FIN355 Final Exam.
• FIN355 Final Exam
• Question 1
4 out of 4 points
The industry practice is that, when an investor in a repo transaction
needs cash early, .
Selected
Answer:
the borrower returns the cash early upon
request
Correct
Answer:
the borrower returns the cash early upon
request
• Question 2
4 out of 4 points
By investing in money market securities, banks can .
Selected
Answer:
earn modest returns while standing ready to meet
customer demand for withdrawals
Correct
Answer:
earn modest returns while standing ready to meet
customer demand for withdrawals
• Question 3
4 out of 4 points
Money market investors require the instruments to be highly
marketable due to .
Selected
Answer:
potential changes in the timing of the investors’
cash flows
Correct
Answer:
potential changes in the timing of the investors’
cash flows
• Question 4
4 out of 4 points
In 1997, Strong money market mutual funds were experiencing
problems related to .
Selected
Answer: default
risk
Correct
Answer:
,FIN355 Final Exam.
default
risk
• Question 5
4 out of 4 points
A plain vanilla swap is similar to .
Selected
Answer:
a series of forward
contracts
Correct
Answer:
a series of forward
contracts
• Question 6
4 out of 4 points
A covenant refers to .
Selected
Answer:
a provision of a long-term debt
contract
Correct
Answer:
a provision of a long-term debt
contract
• Question 7
4 out of 4 points
Money market investors buy short-term instruments due to .
Selected
Answer:
the short-term nature of their cash
surpluses
Correct
Answer:
the short-term nature of their cash
surpluses
• Question 8
4 out of 4 points
An immunized portfolio .
Selected
Answer:
is protected against interest-
rate risk
Correct
Answer:
is protected against interest-
rate risk
• Question 9
4 out of 4 points
,FIN355 Final Exam.
Bond A has a modified duration of 6 years and Bond B has a
modified duration of 8 years. Assume that yields of both bonds
increase by 100 basis points. Which of the following statements is
true?
Selected
Answer:
Both bonds will decrease in price, with Bond B
experiencing a larger percentage decrease.
Correct
Answer:
Both bonds will decrease in price, with Bond B
experiencing a larger percentage decrease.
• Question 10
4 out of 4 points
Which of the following factors does not affect a bond portfolio’s rate
of return?
Note: the portfolio rate of return is affected by changes in the
factors
Selected
Answer:
stock market
performance
Correct
Answer:
stock market
performance
• Question 11
4 out of 4 points
The ability to convert an asset to cash without large price
concessions measures .
Selected
Answer:
the asset’s
liquidity
Correct
Answer:
the asset’s
liquidity
• Question 12
4 out of 4 points
A commercial bank can enter into a plain vanilla swap agreement for
all of the following reasons except .
Selected
Answer:
to reduce credit risk of its
loan portfolio
Correct
Answer:
to reduce credit risk of its loan
, FIN355 Final Exam.
portfolio
• Question 13
4 out of 4 points
Which of the following statements is true?
Selected
Answer:
Money market mutual funds provide small investors an
opportunity to invest in money market securities that
they would be able to buy otherwise.
Correct
Answer:
Money market mutual funds provide small investors an
opportunity to invest in money market securities that
they would be able to buy otherwise.
• Question 14
4 out of 4 points
Which of the following statements about swaps is not true?
Selected
Answer:
The frequency of cash flows from one side of the swap
must match the frequency of cash flows from the other
side of the swap.
Correct
Answer:
The frequency of cash flows from one side of the swap
must match the frequency of cash flows from the other
side of the swap.
• Question 15
4 out of 4 points
Which of the following statements is not true?
Selected
Answer:
Entering into a swap agreement is a more expensive way
to manage a bond portfolio interest risk than changing
the composition of the portfolio is.
Correct
Answer:
Entering into a swap agreement is a more expensive way
to manage a bond portfolio interest risk than changing
the composition of the portfolio is.
• Question 16
4 out of 4 points
If any losses to a portfolio value are considered unacceptable,
.
Selected
Answer:
at-of-the-money stock index puts should
be bought
• FIN355 Final Exam
• Question 1
4 out of 4 points
The industry practice is that, when an investor in a repo transaction
needs cash early, .
Selected
Answer:
the borrower returns the cash early upon
request
Correct
Answer:
the borrower returns the cash early upon
request
• Question 2
4 out of 4 points
By investing in money market securities, banks can .
Selected
Answer:
earn modest returns while standing ready to meet
customer demand for withdrawals
Correct
Answer:
earn modest returns while standing ready to meet
customer demand for withdrawals
• Question 3
4 out of 4 points
Money market investors require the instruments to be highly
marketable due to .
Selected
Answer:
potential changes in the timing of the investors’
cash flows
Correct
Answer:
potential changes in the timing of the investors’
cash flows
• Question 4
4 out of 4 points
In 1997, Strong money market mutual funds were experiencing
problems related to .
Selected
Answer: default
risk
Correct
Answer:
,FIN355 Final Exam.
default
risk
• Question 5
4 out of 4 points
A plain vanilla swap is similar to .
Selected
Answer:
a series of forward
contracts
Correct
Answer:
a series of forward
contracts
• Question 6
4 out of 4 points
A covenant refers to .
Selected
Answer:
a provision of a long-term debt
contract
Correct
Answer:
a provision of a long-term debt
contract
• Question 7
4 out of 4 points
Money market investors buy short-term instruments due to .
Selected
Answer:
the short-term nature of their cash
surpluses
Correct
Answer:
the short-term nature of their cash
surpluses
• Question 8
4 out of 4 points
An immunized portfolio .
Selected
Answer:
is protected against interest-
rate risk
Correct
Answer:
is protected against interest-
rate risk
• Question 9
4 out of 4 points
,FIN355 Final Exam.
Bond A has a modified duration of 6 years and Bond B has a
modified duration of 8 years. Assume that yields of both bonds
increase by 100 basis points. Which of the following statements is
true?
Selected
Answer:
Both bonds will decrease in price, with Bond B
experiencing a larger percentage decrease.
Correct
Answer:
Both bonds will decrease in price, with Bond B
experiencing a larger percentage decrease.
• Question 10
4 out of 4 points
Which of the following factors does not affect a bond portfolio’s rate
of return?
Note: the portfolio rate of return is affected by changes in the
factors
Selected
Answer:
stock market
performance
Correct
Answer:
stock market
performance
• Question 11
4 out of 4 points
The ability to convert an asset to cash without large price
concessions measures .
Selected
Answer:
the asset’s
liquidity
Correct
Answer:
the asset’s
liquidity
• Question 12
4 out of 4 points
A commercial bank can enter into a plain vanilla swap agreement for
all of the following reasons except .
Selected
Answer:
to reduce credit risk of its
loan portfolio
Correct
Answer:
to reduce credit risk of its loan
, FIN355 Final Exam.
portfolio
• Question 13
4 out of 4 points
Which of the following statements is true?
Selected
Answer:
Money market mutual funds provide small investors an
opportunity to invest in money market securities that
they would be able to buy otherwise.
Correct
Answer:
Money market mutual funds provide small investors an
opportunity to invest in money market securities that
they would be able to buy otherwise.
• Question 14
4 out of 4 points
Which of the following statements about swaps is not true?
Selected
Answer:
The frequency of cash flows from one side of the swap
must match the frequency of cash flows from the other
side of the swap.
Correct
Answer:
The frequency of cash flows from one side of the swap
must match the frequency of cash flows from the other
side of the swap.
• Question 15
4 out of 4 points
Which of the following statements is not true?
Selected
Answer:
Entering into a swap agreement is a more expensive way
to manage a bond portfolio interest risk than changing
the composition of the portfolio is.
Correct
Answer:
Entering into a swap agreement is a more expensive way
to manage a bond portfolio interest risk than changing
the composition of the portfolio is.
• Question 16
4 out of 4 points
If any losses to a portfolio value are considered unacceptable,
.
Selected
Answer:
at-of-the-money stock index puts should
be bought
