Exam 3 Flashcards
Which one of the following is the interest rate that the largest commercial banks charge their most creditworthy corporate customers for short-term loans?
Prime
Which one of the following terms applies to a rate that serves as an indicator of future trends?
Bellwether
Which one of the following rates is the rate that banks charge each other for overnight loans of $1 million or more?
Federal Funds
Which one of the following rates is the rate a commercial bank must pay the Federal Reserve to borrow reserves overnight?
Discount
Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates
Call Money
Which one of the following is unsecured debt issued by corporations on a short-term basis?
Commercial paper
$100,000 or more term deposit at a bank is called which one of the following?
Certificate of deposit
Which one of the following is defined as U.S. dollar-denominated deposits held in a foreign bank?
Eurodollars
Which one of the following abbreviations is the interest rate that international banks charge one another for overnight Eurodollar loans?
LIBOR
Which one of the following is a short-term debt instrument issued by the U.S. Treasury?
T-Bill
Which one of the following is a method used to quote interest rates on money market instruments?
Bank discount basis
Which one of the following is defined as the relationship between the interest rate on default-free, pure discount bonds and the time to maturity?
Term structure of interest rates
Pure discount bonds, which are created by separating the interest and principal payments from U.S. Treasury bonds, are called U.S. Treasury:
STRIPS
Which one of the following rates is typically quoted?
Nominal
Which one of the following best describes a real interest rate?
Nominal - Inflation
Which one of the following best fits the Fisher hypothesis?
Interest rates tend to be higher than inflation rates
Which one of the following theories states that the term structure of interest rates reveals the financial market’s projections of future interest rates?
Expectations theory
Which one of the following is defined as a forward rate?
expected future interest rate implied by current interest rates
Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?
Maturity preference theory
The market segmentation theory states that interest rates on debt vary dependent upon market segments which are segmented based upon which one of the following?
Time to maturity
Banks are most apt to quote short-term loan rates as:
Prime plus a spread
Which one of the following rates is generally considered the bellwether rate for bank loans to business firms?
Prime
Southern Bank needs to borrow money overnight from the Federal Reserve in order to meet its reserve requirements. Which one of the following interest rates will be charged on this loan?
Discount
Capital Bank needs a one-day reserve loan of $3.6 million from Countryside Bank. Which one of the following interest rates will be charged on this loan?
Federal Funds
Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?
Lower the discount rate
Assume that a large corporation, such as General Electric, needs money in the short term. Which one of the following securities is that corporation most likely to issue to meet this need?
Commercial papaer
Facilitates international trade
Bankers acceptance
Which one of the following is the largest market in the world for new debt securities with maturities of one year or less?
US Treasury Bill
Treasury STRIPS are:
created by separating principal payments and coupons of Treasury notes and bonds.
The approximate nominal interest rate is computed as the real rate:
Plus the inflation rate
Which one of the following debt instruments guarantees investors a positive real rate of return?
TIPS
Based solely on the maturity preference theory, long-term interest rates:
should be higher than short-term rates.
Modern term structure theory supports the contention that the term structure of interest rates will:
Change over time
Which one of the following is the correct definition of a coupon rate?
annual interest or par value
A premium bond is defined as a bond that:
has a market price that exceeds par value.
A discount bond
has a face value that exceeds the market value.
The price of a bond, net of accrued interest, is referred to as the bond’s:
Clean price
The dirty price of a bond
Invoice price
A callable bond
can be redeemed by the issuer prior to maturity.
Which one of the following is the risk that market rates may increase causing the price of a bond to decline?
Interest rate risk
The rate of return an investor actually earns from owning a bond is called which one of the following?
Realized yield
Which one of the following measures a bond’s sensitivity to changes in market interest rates?
Duration
A change in a bond’s price caused by which one of the following is defined as the dollar value of an 01?
change in yield to maturity of one basis point
A dedicated portfolio is a bond portfolio created to:
fund a future cash outlay.
Which one of the following risks is associated with investing a coupon payment at a rate that is lower than the bond’s yield to maturity?
reinvestment rate risk
Which one of the following involves creating a portfolio in a manner that minimizes the uncertainty of the portfolio’s maturity target date value?
Immunization
Price risk is the risk that:
the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates.
Periodically rebalancing a portfolio so that the duration continues to match the target date is called:
Dynamic immunization
A basic bond that has a face value of $1,000 and pays regular semiannual coupon payments is referred to as which one of the following?
Straight bond
Which one of the following increases the probability that a bond will be called?
The market interest rates decline
According to Malkiel’s theorems, bond prices and bond yields are:
Inversely related
According to Malkiel’s theorems, bond prices and bond yields are:
Inversely related
Which one of the following must be equal for two bonds if they are to have similar changes in their prices given a relatively small change in bond yields?
Duration
To immunize your portfolio, you should:
match bond durations to your target dates.
Dynamic immunization is primarily aimed at reducing which one of the following risks?
Reinvestment risk
Which one of the following is an assessment of the credit quality of a bond based on the financial condition of the bond issuer?
Credit rating
What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called?
Prudent investment guidelines
Bonds with relatively high coupons, due to their speculative credit ratings, are called which one of the following?
High yield bonds
Which one of these statements regarding corporate bond credit ratings is correct?
A bond’s credit spread may be a better indicator of a bond’s risk than its rating.
Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?
Default
Which of the following is NOT considered in the first filter or phase of top-down analysis?
Domestic Spending
The relationship between GDP and market capitalization for the leading economies of the world is generally __________blank.
Positively correlated
Which of the following is NOT considered a leading economic indicator?
Industrial production
Which of the following is NOT considered a lagging economic indicator?
Industrial production
Which one of the following is defined as the market value of goods and services produced over a period of time?
GDP
Which of the following reflects the dollar value of economic output in terms of the current year?
NOMINAL gdp
Which of the following reflects the value of economic output adjusted to remove the effects of inflation?
Real GDP
The U.S. makes up just under approximately what percent of the global equity market capitalization?
35%
Which of the following is NOT one of the four stages of the business cycle?
BOOM
Economic metrics that tend to rise and fall in advance of the economy are called __________blank indicators.
Leading
Which of the following is NOT listed as a cause of increased integration of economies around the world?
increased international travel
If the number of Euros required to buy $1 (USD) increases then the Euro has __________blank versus the U.S. dollar.
Deppreciated
If the number of Euros required to buy $1 (USD) decreases then the Euro has __________blank versus the U.S. dollar.
Appreciated
The relationship between inflation and real GDP is __________blank.
Inverse
In the U.S., what percentage of the GDP is consumer spending?
70%
All nonmilitary people employed and unemployed, but seeking employment make up the __________blank.
Labor force
The labor force divided by the nonmilitary working age population equals the __________blank.
Labor force participation rate
Which index measures the average prices paid by urban consumers for a basket of consumer goods and services?
Consumer price index
Which of the following combinations describes a “goldilocks” scenario?
rapid income growth, low unemployment, and low inflation
t has been estimated that “substitution effects” underestimate the consumer price index by approximately how much?
1.0%
A common rule of thumb on Wall Street says that the sum of the inflation rate plus the market price-earnings ratio equals __________blank.
20
The power of a “rippling effect” of adding money to the financial system is measured by the __________blank.
Money multiplier
The so-called “M1” money supply includes which of the following?
currency and checking deposits
Which of the following describes the “M2” money supply?
M1 plus time deposits, savings accounts, and money markets
Which of the following is NOT a primary goal of the Federal Reserve?
Encourage consumer spending
The buying and selling of bonds by the Federal Reserve to manage the money supply is called __________blank.
Open market operations
Government determination of tax rates and spending policies is called __________blank.
Fiscal policy
PIGS” refers to which 4 countries in Europe?
Portugal, Ireland, Greece, Spain
The interest rate the Federal Reserve charges its member banks on loans is called the:
Discount
The short-term rate at which banks lend to each other is called the __________blank.
Fed funds rate
Which type of economic sectors has a high sensitivity to the business cycle?
Cyclical
Which type of economic sectors has a low sensitivity to the business cycle?
Defensive
breakdown of the S&P 500 into major sectors specifying the relative market weight of components and indicating the direction of movement of the prices of the underlying stocks is called a __________blank.
Heat map
Which one of the following is NOT one of the elements in the industry life cycle?
Rapid decline
Which of the following is NOT one of Porter’s five forces?
Threats of new technology
The process of moving investments between sectors of the economy over time is called __________blank.
Rotational investing
Which of the following is NOT a threat of new entrants according to Porter’s five forces?
Quality of substitutes
