate access to funds allowing them to purchase things as they prefer. d. The financial system encourages fund savings from its stakeholders and transform these savings efficiently into investment vehicles that help the economy grow faster.

a. Financial system is a set of arrangements embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments so that the price and ALLOCATION of funds are determined EFFICIENTLY.

Treasury bills

are government securities issued by the Bureau of Treasury which mature in less than a year

Negotiable Certificates of Deposit

are securities issued by banks which records a deposit made. The certificate indicates the interest rate and the maturity date of the deposit. *

__________________ is usually used for issuance of treasury bills, bonds and other securities issued by the government and are commonly executed exclusively with market markers. This can be done in 3 methods. money market placement government bidding auction Tap issue

auction

This economic theory accordingly drives the interest rate assumes that the interest rates are dependent on the preference of the household whether they hold or use it for investment.. a. Loanable funds b. Liquidity preference c. Expectation

Which of the following is incorrect about credit risk? a. Credit risk is one type of business risk. b. This is the risk that the lender was not able to repay its obligation. c. Credit risk also affects the valuation of accounts receivable. d. Such risk is valuated as a factor to determine the cost of lending or financing using debt.

Which of the following is not correct about Financial System? a. Financial markets help in creating more efficient allocation of capital which results in higher production and efficient that ultimately leads to economic growth. b. Financial market refers precisely to the physical value where funds and financial instruments such as stocks, bonds and other securities are exchanged between willing individuals and/or entities e.g. PSE an PDEx c. Participants in the financial markets include ultimate lenders and borrowers such as household, government and businesses, financial intermediaries, broker and dealers, regulators, fund managers and financial exchanges. d. The main economic function of the financial markets is to serve as a channel to transfer excess funds from fund providers to fund demanders.

In a ________________, the buyer and the seller of the securities are brought together by a broker and the trade occurs at that point. broker market dealer market trading market Secondary market

broker market

According to Chapter 4 of the BSP Circular No. 829 series 2014 amending the consolidated rules and regulations on currency notes and coins issued in the Philippines, for the banks, including their branches, if applicable, must observe the following for the deposit of their notes, except: * a. Banks shall incorporate measures on the implementation thereof in their compliance program. b. Banks shall provide securely sealed bags or containers separately for the clear or fit notes, and for the dirty or unfit notes accompanied by a deposit slip for each type/category. It must be labeled "UNFIT". c. Handling of deposits, banks' deposits shall be packed in sealed bags or containers in standard quantity of ten (10) full bundles per denomination. Each bundle containing 1,000 notes in 10 equal straps. Each strap containing 100 notes. d. Banks located in the provinces may make direct deposits of currency notes, duly identified and sorted, with the nearest BSP regional office/branch. For those without regional offices available, they may arrange it with their respective head offices to be shipped to BSP in Quezon City. The cost shall be borne by the bank concerned.

Auditors may consider as part of their procedures to validate the authenticity of the currencies, as described by the BSP in its circulars, a currency note shall be considered unfit for circulation when, except: * a. It contains heavy crinkles which break the fiber of the paper and indicate that disintegration of the note has begun; or b. It is badly soiled/contaminated and/or with writings even if its has proper life or sizing; or c. It is bent or twisted out of shape or defaced or show signs of corrosion, but its genuineness and/or denomination can still be readily and clearly determined/identified d. It presents a limp or rag-like appearance and/or it can not sustain its upright position when held at the mid-portion of one of the shorter borders.

Money will take the form of the following, except: a. Coins and bills b. Demand deposits c. Security Deposits d. Other Financial Instruments

Which of the following is not a sector/function supporting the function of the BSP Governor? * a. Financial Supervision b. Monetary and Economics c. Financial Management d. Corporate Services Group

Public offering can be _______________. Which is not correct? a. offer for subscription b. offer for sale c. acceptance of subscription and acceptance of sale d. both a and b

c. acceptance of subscription and acceptance of sale

Is a factor to consider that policies enforced assumes the effect to the consumers' welfare.

consumer protection

A corporate bond was issued by X corporation to an Y corporation. From this investment, Y corp will earn 5% every year for 5 years. Y corp has paid for this Php 1,000.00 value bond for only Php 990.00. What do you call the 5% that will be earned by Y corp Coupon rate Cost of capital Cost of debt Cost of bond

coupon rate

Following above, the P990 referred is called Current price Face value Bond value Coupon value

current price

A Payment system is important due to the following features, except: * a. Safe and Real Time Transactions; b. Effective risk management c. Facilitates Financial Market Transactions d. All of the above

According to BSP, a payment system normally requires the following, except: * a. Standard methods of transmitting payment messages within the system b. Agreed means of settlement c. Common operating procedures and rules e.g. admission, fees and operating hours. d. All of the above

As of 2019, there are 8 countries using Peso as a currency. These include the following, except: * a. Cuba b. Chile c. Columbia d. Czech Republic

Drivers in the market that led to failure for businesses do not include ______________. a. competitiveness b. market behavior c. consistency d. Integrity

For a monetary policy to be appropriate or effective, the BSP must ensure the following are present, except: a. Alignment to the target goals b. Access to information c. Responsiveness of the variable set d. All of the above

Which of the following is addressed by Geographic Restrictions? a. systemic risk b. consumer protection c. efficiency enhancement d. social objectives

Which of the following is not a function of Bangko Sentral ng Pilipinas? * a. Liquidity Management b. Currency Issue c. Lender of Last Resort d. Financial Intermediation

Which of the following is not a function of Insurance Commission? * a. Promulgation and implementation of policies, rules and regulations governing the operations of entities engaged in insurance, pre-need, and HMO activities as well as benevolent features. b. Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit associations, trusts for charitable uses, pre-need companies, pre-need intermediaries, and HMO companies c. Conducting insurance agent's examinations, as well as processing of reinsurance treaties and request for investments of insurance companies d. Review, approval, selling and marketing of all life and non-life policies, pre-need, and HMO plans to prospective clients.

Which of the following is not a member of Monetary Board? a. Secretary of Department of Finance or his designate b. Private sector c. BSP Governor d. Head of the Bureau of Treasury

Which of the following is not a service provided by Board of Investments? * a. Providing information for the knowledge-based research. b. Incentivize the investors through the provision of tax holidays, tax and duty exemption of imported capital equipment etc. c. Participate through policy advocacy initiatives to ensure that the laws and regulation are investment friendly. d. All of the above

Which of the following is not addressed by Disclosure of Standards? * a. systemic risk b. consumer protection c. efficiency enhancement d. social objectives

Which of the following is not regulated by Insurance Commission? a. Insurance Companies b. Pre-need Companies c. Health Maintenance Organization d. Philhealth Insurance Corporation

In a ________________, the buyer and seller are not brought directly together by a third party. broker market dealer market trading market Secondary market

dealer market

Is a factor that is considered to ensure the dynamism and agility of the policy to adopt in a fast-changing environment.

efficiency enhancement

Following above, the P1000 is called Current price Face value Bond value Coupon value

face value

Broker Market and Dealer Market are classification of Financial Market based on _____________. Instrument traded Market type Country's Perspective financial intermediaries

financial intermediaries.

This is also known as limited public offer private placement money market placement capital market placement public placement

private placement

Banker's Acceptance

refer to an order to pay a specified amount of money to the bearer on a specified date.

BSP shall be governed by the Monetary Board. The Monetary board is composed of __________ members.

seven

Is a factor that is taking into consideration the alignment in the objectives of the society

social objectives

Which of the following is not a tangible assets?

software

Is the probability of a firm to fail its objective that will result to ripple effect.

systemic risk

Financial Instruments

the main vehicle used for transactions in the financial market. For the purposes of presentation in financial statements, these may be presented under cash equivalents or investments.

Securities coursed through _____________ gives comfort to potential investors since ___________ are willing to take the risk of guaranteeing these securities. market maker underwriter financial intermediary guarantor

Chapter 1 - 6

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FON: Final