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S& I Fall Final Exam

QuestionAnswer
Financial institutions generally use futures contracts to reduce risk. True
_________ is most likely to be described as a depository institution? Credit Unions
Funds are provided to the initial issuer of securities in the primary market.
___________ is a capital market instrument? a ten-year bond
The Securities and Exchange Commission (SEC) was established by the Securities Exchange Act of 1934.
Funds are allocated to bonds with a short term maturity as well as to bonds with a long term to maturity. Barbell Strategy
A private bond placement has to be registered with the SEC. False
The Financial Reform Act in 2010 created the Financial Stability Oversight Council. True
Financial market participants who receive more money than they spend, such as investors are called surplus units.
____ concentrate on mortgage loans. Savings institutions
Right to buy underlying financial instrument at exercise price (or strike price) within a specified period of time. Call Option
The Securities Act of 1933 required complete disclosure of relevant financial information for publicly offered securities in the primary market.
Traders of options tend to monitor economic indicators because economic conditions affect cash flows of firms and thus can affect expected stock valuations and stock option premiums. True
_______________ risk securities have higher discount rates. High
Debt obligations representing claims on a package of mortgages. Mortgage-backed securities
Debt securities represent debt (borrowed funds) incurred by the issuer. True
Bonds Selling below Par Discount Bonds
Liquidity is the degree to which securities can easily be sold without a loss of value. True
If financial markets were ____, all information about any securities for sale in primary and secondary markets would be continuously and freely available to investors. perfect
The risk that a loss will occur because a counterparty defaults on the contract. Credit Risk
If financial markets are efficient, this implies that all securities should earn the same return. False
A five-year security was purchased two years ago by an investor who plans to resell it. The investor will sell the security in the secondary market.
A standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date Financial Futures Contract
____ obtain funds by issuing securities and then lend the funds to individuals and small businesses. Finance companies
If security prices fully reflect all available information, the markets for these securities are efficient.
The price of an interest rate futures contract reflects the expected price of the underlying security on the settlement date True
Behavioral finance applies psychology to financial decision making.
The Financial Reform Act of 2010 established the __________ to provide oversight for credit rating agencies. Office of Credit Ratings
The owner of an option cannot choose to let the option expire on the expiration date without exercising it. False
The risk of losses as a result of inadequate management or controls. Operational Risk
To obtain an option, a premium must be paid in addition to the price of the financial instrument. True
Securities represent a claim on the provider of funds. False
Financial contracts whose values are derived from the values of underlying assets. Derivative Securities
_________are institutions that are most likely to purchase a private bond placement? insurance company
International Bond Diversification may diversify foreign bond holdings among countries to reduce their exposure to different types of risk. True
The risk that the position being hedged by the futures contracts is not affected in the same manner as the instrument underlying the futures contract. Basis Risk
In aggregate, ____ are the most dominant depository institution, with more total assets than other depository institutions. commercial banks
When security prices fully reflect all available information, the markets for these securities are said to be efficient. True
The weighted average of a bond duration according to relative market value. Duration of a Portfolio
Financial futures are traded to speculate on prices of securities or to hedge existing exposure True
If the level of inflation is expected to increase, there will be ___________________ pressure on interest rates and hence on the required rate of return on bonds. upward
Systemic Risk is the spread of financial problem, among financial institutions and across financial markets, that could cause collapse in the financial system True
_________ is not an issuer of bonds? households
Refers to potential price distortions due to lack of liquidity. Liquidity Risk
Involves estimating future cash outflows and then developing a bond portfolio that can generate sufficient coupon or principal payments to cover those outflows. Matching Strategy
Note maturities are usually ____, while bond maturities are ____. less than 10 years; 10 years or more
________ is a non depository financial institution? mutual fund
Those financial markets that facilitate the flow of short-term funds are known as? money markets.
____________ distinguishes credit unions from commercial banks and savings institutions? Credit unions are nonprofit.
Investors in Treasury notes and bonds receive ____ interest payments from the Treasury. semiannual
Created by: mrstephens
 

 



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