FIN360 exam 2

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

true

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

true

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

true; financial advisors are subject to behavioral finance

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

false; equity to assets, not assets to equity

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

false; money, not shares

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

false; the debt isn't fixed

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

false; there's no "downside"

The trend world-wide is for central banks to be

independent from executive powers

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

true

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

true

The nation currently leading in fintech is

china

The monetary policy tools of the Federal Reserve are

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

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

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

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

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

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

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

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

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

To support crisis economies, the Fed

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

Which are common negative situational influences?

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

Digital footprint data is used to enhance credit algorithms because

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

Moral malleability is defined as

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

The Fed is a hybrid structure because

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

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

Adverse selection problems <-- this is before contract

The depository institutions are

commercial banks, credit unions, and thrifts

The 2007-2009 great recession was caused by

Lack of financial literacy, moral hazard, deregulation

Behavioral finance examines

Emotional and cognitive biases first studied by psychologists

The dual mandate of the Fed is

Employment maximization and price stability

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

False

The big umbrella-term for obstacles to finance contracts is

Information asymmetries

The problem with GDP is that

It is a quarterly measure

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

PMI

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

Peer-to-peer lending platforms

PMI estimation follows a survey to

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

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

Regulation Litigation Customer service

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

They punished moral hazard by pricing shares at $2

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

True

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

True

Procrastination and financial literacy are personal topics examined by behavioral finance

True

The greatest strength of bitcoin is its underlying blockchain technology

True

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

True, even if your income is very limited

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

True; it was because they could not afford the insurance

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

both Fed and Treasury

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

both litigation and regulation

Behavioral finance assumes rational behavior

false

Limits of arbitrage means we can make money without incurring risk

false

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

false

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

false

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

false

Too-little diversification is an example of

overconfidence

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

prospect theory

The regional banks appoint a percentage of Fed directors because

the Fed was designed as a system with check and balances

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

true

Buffett does not think markets are rigged, despite HFT

true

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

true

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

true