Final

Question 1

CDS provide insurance against a default by a ___, where a default by the company is known as a ___.

Answer 1

Reference entity (could also be a sovereign entity), known as a credit event

Question 2

The two primary tradable index families include: _ and _

Answer 2

Dow Jones CDX, Itraxx

Question 3

CDS spreads may serve as a viable substitute for ___.

Answer 3

Credit ratings

Question 4

The CBOE began trading CEBOs which stand for _, and has two possible outcomes, being:

Answer 4

Credit Event Binary Options, a payout of a fixed amount if a credit event occurs or nothing if a credit event does not occur.

Question 5

Investors add commodities to their portfolios to hedge against _, and because of _.

Answer 5

Inflation, their low level of correlation with equity and fixed income returns

Question 6

One thing that has lowered the deficit is a reduction in _.

Answer 6

Energy imports

Question 7

After hitting a record low, traders can no longer assume that the dollar will _ against the Yuan.

Answer 7

Always fall

Question 8

The majority of the carry trade is in the _.

Answer 8

Yen

Question 9

Currency ETNs stand for _, and are _ debt instruments whose price fluctuates with _ and are subject to _.

Answer 9

Exchange Traded Notes, non-interest paying debt instruments, an underlying currency exchange rate, insolvency

Question 10

The ECB defined “price stability” as ‘year on year increase in the _ for the euro area of below _’.

Answer 10

Harmonised Index of Consumer Prices HICP, below 2%

Question 11

The ECB engaged in Securities _ _, which is buying _. Also Long-Term _ _, which lengthened the _.

Answer 11

Market Purchases (SMP), Refinancing Operations (LRTO), maturity of its liquidity funding

Question 12

The Outright _ _ , stated that the ECB would buy _ amounts of sovereign debt up to three years in maturity.

Answer 12

Monetary Transactions (OMT), unlimited

Question 13

FOREX market turnover is driven by: _ activity of _, more trading by _ banks, and the emergence of _.

Answer 13

Greater activity of high-frequency trades, smaller, retail investors

Question 14

Prices of non-energy commodity futures in the US have become _ oil prices.

Answer 14

Increasingly correlated with

Question 15

The two most active crude oil benchmarks are _ and _.

Answer 15

West Texas Intermediate (WTI) and Brent

Question 16

The basic trading unit for carbon emissions in Europe is the _.

Answer 16

EUA European Union Allowance

Question 17

CLOs are special purpose vehicles set up to hold and managed pools of _. A CDO stands for _ and is an arrangement that raises money by issuing _ and invests its proceeds in _. A CMO stands for , and is a multi-class _ with different bondholder classes or “”.

Answer 17

Leveraged loans, Collateralized Debt Obligation, in a portfolio of bonds, Collateralized Mortgage Obligation, pass-through, “tranches”

Question 18

PAC bonds provide greater certainty because there is a _. Because they provide protection against both extension risk and contraction risk,

Answer 18

Principal repayment schedule that must be satisfied.

Question 19

Fannie, Freddit and GNMA issue CMOs which are called_

Answer 19

Real Estate Mortgage Investment Conduits (REMICs)

Question 20

The FHA stands for _ and was created to _. The FHA provides _ on loans made by FHA-approved lenders.

Answer 20

Federal Housing Administration, help spread home ownership in the US, mortgage insurance

Question 21

The two primary factors in determining your

eligibility for an FHA mortgage are your _, the _ ratio and the _ ratio.

Answer 21

Credit score, payment to income ratio, and loan to value ratio

Question 22

Both Fannie Mae and Freddie Mac have become _.

Answer 22

GSEs or Gov’t Sponsored Enterprises

Question 23

GSEs do two things: they _ and _.

Answer 23

(1) They sell agency securities, backed implicitly (and now explicitly) by the federal government. (2) They use these proceeds to buy mortgages and create mortgage backed securities. This provides a subsidy to housing (along with favorable tax provisions like the deduction of mortgage interest).

Question 24

WTI crude went into _ in June 08 and reached an _ in late Dec.

Answer 24

Contango, apex super contango

Question 25

The floating rate in a swap is commonly called the _.

Answer 25

Reference rate

Question 26

The difference between the fixed rate and the _ rate is called the _.

Answer 26

Reference rate, swap spread

Question 27

Who selected the securities in the Abacus portfolio?

Answer 27

ACA

Question 28

What did the SEC claim was fraudulent in the Abascus transaction?

Answer 28

Paulson’s role in selecting the collateral was not disclosed

Question 29

LIBOR is the reference rate for most _ and _.

Answer 29

Floating rate mortgages and interest rate swaps

Question 30

ACA is a well known manager of _ and chosen as the _ by Goldman

Answer 30

CDOs, portfolio selection agent