LearnSmart FIN 511 Test Questions with Correct Answers Graded A+
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 - Answers - they have relatively low credit risk
- they can be purchased indirectly through mutual funds
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. - Answers - Dealers buy at the bid price and sell at 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 - Answers 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.
- Answers - 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.
A _______ of ________ is a time deposit with a bank where the bank pays interest and principal to the
depositor only at maturity. - Answers 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. - Answers - 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 - Answers a form of short-term borrowing
Term Repo - Answers An identical transaction except that the term of implicit loan can be 30 days or
more
Reverse Repo - Answers the mirror image of a repo
T-Bill - Answers A US government obligation with initial maturity of one year or less
CD - Answers a time deposit with a bank
Commercial Paper (CP) - Answers short-term unsecured debt issued by large , well known corporations
Banker's Acceptance - Answers an order to pay a sum of money at a future date, like postdated check,
used widely in foreign trade
Repo - Answers an agreement to sell and repurchase an asset
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 - Answers - they have relatively low credit risk
- they can be purchased indirectly through mutual funds
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. - Answers - Dealers buy at the bid price and sell at 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 - Answers 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.
- Answers - 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.
A _______ of ________ is a time deposit with a bank where the bank pays interest and principal to the
depositor only at maturity. - Answers 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. - Answers - 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 - Answers a form of short-term borrowing
Term Repo - Answers An identical transaction except that the term of implicit loan can be 30 days or
more
Reverse Repo - Answers the mirror image of a repo
T-Bill - Answers A US government obligation with initial maturity of one year or less
CD - Answers a time deposit with a bank
Commercial Paper (CP) - Answers short-term unsecured debt issued by large , well known corporations
Banker's Acceptance - Answers an order to pay a sum of money at a future date, like postdated check,
used widely in foreign trade
Repo - Answers an agreement to sell and repurchase an asset
