DEBT: MONEY MARKET + EURODOLLAR
Which of the following money market instruments is rated on a "P" scale? A. Commercial Paper B. Municipal Short Term Notes C. Treasury Bills D. Federal Funds
A. Commercial Paper
Customer "A" buys a Credit Default Swap (CDS) from Customer "B," with the reference loan being one made to Customer "C." If Customer "C" defaults, then: A. Customer A benefits B. Customer B benefits C. Customer C benefits D. any benefit to a specific party is based on the terms of the contract
A. Customer A benefits
The money market instrument with the shortest maturity is: A. Federal Funds B. Eurodollar Certificates of Deposit C. Commercial Paper D. Treasury Bills
A. Federal Funds
When comparing an ETN to a structured product, which statements are TRUE? I ETNs can be traded at any time while structured products cannot II Structured products can be traded at any time while ETNs cannot III ETN income is taxable at lower rates than income from structured products IV Structured product income is taxable at lower rates than income from ETNs A. I and III B. I and IV C. II and III D. II and IV
A. I and III
Which of the following statements are TRUE about overnight repurchase agreements entered into between the Federal Reserve and primary U.S. Government dealers? I The Federal Reserve buys "eligible" securities from the dealer with an agreement to sell back the securities the next day II The primary dealer buys "eligible" securities from the Federal Reserve with an agreement to sell back the securities the next day III There is virtually no credit risk involved IV There is virtually no interest rate risk involved A. I and III B. I and IV C. II and III D. II and IV
A. I and III
Which statements are TRUE when the Federal Reserve enters into reverse repurchase agreements with U.S. Government securities dealers? I The Federal Reserve is tightening credit II The Federal Reserve is loosening credit III Banks will have less money to loan out IV Banks have more money to loan out A. I and III B. I and IV C. II and III D. II and IV
A. I and III
Which of the following can initiate repurchase agreements with government and agency securities as collateral? I Federal Home Loan Banks II Commercial banks III Federal Reserve Banks IV Government securities dealers A. II, III, IV B. I, II, III C. I, III, IV D. I, II, III, IV
A. II, III, IV
Interest on Eurodollar bonds is paid: A. annually B. semi-annually C. quarterly D. monthly
A. annually
On customer account statements, long-term negotiable certificates of deposit must be shown at: A. market value B. market value plus accrued interest C. face value D. face value plus accrued interest
A. market value
Money market discounts are quoted on a: A. yield basis B. percentage of par basis in 1/8ths C. percentage of par basis in 32nds D. percentage of par basis in 64ths
A. yield basis
An ETN offers an investor all of the following benefits EXCEPT: A. lack of liquidity risk B. lack of credit risk C. tax-efficiency D. access to returns of foreign investments
B . lack of credit risk
The minimum dollar amount of a negotiable certificate of deposit is usually: A. $10,000 B. $100,000 C. $1,000,000 D. $10,000,000
B. $100,000
Trades of which of the following securities will settle in Fed Funds? I Treasury Bills II Treasury Notes III Municipal Bonds IV Corporate Bonds A. I only B. I and II only C. III and IV only D. I, II, III, IV
B. I and II only
A customer purchases a reverse convertible note. Under which scenario will the customer receive less than par value at maturity? I The market price of the reference stock has declined II The market price of the reference stock has increased III At maturity, the price of the reference stock is above the "knock-in " price IV At maturity, the price of the reference stock is below the "knock-in " price A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Eurodollar deposits are: I denominated in U.S. currency II denominated in foreign currency III held in banks in the U.S. IV held in banks in foreign countries A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Regarding auction rate securities, a failed auction will result if the: I total par amount of sell orders received by the auction agent exceeds the total par amount of bids II total par amount of buy orders received by the auction agent exceeds the total par amount of offers III bid rates are lower than the Clearing Rate set for the auction IV bid rates are higher than the Clearing Rate set for the auction A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Which of the following are characteristics of brokered CDs that should be disclosed to customers? I The CD may have an initial interest rate that is higher than the market rate of interest, but that rate will be lowered after the CD is held for a stated time period II CDs are actively traded instruments, so the customer should experience minimal marketability risk if the CD is sold prior to maturity III CDs can be redeemed at any time with the issuer, but the issuer can impose a penalty for early withdrawal of funds IV CDs can be callable, and if interest rates fall during the life of the instrument, the issuer may call the CD, forcing the holder to reinvest at lower current rates A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Which statements are TRUE about ETNs? I ETNs are a structured product II ETNs are an investment company product III ETNs are suitable for investors seeking income IV ETNs are suitable for investors seeking long-term capital gains A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Which statements are TRUE regarding Step-Down Certificates of Deposit? I Initial payments are made at an interest rate that is above the market rate II Initial payments are made at an interest rate that is below the market rate III At a predetermined time, the interest rate is increased to a rate that is at, or above, the market IV At a predetermined time, the interest rate is decreased to a rate that is at, or below, the market A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
The purchase price of each of the following can be negotiated EXCEPT: A. Commercial Paper B. Savings Bond C. Certificate of Deposit D. Banker's Acceptance
B. Savings Bond
A bank issuer's ETN has been downgraded by Moody's from Aaa to Aa. The price of the ETN rose 2% after the downgrade was announced. What should the registered representative tell the client? A. The bank downgrade does not matter because the price of the ETN rose by 2% B. The bank downgrade can affect the marketability of the ETN C. The bank downgrade is not meaningful because the ETN is still rated investment grade D. The bank downgrade does not matter because the ETN can be redeemed at par at maturity
B. The bank downgrade can affect the marketability of the ETN
All of the following are money market instruments EXCEPT: A. Tax Anticipation Notes B. Treasury Notes C. Certificates of Deposit D. Commercial Paper
B. Treasury Notes
The effective Fed Funds Rate is the: A. rate charged by the largest members of the Federal Reserve System B. averaged rate of member banks throughout the United States C. highest rate charged by member banks, calculated on Wednesdays D. lowest rate charged by member banks, calculated on Wednesdays
B. averaged rate of member banks throughout the United States
To loosen credit the Federal Reserve will: A. sell U.S. Government securities to bank dealers with an agreement to buy them back at a later date B. buy U.S. Government securities from bank dealers with an agreement to sell them back at a later date C. sell Foreign Government securities to bank dealers with an agreement to buy them back at a later date D. buy Foreign Government securities from bank dealers with an agreement to sell them back at a later date
B. buy U.S. Government securities from bank dealers with an agreement to sell them back at a later date
All of the following statements are true about Eurodollar bonds EXCEPT: A. U.S. corporate issuers are not subject to foreign currency risk B. foreign corporate issuers are not subject to foreign currency risk C. trading is centered in the European market D. the bonds are issued in bearer form
B. foreign corporate issuers are not subject to foreign currency risk
All of the following statements are true regarding Eurodollar bonds EXCEPT: A. Eurodollar bonds are issued by both domestic and foreign corporations B. payment of interest and principal is made in either U.S. dollars or a designated foreign currency C. trading does not take place in the United States D. the securities are not registered with the SEC
B. payment of interest and principal is made in either U.S. dollars or a designated foreign currency
Generally, which statement is FALSE about market index linked CDs? A. There can be a penalty applied to the principal amount of early withdrawals of funds B. The annual rate of return may be capped to an amount that is lower than the actual index return C. A market index linked CD can be redeemed at any time D. A market index linked CD is FDIC insured
C. A market index linked CD can be redeemed at any time
Which statements are TRUE regarding the Federal Funds rate? I The rate is computed every business day II The rate is lower than the discount rate III The rate is set by the Federal Reserve IV The rate is charged from one Federal Reserve member bank to another member bank A. I and III only B. II and IV only C. I, II and IV D. I, II, III, IV
C. I, II and IV
Which of the following are money market instruments? I Tax Anticipation Notes II Certificates of Deposit III Treasury Bonds IV Commercial Paper A. I and III only B. II and IV only C. I, II, IV D. I, II, III, IV
C. I, II, IV
In a repurchase agreement, the initiating government securities dealer: I buys securities from another dealer II sells securities to another dealer III agrees to buy back the securities at a later date IV agrees to sell the securities at a later date A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which of the following statements are TRUE about Eurodollar bonds? I Interest received from the bonds is subject to U.S. taxation II Interest received from the bonds is not subject to U.S. taxation III The bonds are purchased only by foreigners IV The bonds are purchased only by U.S. citizens A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which statements are TRUE regarding Brokered CDs? I There is a penalty for early withdrawal II There is no penalty for early withdrawal III There can be a loss of principal upon an early withdrawal IV There can be no loss of principal upon an early withdrawal A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which statements are TRUE regarding structured products? I Structured products are standardized II Structured products are not standardized III Structured products have a fixed maturity date (similar to a debt security) IV Structured products do not have a maturity date (similar to an equity security) A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Trades of all of the following securities will settle in Fed Funds EXCEPT: A. Treasury Bills B. Treasury Notes C. Municipal Bonds D. Agency Bonds
C. Municipal Bonds
The "essential" difference between an ARS and a VRDO is: A. weekly reset of interest rate B. long-term security with short-term interest rate C. embedded put option D. money market instrument similarity
C. embedded put option
An elderly customer that is currently invested in bonds for income is concerned about declining yields due to record low interest rates. He has contacted his registered representative and inquires about purchasing a reverse convertible note on a Blue Chip stock because it offers a higher yield. The customer should be informed that: A. the note is safe because it is an obligation of a Blue Chip corporation B. the note gives the customer the possibility of gains due to an equity price rise C. he or she can potentially lose 100% of the principal amount due to a stock price decline D. the "knock-in" price of the underlying security gives the customer the right to put the note back to the issuer at par at maturity
C. he or she can potentially lose 100% of the principal amount due to a stock price decline
A repurchase agreement is effected between two U.S. Government securities dealers. The interest charged under the agreement is the: A. coupon rate of the underlying U.S. Government securities, paid directly from the issuer to the securities' original buyer B. coupon rate of the underlying U.S. Government securities, paid directly from the issuer to the securities' original seller C. "repo" rate, paid by the buyer of the securities to the seller D. "repo" rate, paid by the seller of the securities to the buyer
D. "repo" rate, paid by the seller of the securities to the buyer
Commercial paper can be issued for all of the following maturities EXCEPT: A. 14 days B. 30 days C. 90 days D. 360 days
D. 360 days
All of the following participate in the Eurodollar bond market EXCEPT: A. Domestic commercial banks B. Foreign commercial banks C. Domestic investment banks D. Domestic thrift institutions
D. Domestic thrift institutions
Which of the following is the shortest term money market instrument? A. Commercial Paper B. Banker's Acceptance C. Negotiable Certificate of Deposit D. Federal Funds
D. Federal Funds
If a member firm wishes to offer structured products to its customers, which of the following procedures are required? I The member must perform a reasonable basis suitability determination before the product can be recommended to some of the member's customers II The member must perform a customer specific suitability analysis in order to make a recommendation of a structured product to an individual customer III The member must have procedures to determine that the account is eligible to purchase structured products and generally must have the account approved for options trading A. I only B. I and II only C. II and III only D. I, II, III
D. I, II, III
Long-term negotiable certificates of deposit are subject to which of the following risks? I Interest rate risk II Call risk III Reinvestment risk IV Marketability risk A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
D. I, II, III, IV
Which of the following statements are TRUE about commercial paper? I Commercial paper has a maximum maturity of 270 days II Commercial paper matures on a pre-set date at a pre-set price III Commercial paper is quoted on a yield basis IV Commercial paper is an unsecured promissory note A. I and IV only B. II and III only C. I, II, IV D. I, II, III, IV
D. I, II, III, IV
Which of the following statements are TRUE regarding Eurodollar bonds? I Eurodollar bonds are issued by both domestic and foreign corporations II Eurodollar bonds are denominated in U.S. dollars only III Trading does not take place in the United States IV The securities are not registered with the SEC A. I and III only B. II and IV only C. II, III, IV D. I, II, III, IV
D. I, II, III, IV
Which of the following statements are TRUE regarding overnight repurchase agreements? I The seller loses control of the underlying securities for the duration of the agreement II The interest rate charged is most similar to the Federal Funds rate III The investment has interest rate risk IV The investment has no liquidity risk A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV
D. I, II, III, IV
Commercial paper with a maturity of 270 days or less: I must be registered under the Securities Act of 1933 II does not have to be registered under the Securities Act of 1933 III is a non-exempt security IV is an exempt security A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which of the following statements are TRUE regarding Eurodollar deposits? I Eurodollar deposits are foreign currencies held in banks in foreign countries II Eurodollar deposits are U.S. currency held in banks in foreign countries III The interest rate paid on Eurodollar deposits is based on the Federal Funds Rate IV The interest rate paid on Eurodollar deposits is based on the London Interbank Offered Rate A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Trades of all of the following will settle in Fed Funds EXCEPT: A. Prime Banker's Acceptances B. Treasury Bills C. Treasury Bonds D. Prime Commercial Paper
D. Prime Commercial Paper
Which of the following securities cannot be margined? A. Treasury bills B. Commercial paper C. Bankers' acceptances D. Structured products
D. Structured products
All of the following statements are true about a Credit Default Swap (CDS) EXCEPT: A. The buyer of the CDS pays an annual premium to the seller B. The seller of the CDS agrees to pay the face amount of the loan to the buyer if the reference loan defaults C. The contract can be traded in the OTC market D. The buyer of the CDS must be the creditor on the reference loan
D. The buyer of the CDS must be the creditor on the reference loan
In order to determine whether a Brokered CD being recommended to a customer will qualify for FDIC insurance, the registered representative must know all of the following EXCEPT: A. name of the bank issuing the CD B. ownership title of the CD C. face amount of the CD D. call dates of the CD
D. call dates of the CD
The investment performance of an ELN (Equity Linked Note) is determined by all of the following EXCEPT: A. cap on the investment return B. floor on the investment return C. participation rate in the investment return D. interest rate credit set by weekly auction
D. interest rate credit set by weekly auction
