FIN 511 LearnSmart Exam | Questions with 100% Correct Answers

FIN 511 LearnSmart Exam | Questions with 100% Correct Answers Which statements are true of money market instruments? - they have relatively low credit risk -they are directly accessible to individual investors -they can be purchased indirectly through mutual funds - they include the entire fixed income market Which statements are true about bid-ask spreads? - Individual investors buy from dealers at the bid price and sell at the ask price. - Dealers buy at the bid price and sell at the ask price. - They are defined as the bid price minus the ask price. - They are a source of profit for a dealer. The prohibition of trading for their own accounts by deposit-taking banks is the ______ Rule, named for the former Federal Reserve Chair. - Yellen - Bernanke - Greenspan - Volcker Which of the following statements are correct regarding commercial paper? - maturities range up to 350 days but most often are issued with a maturity of less than 30 days - is backed by a bank line of credit - considered to be a fairly safe asset due to the ability to be monitored and predicted over a short term. - is backed by a bank line of credit A _______ of ________ is a time deposit with a bank where the bank pays interest and principal to the depositor only at maturity. certificate; deposit Why might the rating agencies have so dramatically underestimated credit risk in subprime securities? - Default probabilities had been estimated using historical data that did not include periods of rising rates. - They extrapolated historical default experience to a new sort of borrower pool. - Since they were paid to provide ratings by the issuers of the securities, they faced pressure to provide generous ratings. - Default probabilities had been estimated using historical data from an unrepresentative period characterized by a housing boom. Repurchase Agreements a form of short-term borrowing Term Repo An identical transaction except that the term of implicit loan can be 30 days or more Reverse Repo the mirror image of a repo T-Bill A US government obligation with initial maturity of one year or less CD a time deposit with a bank Commercial Paper (CP) short-term unsecured debt issued by large , well known corporations Banker's Acceptance an order to pay a sum of money at a future date, like postdated check, used widely in foreign trade Repo an agreement to sell and repurchase an asset The ______ price is the price you would pay for a security from a dealer, and the _____ price is the slightly lower price you would receive if you wanted to sell to a dealer. ask; bid Commercial paper, backed by a bank line of credit gives the _______ access to cash that can be used to pay off the paper at maturity. Borrower Funds in the bank's reserve account are called ___ federal funds True or false: Time deposits may be withdrawn on demand. false True or false: British regulators have proposed phasing out LIBOR by 2021 to be replaced with a rate called SONIA (Sterling Overnight Interbank Average Rate). True True or false: Repos or RPs are short for repurchase agreements and are considered a form of short-term borrowing. True Both Treasury notes and Treasury bonds may be issued in increments of $ _____ (100/1,000) but are typically traded in denominations of $_____ (100/1,000). $100; $1,000 Which of the following are the correct about inflation-indexed treasury bonds? - Their yields are interpreted as real interest rates. - They offer a "free lunch" because of their inflation protection. - The principal amount on them is adjusted in proportion to increases in the Consumer Price Index. - They provide a constant stream of income in real dollars. Which statements are true about bid-ask spreads? - Dealers buy at the bid price and sell at the ask price. - They are defined as the bid price minus the ask price. - They are a source of profit for a dealer. - Individual investors buy from dealers at the bid price and sell at the ask price. Which of the following are mortgage-related government agencies, created because Congress believed that adequate credit was not being received through normal private sources. - Federal Home Loan Bank (FHLB) - Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). - Federal National Mortgage Association (FNMA or Fannie Mae) - Federal Government Mortgage Association (FGMA or Froggy Mae) - Government National Mortgage Association (GNMA or Ginnie Mae) - Federal Home Loan Bank (FHLB) The fed funds rate is simply the rate of interest on: - long-term loans among investors - very short-term loans among investors - most mortgages - very short-term loans among financial institutions The rate at which large banks in London are willing to lend money among themselves is known by the acronym _____ LIBOR or L.I.B.O.R True or false: Eurobonds are always denominated only in euros. False Identify the statements that describe the similarities between Treasury bonds and Treasury notes. - Both Treasury bonds and Treasury notes are Issued with maturities ranging from 10 to 30 years. - Both Treasury bonds and Treasury notes make semiannual interest payments. - Both Treasury bonds and Treasury notes commonly trade in denominations of $1,000. - Both Treasury bonds and Treasury notes can be sold in increments of $100. Which statements are true about municipal bonds? - Their interest income is exempt from federal income taxation. - Because they are risk-free, they offer lower interest rates than other bonds. - They are insured by the Federal Deposit Insurance Corporation. - Their interest income is usually exempt from state and local taxation in the issuing state. - Capital gains taxes must be paid if they are sold for more than the investor's purchase price. In the United States, inflation-indexed Treasury bonds are referred to by their acronym ____ TIPS The equivalent taxable yield is simply the _____-_____ rate divided by 1-t tax-free The FHLB _____ money by ____ securities and ____ this money to savings and loan institutions to be lent in turn to individuals borrowing for home mortgages. borrows; issuing; lends or lending Secured Corporate Bonds Have specific collateral backing them in the event of firm bankruptcy debenture bonds Bonds that are unsecured (i.e., not backed by any collateral such as equipment). callable bonds Firm has the option to repurchase the bond from the holder at a stipulated price