FFM Test with Complete Solutions 2025
Use of Financial Instruments - ANSWER Allocation of Capital, Risk, and Consumption
Smoothing
Financial Instruments - ANSWER Fixed Income Securities, Equity, Derivatives, Mutual
Funds, Asset Backed Securities
Allocation of Capital - ANSWER Financing of projects (equity, bond issuance)
Allocation of Risk - ANSWER Hedging (taking offsetting position) and Diversification
(investing across multiple assets, mutual bonds)
Consumption Smoothing - ANSWER saving and borrowing
Fixed Income Securities - ANSWER Borrowing instruments (treasury, muni, corporate,
valued through TVM), fixed cash flows
Treasury Bonds - ANSWER bills, notes, bonds with semi annual coupon payments, least
risky, no default.
Municipal Bonds - ANSWER bonds issues by state and local governments, exempt from
taxes. GO bonds: backed by taxing power of issuing jurisdiction, Revenue Bonds: finance
specific projects, riskier
Corporate Bonds - ANSWER commercial papers and corporate bonds (long term). Risk of
default. Different seniority classes.
Use of Financial Instruments - ANSWER Allocation of Capital, Risk, and Consumption
Smoothing
Financial Instruments - ANSWER Fixed Income Securities, Equity, Derivatives, Mutual
Funds, Asset Backed Securities
Allocation of Capital - ANSWER Financing of projects (equity, bond issuance)
Allocation of Risk - ANSWER Hedging (taking offsetting position) and Diversification
(investing across multiple assets, mutual bonds)
Consumption Smoothing - ANSWER saving and borrowing
Fixed Income Securities - ANSWER Borrowing instruments (treasury, muni, corporate,
valued through TVM), fixed cash flows
Treasury Bonds - ANSWER bills, notes, bonds with semi annual coupon payments, least
risky, no default.
Municipal Bonds - ANSWER bonds issues by state and local governments, exempt from
taxes. GO bonds: backed by taxing power of issuing jurisdiction, Revenue Bonds: finance
specific projects, riskier
Corporate Bonds - ANSWER commercial papers and corporate bonds (long term). Risk of
default. Different seniority classes.
