金融市场与金融机构基础（原书第5版）习题及答案

FabozziTestBank

Chapter1

Introduction

1.Anequityinstrumentobligatestheissuerofthefinancialassettopaytheholderanamountbasedon:

A.revenue,ifany,afterholdersofdebtinstrumentshavebeenpaid.

B.earnings,ifany,afterholdersofdebtinstrumentshavebeenpaid.

C.cashflow,ifany,afterholdersofdebtinstrumentshavebeenpaid.

D.equityvalue,ifany,afterholdersofdebtinstrumentshavebeenpaid.

Answer:B

Difficulty:Medium

2.Thepriceofanyfinancialassetisequalto:

A.thepresentvalueofitscurrentcashflow.

B.thepresentvalueofitsexpectedcashflow.

C.thepresentvalueofitscurrentrevenuestream.

D.theexpectedfuturevalueofitscurrentrevenuestream.

Answer:B

Difficulty:Easy

3.WhichofthefollowingisNOTaroleoffinancialmarkets?

A.pricediscovery

B.offerliquidity

C.reducetransactioncosts

D.regulatingfinancialrisk

Answer:D

Difficulty:Medium

4.Thethreeclassificationsoffinancialmarketsare:auctionmarkets,________,and________.

A.intermediatedmarkets;unregulatedmarkets

B.regulatedmarkets;over-the-countermarkets

C.intermediatedmarkets;disintermediatedmarkets

D.intermediatedmarkets;over-the-countermarkets

Answer:D

Difficulty:Hard

5.Whichofthefollowingthreefactorshaveledtotheglobalintegrationoffinancialmarkets?

A.technologicaladvances,thepassageoftheNorthAmericanFreeTradeAgreement,andstandardizationoffinancialinstruments

B.standardizationoffinancialinstruments,technologicaladvances,andliberalizationofmarketsandtheactivitiesofmarketparticipants

C.technologicaladvances,increasedinstitutionalizationoffinancialmarkets,andliberalizationofmarketsandtheactivitiesofmarketparticipants

D.standardizationoffinancialinstruments,increasedinstitutionalizationoffinancialmarkets,andliberalizationofmarketsandtheactivitiesofmarketparticipants

Answer:C

Difficulty:Medium

6.Whichisaprimarydistinguishingfeatureoftheexternalmarket?

A.Bondsareregulatedunderthejurisdictionofthemarkethost.

B.Securitiesareregulatedunderthejurisdictionofthemarkethost.

C.Atissuance,bondsaregloballystandardizedforallexternalmarketparticipants.

D.Atissuance,securitiesareofferedsimultaneouslytoinvestorsinanumberofcountries.

Answer:D

Difficulty:Hard

7.Thetraditionalassetclassesofmostdevelopedcountriesarecommonstocks,bonds,________.

A.cashequivalents,andrealestate

B.currencyholdings,andcommodities

C.cashequivalents,andpreciousmetals

D.cashequivalents,andforeignequities

Answer:A

Difficulty:Medium

8.Howismarketcapitalizationcalculated?

A.totalprofitdividedbythenumberofoutstandingshares

B.totalprofitmultipliedbythenumberofoutstandingshares

C.totalnumberofoutstandingsharesdividedbythemarketvalueof1share

D.totalnumberofoutstandingsharesmultipliedbythemarketvalueof1share

Answer:D

Difficulty:Easy

9.Inthecontextoftransactioncosts,searchcostsare:

A.costsrelatedtoraisingfundingforcollateralfortransactinginthefinancialmarket.

B.explicitcosts,suchasthecostoflegaldiscoveryandtheuseofcomplicatedsearchenginesforthepricingoffinancialinstruments.

C.costsassociatedwithassessingtheinvestmentmeritsofafinancialasset,thatis,theamountandlikelihoodofthecashflowexpectedtobegenerated.

D.explicitcosts,suchasthemoneyspenttoadvertiseone’sintentiontosellorpurchaseafinancialasset,andimplicitcosts,suchasthevalueoftimespentlocatingacounterparty.

Answer:D

Difficulty:Easy

10.A________grantstheowneroftheoptiontherighttobuyafinancialassetfromtheotherparty,whilea________grantstheowneroftheoptiontherighttosellafinancialassettotheotherparty.

A.putoption;calloption

B.calloption;putoption

C.forwardoption;futureoption

D.futureoption;forwardoption

Answer:B

Difficulty:Medium

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Chapter2

RoleofGovernmentsinFinancialMarkets

1.Whichofthefollowingdidpolicymakersidentifyascausesofthe2008–2009globalfinancialcrisis?

A.abubbleinthejunkbondmarket,excessiveuseofleverageandrisktaking,andinvestorpanic

B.abubbleinthepricingofassetsinakeysectorofthefinancialmarket,regulatoryandsupervisoryfailures,andinvestorpanic

C.abubbleinthejunkbondmarket,excessiveuseofleverageandrisktaking,andabubbleinthepricingofassetsinakeysectorofthefinancialmarket

D.excessiveuseofleverageandrisktaking,abubbleinthepricingofassetsinakeysectorofthefinancialmarket,andregulatoryandsupervisoryfailures

Answer:D

Difficulty:Medium

2.Whatisthestandardjustificationforgovernmentregulationofthemarket?

A.Themarketwillleadtorunawaywealthinequalitylefttoitself.

B.Themarketwillleadtorunawayincomeinequalitylefttoitself.

C.Themarketwillcauseirreparableharmtothenation’seconomylefttoitself.

D.Themarketwillnotproduceparticulargoodsorservicesinanefficientmanner,correctquantity,andatthelowestpossiblecost.

Answer:D

Difficulty:Medium

3.Whichofthefollowingareformsofgovernmentregulationoffinancialmarkets?

A.enclosureregulation,financialactivityregulation,andregulationofforeignparticipants

B.enclosureregulation,financialactivityregulation,andregulationoffinancialinstitutions

C.enclosureregulation,regulationoffinancialinstitutions,andregulationofforeignparticipants

D.financialactivityregulation,regulationoffinancialinstitutions,andregulationofforeignparticipants

Answer:D

Difficulty:Hard

4.Whichtypeofmarketfailureexistswhenmanagersofanissuingfirmknowmoreaboutthefinancialhealthandfutureofthefirmthaninvestorswhoownorareconsideringthepurchaseofthefirm’ssecurities?

A.obfuscation

B.frontrunning

C.positiveexternalities

D.asymmetricinformation

Answer:D

Difficulty:Easy

5.Whatpolicyisusedbythecentralbanktoinfluencetheeconomyandfinancialsystemtoachieveacountry’seconomicobjectives?

A.fiscalpolicy

B.financialpolicy

C.monetarypolicy

D.regulatorypolicy

Answer:C

Difficulty:Easy

6.Whatisthetermforgovernmentactionthatusespublicfundstoprovidefinancialsupporttopreventthefailureofmajorindustries,financialinstitutions,corporations,andsubnationalentitiesviewedasessentialtoacountry’seconomyorfinancialsystem?

A.monetarypolicy

B.governmentbailouts

C.tax-and-spendpolicy

D.governmentassurances

Answer:B

Difficulty:Easy

7.Thefederalgovernmentmayprovidealoanandaloanguaranteecoupledwithanequitypositioninthecompanyseekingabailout.Thisfinancialinstrumentiscalleda________.

A.stockwarrant

B.stockissuance

C.equityissuance

D.equitysplitcontract

Answer:A

Difficulty:Easy

8.TheDodd-FrankActaddressedtheproblemofgapsinmonitoringoverallriskstofinancialstabilitywithintheU.S.financialsystem.WhatabouttheU.S.financialregulatoryframeworkinitiallycausedthosegaps?

A.regulatoryenforcementwaslimitedbylaissez-faireideology

B.regulatorsdidnothavesufficientresourcestomonitorthebroadermarket

C.regulatoryfocuswaslimitedtoindividualinstitutionsandfinancialmarkets

D.loopholesintheregulatoryframeworkallowedwidespreadillegalactivitytogoundetected

Answer:C

Difficulty:Hard

9.Anorganizationwhosemissionistoprovideguidancetocentralbanksinpursuingmonetaryandfinancialstability,fosterinternationalcooperationinthoseareas,andactasabankforcentralbanksisthe________.

A.WorldBank

B.BankofGlobalAffairs

C.InternationalMonetaryFund

D.BankforInternationalSettlements

Answer:D

Difficulty:Medium

10.Opponentsofgovernmentinterventioninfinancialmarketsusuallyarguethat:

A.governmentinterventioncausesassetpricestoriseartificially,leadingtoalaterdecline.

B.governmentinterventionisimplementedbyunelectedbureaucratswhodonotrepresentthenationalpopulation.

C.governmentinterventionmayleadtomarketfailuresbyimplementingpoliciesthatarenotbeneficialtofinancialmarkets.

B.governmentinterventiongenerallyhelpsindividualsratherthansmallbusiness,leadingtodecreasedbusinesscompetitiveness.

Answer:C

Difficulty:Medium

FabozziTestBank

Chapter3

FinancialInstitutions,FinancialIntermediaries,andAssetManagementFirms

1.Whatisthemostimportantcontributionoffinancialintermediaries?

A.providinggovernanceofthefinancialsystem

B.servingasanenforcerofcontractsbetweensaversandfinalusers

C.managingliquidityinaccordancewithchangingeconomicconditions

D.providingasteadyandrelativelyinexpensiveflowoffundsfromsaverstofinalusers

Answer:D

Difficulty:Medium

2.Financialintermediariesobtainfundsbyissuingfinancialclaimsagainst________to________andtheninvestingthosefunds.

A.investors;themselves

B.theircompetitors;investors

C.themselves;marketparticipants

D.theircompetitors;marketparticipants

Answer:C

Difficulty:Medium

3.Whichofthefollowingisanimplicationofmaturityintermediation?

A.Itcreatesaunifiedinvestmentforhorizons.

B.Itreducesthecostoflonger-termborrowing.

C.Itincreasesthecostofshort-termborrowing.

D.Itgivesinvestorsfewerchoicesconcerningmaturityfortheirinvestments.

Answer:B

Difficulty:Hard

4.ThefollowingareallinformationprocessingcostsEXCEPT________.

A.thecostofthefinancialasset

B.thecosttoobtaintheinformationrequiredabouttheissuerandfinancialasset

C.theopportunitycostofthetimetoprocesstheinformationaboutafinancialasset

D.theopportunitycostofthetimetoprocesstheinformationabouttheissuerofafinancialasset

Answer:A

Difficulty:Medium

5.Theabilityto________iscriticalforthefunctioningofafinancialmarket.

A.quicklytransfercash

B.acceptcashpayments

C.holdlargeamountsofreservecash

D.makepaymentswithouttheuseofcash

Answer:D

Difficulty:Easy

6.Theobjectiveofadepositoryinstitutionistoearnapositivespreadbetween________.

A.theassetsitinvestsinandthecostsofitsfunds

B.thenumberofcreditorsandthenumberofdebtors

C.thenumberofloansitprovidesandthenumberofloansittakes

D.thenumberofloansitprovidesandthenumberofinvestmentsitmakes

Answer:A

Difficulty:Medium

7.InType-Iliabilities,theamountofthecashoutlayis________andthetimingofthecashoutlayis________.

A.known;known

B.known;uncertain

C.uncertain;known

D.uncertain;uncertain

Answer:A

Difficulty:Easy

8.Whymustafinancialinstitutionbepreparedtohavesufficientcashtosatisfyitsobligations?

A.uncertaintyaboutthepotentialforrevenue

B.uncertaintyaboutthefuturevalueofthecashoutlays

C.uncertaintyabouttheamountandtimingofthecashoutlays

D.uncertaintyaboutthetypesofliabilitythattheinstitutionholds

Answer:B

Difficulty:Hard

9.Whichofthefollowingarecomponentsofoperationalrisk?

A.inadequateliquidity,externalevents,andinadequateorfailedinternalprocesses

B.inadequateorfailedpeopleandsystems,inadequateliquidity,andexternalevents

C.externalevents,inadequateorfailedinternalprocesses,andinadequateorfailedpeopleandsystems

D.inadequateorfailedinternalprocesses,inadequateorfailedpeopleandsystems,andinadequateliquidity

Answer:C

Difficulty:Hard

10.WhichofthefollowingisNOTtrueaboutassetmanagementfirms?

A.Theytendtospecializeinparticularassetclasses.

B.Theytypicallyprovideenoughdiversificationforeverytypeofclient.

C.Theyareeitheraffiliatedwithsomefinancialinstitutionorareindependentcompanies.

D.Theymanagethefundsofindividuals,businesses,endowmentsandfoundations,andstateandlocalgovernments.

Answer:B

Difficulty:Medium

FabozziTestBank

Chapter4

OverviewofPrivateMarketParticipants

1.Thefollowingarecomponentsofahousehold’sbalancesheet:

A.cashflow,equity,andassets.

B.equity,assets,andliabilities.

C.assets,liabilities,andcashflow.

D.liabilities,cashflow,andequity.

Answer:B

Difficulty:Medium

2.Oneexampleofthewealtheffectisifahousehold’snetworthincreases,thathouseholdwouldhavemore:

A.collateralthatcouldbeusedfordirectinvestments.

B.liquiditythatcouldbeusedtopayoffdebtobligations.

C.collateralthatcouldbeusedinaborrowingarrangement.

D.liquiditythatcouldprovidegreaterlong-termfinancialstability.

Answer:C

Difficulty:Hard

3.Whichofthefollowingareexamplesoffinancialcorporations?

A.insurancecompanies,investmentcompanies,andsecurityissuers

B.securityissuers,depositoryinstitutions,andinsurancecompanies

C.investmentcompanies,securityissuers,anddepositoryinstitutions

D.depositoryinstitutions,insurancecompanies,andinvestmentcompanies

Answer:D

Difficulty:Hard

4.Ina________,theamountinvestedisdeductedfromtaxableincomefortheyearofthecontribution,buttaxesarepaidwhentheamountinvestediswithdrawn,whileina________,annualcontributionsarenottax-deductiblebutwithdrawalsarenottaxed.

A.traditionalIRA;RothIRA

B.traditionalIRA;fundIRA

C.RothIRA;traditionalIRA

D.fundIRA;traditionalIRA

Answer:A

Difficulty:Easy

5.Ina________,theplansponsoragreestopayqualifiedemployeescoveredbytheplanbenefitsonretirement,whileina________,theplansponsorisresponsibleonlyformakingspecifiedcontributionstotheplanonbehalfofqualifyingparticipants,notspecifiedpaymentstotheemployeeafterretirement.

A.definedbenefitplan,undefinedbenefitplan

B.definedcontributionplan,definedbenefitplan

C.definedbenefitplan,definedcontributionplan

D.definedcontributionplan,undefinedcontributionplan

Answer:C

Difficulty:Easy

6.Akeydifferencebetweenaforeigndirectinvestment(FDI)andaforeignportfolioinvestment(FPI)isthatan:

A.FPIisofamoretemporarynaturethananFDI.

B.FDIisofamoretemporarynaturethananFPI.

C.FDIisusuallycomprisedoftypicalinvestmentinstruments.

D.FPIgenerallyconsistsofownershipofatleast10%ofthevotingpowerinanenterprise.

Answer:A

Difficulty:Easy

7.Thefollowingaresourcesoffundsforsovereignwealthfunds:

A.salesofgovernmentproperty,governmentfiscalsurpluses,andcitizens’retirementfunds.

B.governmentfiscalsurpluses,balance-of-paymentsurpluses,andcitizens’retirementfunds.

C.salesofgovernmentproperty,governmentfiscalsurpluses,andexportsofnaturalresources.

D.exportsofnaturalresources,governmentfiscalsurpluses,andbalance-of-paymentsurpluses.

Answer:D

Difficulty:Medium

8.Acommonpurposeofsupranationalinstitutionsisto:

A.protectdomesticindustries.

B.regulateforeigninvestment.

C.promoteeconomicdevelopment.

D.helpsovereignwealthfundspoolrisk.

Answer:C

Difficulty:Easy

9.Whatdoinsurancecompaniestypicallydobetweenwhentheyreceiveaninsurancepremiumandwhentheymustpayoutclaimstothepolicyholders?

A.Holdthepremiuminreserve.

B.Loanthepremiumforaninterestreturn.

C.Selldebtobligationsagainstthepremium.

D.Investthepremiuminthefinancialmarket.

Answer:D

Difficulty:Easy

10.IntheUnitedStates,regulatedinvestmentcompaniesareprimarilyregulatedbywhichofthefollowing?

A.FederalReserve

B.FinancialRegulatoryAuthority

C.FinancialOversightCommission

D.SecuritiesandExchangeCommission

Answer:D

Difficulty:Easy

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Chapter5

CreditRatingAgenciesandTheirRoleinFinancialMarkets

1.Investorswhodonothaveaccesstotheirowncreditanalysisstaffoftenuseopinionsaboutdefaultrisksasprovidedbycompaniesthatperformcreditanalysisandcasttheiropinionintheformofarating.Whatisthistypeofratingcalled?

A.creditrating

B.defaultrating

C.liquidityrating

D.commercialrating

Answer:A

Difficulty:Medium

2.Thecriticalroleofcreditratingagenciesinthefinancialsystemisthattheyreduce________inthemarketfordebtobligationsandprivatecontracts.

A.liability

B.volatility

C.transactions

D.informationasymmetry

Answer:D

Difficulty:Medium

3.CRAsarerecognizedbythe________toassignratingsandarereferredtoasnationallyrecognizedstatisticalratingorganizations.

A.FederalReserve

B.DepartmentofState

C.DepartmentoftheInterior

D.SecuritiesandExchangeCommission

Answer:D

Difficulty:Easy

4.Ratingsare________andnot________.

A.rare;required

B.free;regulated

C.opinions;guarantees

D.unofficial;regulated

Answer:C

Difficulty:Easy

5.Whatdoestheterm“highgrade”meanwhenreferringtobondratings?

A.lowcreditrisk

B.highvolatility

C.lowdefaultrisk

D.highearningspotential

Answer:C

Difficulty:Easy

6.High-yielddebtiscategorizedas________.

A.riskgrade

B.highgrade

C.primegrade

D.noninvestmentgrade

Answer:D

Difficulty:Medium

7.Forcertaintypesofdebtinstruments,CRAsprovideinformationforassessingpotentialratingdowngradesandupgradesbypublishinga________.

A.ratingreport

B.gradedreport

C.defaultrisksheet

D.ratingtransitionmatrix

Difficulty:D

Difficulty:Hard

8.Amajorconcernforregulatorsisthatinvestorsmight________.

A.relytooheavilyonbondratings

B.notbuybondsbecauseoftheirrating

C.hirecostlyprivatepartiestoratebonds

D.nottrustthebondratingthataCRAprovides

Answer:A

Difficulty:Easy

9.Overthepastfewdecades,thecreditratingbusinesshasshiftedfroma________modeltoa________model.

A.high-risk;low-risk

B.user-pay;issuer-pay

C.regulated;unregulated

D.high-premium;low-premium

Answer:B

Difficulty:Hard

10.WhatisthehypothesiscalledwhichassertsthatanissuerwillsearchCRAsfortheonethatprovidesthebestcreditrating?

A.primeratinghypothesis

B.creditsearchhypothesis

C.issuerpaymenthypothesis

D.ratingshoppinghypothesis

Answer:D

Difficulty:Hard

FabozziTestBank

Chapter6

DepositoryInstitutions:ActivitiesandCharacteristics

1.Financialintermediariesthatacceptdepositsarecalled________.

A.creditinstitutions

B.capitalinstitutions

C.bankingsyndicates

D.depositoryinstitutions

Answer:D

Difficulty:Easy

2.SincetheFederalReserveActof1913waspassed,whathasremainedthemostimportantroleoftheFederalReserveSystemforitsmemberbanks?

A.itsregulatorystrength

B.itsstatusasalenderoflastresort

C.itsconstantactiontostabilizetheglobalbankingsystem

D.itsabilitytostopnon-competitivepracticeswithinthebankingsystem

Answer:B

Difficulty:Medium

3.TheFednotonlyhasthepowerof________,butitalsooverseesthecountry’s________.

A.openingbanks;moneysupply

B.examiningbanks;systemicrisk

C.regulatingbanks;equitiesmarket

D.regulatingbanks;foreigninvestments

Answer:B

Difficulty:Hard

4.WhatistheprimaryroleoftheFDIC?

A.examiningsystemicrisk

B.providingdepositinsurance

C.stabilizingholdingcompanies

D.ensuringthefairtreatmentofabank’scustomers

Answer:B

Difficulty:Easy

5.Inadepositpayofftransaction,thefailingbankis________,andtheFDICisappointed________.

A.closed;owner

B.closed;receiver

C.keptopenundertheguidanceoftheFDIC;owner

D.keptopenundertheguidanceoftheFDIC;receiver

Answer:B

Difficulty:Hard

6.Toprotectdepositors,abankmusthaveadequate________toabsorblosses,aswellastomitigatethepotentialriskofwidespreadbankinglossesthatwouldadverselyaffectthecreditmarketandtherealeconomy.

A.bonds

B.capital

C.insurance

D.investments

Answer:B

Difficulty:Easy

7.TocomplywiththeBaselAccords,abank’stotalcapitalratiomaynotbelessthan________ofTier1capital.

A.4%

B.6%

C.8%

D.10%

Answer:C

Difficulty:Hard

8.Since1933,whatpercentageofFDIC-insureddepositshaveU.S.depositorslost?

A.0%

B.5%

C.12%

D.17%

Answer:A

Difficulty:Easy

9.Themarketthatallowsbankstoborrowreservesfromiftheyaretemporarilyshortoftheirrequiredreservesiscalledthe________.

A.federalfundsmarket

B.capitalfundsmarket

C.federalreservemarket

D.capitalreservemarket

Answer:A

Difficulty:Medium

10.Thetwocomponentsofcorporatefinancingaretheprocuringof________forabank’scustomersand________forthosecustomers.

A.assets;providingloans

B.funds;providingadvice

C.loans;providingunderwritingservices

D.investmentopportunities;providingloans

Answer:B

Difficulty:Medium

FabozziTestBank

Chapter7

CentralBanks

1.Theprimaryroleofacentralbankistomaintainthe________ofthecurrencyandmoneysupplyforacountryoragroupofcountries.

A.value

B.supply

C.stability

D.availability

Answer:C

Difficulty:Medium

2.Thereiswidespreadagreementthatcentralbanksshouldbeindependentofgovernments.Whatisthemainreasonforthisargument?

A.topreventwidespreadcorruption

B.tokeepcurrenciesstabledespitegovernmentdebt

C.sothattherolesofacentralbankdonotstopduringapoliticalcrisis

D.sothatcentralbanks’decisionsarenotinfluencedbypoliticalpurposes

Answer:D

Difficulty:Medium

3.WhichofthefollowingisatoolthattheFedcanusetoinfluencetheamountofmoneyintheeconomyandthegenerallevelofinterestrates?

A.tariffs

B.depositinsurance

C.reserverequirements

D.closedmarketoperations

Answer:C

Difficulty:Easy

4.The________oftheFederalReserveBankofNewYorkimplementspolicythrough________.

A.tradingdesk;bondsales

B.marketcommittee;bondsales

C.tradingdesk;openmarketoperations

D.marketcommittee;quantitativetightening

Answer:C

Difficulty:Medium

5.MonetarypolicyandtheactionsoftheFederalReserveSystemoftenconcentrateonwhatarecalled________.

A.stochasticaverages

B.monetaryaggregates

C.monetarydemandconstraints

D.actualizedvolatilityaverages

Answer:B

Difficulty:Easy

6.Apartfromchangingbanks’reserverequirements,theFedcanincreasebanks’reservesbyeither________thebanksorby________thebanksorotherinvestors.

A.lendingto;purchasinggovernmentsecuritiesfrom

B.sellingdiscountedbondsto;underwritingloansfor

C.offeringalineofcreditto;reducingdefaultriskfor

D.insuringmoredepositsin;loweringinterestratesfor

Answer:A

Difficulty:Hard

7.Whatisonereasonwhythelevelofinterestratespositivelyaffectsthesizeofthemoneymultiplier?

A.Thelevelofmarketratesinfluencescreditdefaultrisk.

B.ThelevelofmarketratesusuallycausesFedpolicytochange.

C.Thelevelofmarketratesshapesdecisionsaboutcashholdings.

D.Thelevelofmarketratesgreatlyincreasesdemandforreserves.

Answer:C

Difficulty:Hard

8.A________economyisoneinwhichforeigntransactors—ofeithergoodsorfinancialassets—playanegligiblerole.

A.closed

B.domestic

C.developed

D.protectionist

Answer:A

Difficulty:Easy

9.WhatissoimportantaboutforeigninfluencewhenitcomestounderstandingthemoneysupplyprocessoftheUnitedStates?

A.ForeignnationssometimesseektodestabilizetheU.S.economy.

B.Foreigncentralbanks,firms,andindividualsholdasubstantialnumberofU.S.dollars.

C.Foreignnationsoftenactaccordingtotheirownself-interestsandthereforecannotbetrustedtoactingoodfaithintraderelationships.

D.Foreignnationsareoftenclosedeconomies,whiletheUSisanopeneconomy,andusethisasymmetricalrelationshiptotheiradvantage.

Answer:B

Difficulty:Hard

10.WhichstatementbestdescribeshowtheFedseekstoachieveitsgoals?

A.TheFedseekstoachieveitsgoalsthroughthemanipulationoftargetvariables,suchastheemploymentrate.

B.TheFedseekstoachieveitsgoalsthroughconsistentlylimitingthemoneysupply,sothatinflationremainslow.

C.TheFedseekstoachieveitsgoalsthroughcoordinatedinvestmentsinsystemicallyimportantfinancialinstitutions.

D.TheFedseekstoachieveitsgoalsthroughaformofchainreaction,affectingoperatingtargetsfirst,theneventuallyintermediatetargets.

Answer:D

Difficulty:Medium

FabozziTestBank

Chapter8

InsuranceCompanies

1.Whatdoinsurancecompaniesofferthatmakethemakeyparticipantinacountry’seconomy?

A.investmentinstruments

B.leveragedfinancialassets

C.riskmanagementproducts

D.high-interestdepositoryaccounts

Answer:C

Difficulty:Easy

2.Whatarethetwosourcesofincomeforinsurancecompanies?

A.premiumsandvoidedpolicies

B.premiumsanddeferredsettlements

C.underwritingandinvestmentincome

D.structuresettlementsandvoidedpolicies

Answer:C

Difficulty:Medium

3.Captiveinsurancecompaniescanbebestdescribedas:

A.self-insuring.

B.exclusivelyprivatesectormultinationals.

C.specifiedinsuranceinvestmentmanagers.

D.highlyspecializedinoneparticularinvestmentclass.

Answer:A

Difficulty:Medium

4.Theprocessofdemutualizationoccurswhenmutualcompaniesconverttostockcompaniessothattheycan________.

A.reducecorporaterisk

B.decentralizegovernance

C.limittheirregulatoryburden

D.obtainfundingtosupportgrowth

Answer:D

Difficulty:Medium

5.Whichstatementbestdescribesthefunctionandoutcomesofvariablelifeinsurancepolicies?

A.Policyownerscanchoosewhichaccountstoinvesttheirpremiumpaymentsin,whichmeansthatnocashvalueordeathbenefitcanbeguaranteed.

B.Policyownerscanonlychooseallocationswhendecidingonaspecifictypeofplan,afterwhichtimetheplanbecomeslockedinwithguarantees.

C.Policyownerscanchoosetoincreaseordecreasesomeoftheriskintheirpolicywhileremainingunderabaserateguaranteeforamajorityoftheirpolicy.

D.Policyownerscanpaytheinsurancecompanytodecidehowtoinvesttheirpremiumsforthem,butinvestmentreturnsareuncertainsonoguaranteescanbemade.

Answer:A

Difficulty:Hard

6.Whileannuitiesandmutualfundsareverysimilar,________receivepreferentialtaxtreatmentbecauseoftheir“________wrapper.”

A.annuities;insurance

B.annuities;investment

C.mutualfunds;insurance

D.mutualfunds;investment

Answer:A

Difficulty:Easy

7.A2013Standard&Poor’sstudyfoundthat________and________,amongotherthings,weretwokeyfactorslinkedtothefailureofinsurers.

A.overpricedpolicies;lowcustomergrowth

B.lowinvestmentallocation;organizationalfailure

C.poorinvestmentdecisions;perversestructuralincentives

D.poorliquiditymanagement;underpricingandunderrese