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Banking
Q:
Explain the different types of underwriting arrangements.
Q:
Investment banking firms are engaged in which of the following activities?a. Public offering and trading of securities.b. Private placement of securities.c. Securitization of assets.d. Mergers and acquisitions. e. All of the above.
Q:
Investment banking activities are performed by:a. Commercial banks.b. Securities firms.c. Government agencies. d. a and b only.e. All of the above.
Q:
When an investment banker works with a corporation to issue an asset-backed security it generates revenue from the:a. Spread incomeb. Bid-ask spread.c. Gross spread.d. Underwriter discount.e. None of the above.
Q:
Dealer-created derivative instruments protect investment banking firms against:a. Capital loss.b. Adverse price movements.c. Increases in interest rates.d. All of the above.e. None of the above.
Q:
When an investment banking firm commits its own funds by either taking an equity interest or creditor position in companies, this activity is referred to as:a. Merchant banking.b. Leveraged buyout.c. Initial public offering.d. Private placement.e. None of the above.
Q:
A firm, which is acquired using mostly debt funds and taken private, is participating in a(n):a. Initial public offering.b. Leveraged buyout.c. Private placement.d. Merchant banking.e. None of the above.
Q:
Private placement of securities involves:a. Selling securities to the public.b. Selling securities to a limited number of individual investors.c. Placing securities with a limited number of institutional investors.d. Selling securities that have a pool of assets as collateral.e. None of the above.
Q:
Risk arbitrage to lock in a spread, if the exchange is consummated on the announced terms, involves:a. Buying the shares of the target company and shorting the shares of the bidding company.b. Buying the shares of the target company and buying an equal number of shares of the bidding company.c. Buying the shares of the target company and selling short an equal number of shares of the acquiring firm.d. a and c only.e. All of the above.
Q:
When a trader positions the capital of the investment banking firm to take advantage of a specific anticipated movement of prices or a spread between two prices, this strategy is referred to as:a. Riskless arbitrage.b. Risk arbitrage.c. Speculation.d. Hedging.e. None of the above.
Q:
Traders employ strategies to generate revenues from positions in one or more securities including:a. Speculation.b. Riskless arbitrage.c. Risk arbitrage.d. Hedging. e. a, b and c only.
Q:
To protect against a loss, investment banks engage in:a. Speculative strategies.b. Active portfolio management strategies.c. Hedging strategies.d. Passive portfolio management strategies.e. None of the above.
Q:
Whenever investment bankers assist in offering the securities of government-owned companies to private investors, this process is referred to as:a. Initial public offering. b. Privatization.c. Underwriting.d. Firm commitment.e. None of the above.
Q:
When an investment banker puts together a selling group, the gross spread is divided among:a. The lead underwriter.b. Members of the underwriting syndicate.c. Members of the selling group.d. B and c only.e. All of the above.
Q:
In a firm commitment underwriting arrangement, the risk that the investment banking firm accepts is:a. That it sells the securities to investors at a lower price.b. That the price it pays to purchase the securities from the issuer will be less than the price it receives when it reoffers the securities to the public.c. That it does not buy the entire issue from the issuer.d. That it does not realize the gross spread.e. None of the above.
Q:
An investment banking firm will typically put together a group of firms in order to:a. Reduce the risk of capital loss.b. Reduce the risk of default.c. Increase the revenues generated from the underwriting process.d. Reduce the risk of pricing the issue.e. None of the above.
Q:
The difference between the price paid to the issuer and the price at which the investment bank reoffers the security to the public is called:a. Bid-ask spread.b. Gross spread.c. Underwriter discount.d. b and c only.e. None of the above.
Q:
When an investment banking firm buys the securities from the issuer and accepts the risk of selling the securities to investors at a lower price, the arrangement is referred to as:a. Underwriting.b. Firm commitment.c. Best-efforts underwriting.d. Underwriting syndicate.e. None of the above.
Q:
The traditional process in the U.S. for issuing new securities involves investment bankers, which perform which of the following functions?a. Advising the issuer on the terms and timing of the offering.b. Buying the securities from the issuer.c. Distributing the issue to the public.d. All of the above.e. None of the above.
Q:
The revenues generated by investment banking firms come from:a. Commissions.b. Fee income.c. Spread income.d. b and c only.e. All of the above.
Q:
Investment banking firms are highly leveraged companies which means that:a. Equity is greater than the amount of borrowed funds.b. The amount of borrowed funds relative to the amount of equity is high.c. They heavily borrow on a short-term basis.d. They are very risky.e. None of the above.
Q:
Discuss the management of pension funds.
Q:
Explain the economic functions provided by mutual funds.
Q:
Discuss the similarities and differences between exchange traded funds and closed-end funds.
Q:
At the current time, hedge funds are not regulated by the SEC.a. True.b. False.
Q:
The pension crisis being faced by corporate defined benefit plans is due to:a. Poor management.b. The accounting permitted by accountants with the aid rules of actuaries.c. Declining contributions from plan participants.d. a and b only.e. All of the above.
Q:
When the value of the assets of a defined benefit plan is exceeded by the value of its liabilities, the plan is said to:a. Have a surplus.b. Have a deficit. c. Be overfunded.d. a and c only.e. None of the above.
Q:
The Pension Funding Equity Act:a. Set funding standards for the minimum contributions that a plan sponsor must make to the pension plan to satisfy the actuarially projected benefit payments.b. Established fiduciary standards for pension fund trustees, managers, or advisors.c. Gave corporate sponsors of DB plans some relief from burdensome pensioncontributions.d. a and b only.e. All of the above.
Q:
Pension plans are regulated under which of the following acts?a. Employee Retirement Income Security Act.b. Pension Benefit Guaranty Act.c. Pension Funding Equity Act.d. Pension Protection Act.e. Investment Company Act.
Q:
Pension equity and floor-offset plans are examples of:a. Defined contribution plans.b. Defined benefit plans.c. Cash balance plans.d. Hybrid plans.e. Exchange traded plans.
Q:
In a defined contribution plan, the plan sponsor is responsible for making:a. Specified contributions into the plan on behalf of qualifying participants.b. Specified payments to the employee after retirement.c. Variable payments linked to an index such as the CPI.d. Both a and b.e. Both b and c.
Q:
By far the fastest growing sector of the defined contribution plans is the:a. 401(k) plan.b. 403(b) plan.c. 457 plan.d. All of the above.e. None of the above.
Q:
The different types of pension plans include:a. Defined benefit plans.b. Defined contribution plans.c. Cash balance plans.d. a and b only.e. All of the above.
Q:
Pension funds are financed by contributions from:a. The tax system.b. The employer.c. The employees.d. a and b only.e. b and c only.
Q:
Which of the following are considered plan sponsors?a. Private business entities for their employees.b. Unions on behalf of their members.c. Individuals for themselves.d. a and c only. e. All of the above.
Q:
All of the following fall under the category of convergence trading hedge funds EXCEPT:a. Fixed income arbitrage hedge funds.b. Equity market neutral hedge funds.c. Global macro hedge funds.d. Convertible bond arbitrage hedge funds.e. Relative value hedge funds.
Q:
A fund in which the asset manager retains some exposure to systematic risk is: a. A market directional hedge fund.b. A corporate restructuring hedge fund.c. A convergence trading hedge fund.d. A risk arbitrage hedge fund.e. An opportunistic hedge fund.
Q:
The management fee structure for hedge funds is:a. A flat fee per investor or investor group.b. A fixed fee based on the market value of assets managed.c. A performance-based incentive fee.d. b and c only.e. None of the above.
Q:
The term "hedge fund" was first used to describe:a. The private investment fund of Alfred Winslow Jones.b. The Quantum Group of Funds managed by George Soros.c. The offshore investment corporation of the United Kingdom's Financial Services Authority.d. The public fund overseen by the Board of Governors of the Federal Reservee. None of the above.
Q:
When the asset manager customizes the investment selection to the objectives of the investor, this is referred to as:a. A hedge fund.b. A separately managed account.c. A private fund.d. An individual-traded fund.e. None of the above.
Q:
Exchange-traded mutual funds have which of the following characteristics?a. ETFs are traded like stocks on an exchange.b. ETFs are similar to closed-end funds.c. ETFs avoid realized capital gains and the taxation thereof due to their low portfolio turnover.d. All of the above.e. None of the above.
Q:
The family of funds concept represents the strategy of the mutual fund industry to offer investors a choice of numerous funds with different investment objectives in the same fund family. Thus, investors may move their assets among:a. Money market funds.b. Global stock and bond funds.c. Broadly diversified stock funds.d. Stock funds devoted to particular sectors. e. All of the above.
Q:
Shares selling below the net asset value (NAV) are said to be trading at:a. A premium.b. A discount.c. Par.d. Liabilitye. Leverage.
Q:
Investors in mutual funds incur:a. Fund sales charges.b. Annual operating expenses.c. Interest.d. a and b only.e. All of the above.
Q:
Which of the following are types of investment companies?a. Open-end funds.b. Closed-end funds.c. Unit trusts.d. a and b only. e. All of the above.
Q:
Discuss the distinctions between L&H and P&C companies.
Q:
Explain how the separate functions of insurance companies are now often provided by different companies.
Q:
Discuss the two major forms of life insurance companies.
Q:
The key distinction between life insurance and property and casualty insurance companies lies in:a. The difficulty of projecting whether or not a policyholder will be paid off.b. The amount of the payoff.c. Tax differences.d. a and b only.e. All of the above.
Q:
An insurance product that is not guaranteed by the insurance company's general account is:a. Whole life insurance.b. Universal life insurance.c. Variable life insurance.d. Fixed annuity.e. GIC.
Q:
Regarding the taxation of life insurance:a. The inside buildup of cash value life insurance policies is not taxed as income or capital gains.b. The beneficiary of the death benefit of life insurance policy is not subject to an income tax.c. The death benefit of the policy is never subject to estate tax.d. a and b only.e. All of the above.
Q:
The two fundamentally different types of life insurance are term insurance and:a. Permanent life insurance.b. Cash-value life insurance.c. Investment-type life insurance.d. Whole life insurance. e. All of the above.
Q:
A form of insurance that has no cash value if the insured party does not die within the set policy period is called: a. Term insurance.b. Whole life insurance.c. Universal life insurance.d. Variable life insurance.e. Survivorship insurance.
Q:
According to the reinsurance transaction, the "reinsurer" is:a. The insurer transferring the risk.b. The insurer accepting the risk.c. The insurer that wrote the policy.d. The policy holder whose policy is transferred.e. None of the above.
Q:
Insurance companies are really a composite of several companies, which include:a. Manufacturer.b. Investment company.c. Distribution component.d. All of the above.e. None of the above.
Q:
One reason given for the accelerated demutualization of insurance companies is the:a. Gramm-Leach-Bliley Act.b. Glass-Steagall Act.c. McCarran Ferguson Act.d. GIC Act.e. SEC Act.
Q:
STAT surplus:a. Is defined by accountants for their purposes.b. Is required by monitoring agencies to assure financial stability.c. Is measured in an identical manner to GAAP, but their purposes are different.d. a and b only.e. All of the above.
Q:
The timing and magnitude of the payments for an insurance company is much more uncertain because of:a. The actuarial problems in estimating the life expectancy of individuals.b. The fact that payments are contingent on uncertain future events.c. The long lag between the receipts and payments for an insurance company.d. The continued viability of the insurance company.e. None of the above.
Q:
Insurance companies have increasingly sold products that have a significant investment component in addition to their insurance component. Major investment oriented products include:a. Guaranteed investment contracts.b. Annuities.c. Insurance wrappers.d. a and b only.e. All of the above.
Q:
According to the McCarran Ferguson Act of 1954, the insurance industry is regulated by:a. The individual states.b. The federal government.c. The Securities and Exchange Commission.d. a and b only.e. None of the above.
Q:
Companies that provide insurance for both life and health and property and casualty are called:a. Life insurance companies.b. Property and casualty insurance companies.c. Multi-line insurance companies.d. Health insurance companies.e. None of the above.
Q:
An annuity is often described as:a. A stock insurance fund in a mutual company wrapper.b. An insurance premium in an underwriting wrapper.c. A mutual fund in an insurance wrapper.d. Term insurance in a cash-value wrapper.e. An L&H company in a P&C company wrapper.
Q:
Pension plan sponsors often purchase which of the following as a pension investment?a. Property and casualty insurance.b. Structured settlements.c. "Own occ" disability insurance.d. Guaranteed investment contracts.e. None of the above.
Q:
"Any occ" disability insurance:a. Insures against the inability of an employed person to earn an income in his own or any occupation.b. Is typically written for professionals.c. Is typically written for blue-collar workers.d. a and b only.e. a and c only.
Q:
The risk insured against death is which of the following types of insurance?a. Life insurance.b. Health insurance.c. Property and casualty insurance.d. Liability insurance.e. Disability insurance.
Q:
A stock insurance company:a. Is similar in structure to a corporation.b. Issues shares that are traded publiclyc. Answers to only one constituency because its policyholders and its owners are the same.d. a and b onlye. a and c only.
Q:
Which of the following is true regarding the income of an insurance company?a. The income from premiums paid is an unstable type of revenue.b. The initial underwriting income is the return generated from the investment of the insurance premiums.c. An insurance company's profit is the sum of its insurance premiums and investment returns.d. The investment returns from the investment of the insurance premiumsaccumulate until the funds are paid out on the policy.e. c and d only.
Q:
Which of the following terms are associated with insurance companies?a. Premiums.b. Risk bearers.c. Underwriting process.d. a and b only. e. All of the above.
Q:
What are the requirements for banks to borrow from the Fed's discount window?
Q:
Explain why banks cannot invest $1 for every $1 it obtains in deposits.
Q:
Explain the major differences between commercial banks and savings and loan associations.
Q:
Continual bank borrowing at the Fed for long periods and in large amounts is viewed as a sign of:a. A bank's financial weakness.b. Exploitation of the interest differential for profit.c. Financial health due to increased loan demand at the bank.d. a and b only.e. All of the above.
Q:
The basic motivation behind the creation of S&Ls was provision of funds for financing:a. The purchase of a home.b. The purchase of land.c. The purchase of a car.d. The purchase of government securities.e. None of the above.
Q:
Since credit unions are owned by their members, member deposits are called:a. Contributions.b. NOW accounts.c. Shares.d. Certificates of membership.e. None of the above.
Q:
The borrowings by S&Ls from the Federal Home Loan Banks are called:a. Reserves.b. Advances.c. Deposits.d. Contributions.e. None of the above.
Q:
Regulation Q allowed the Fed to impose:a. Geographical restrictions on branch banking.b. Interest rate ceilings on deposit accounts.c. Capital requirements for commercial banks.d. Permissible activities for commercial banks.e. None of the above.
Q:
The primary source of funds for credit unions is:a. Issuance of debt securities.b. Issuance of equity securities.c. Deposits of their members.d. None of the above.e. All of the above.
Q:
The principal assets of savings banks are:a. Mortgage-backed securities.b. Residential mortgages.c. Commercial mortgages.d. Government securities.e. All of the above.
Q:
The Garn-St. Germain Act of 1982 expanded the types of assets in which S&Ls could invest. The acceptable list now includes:a. Consumer loans.b. Commercial loans.c. Municipal securities.d. a and c only.e. All of the above.
Q:
What are the principal objectives of the risk-based capital requirements?a. Greater consistency in evaluating the capital adequacy of major banks.b. Capital adequacy standards that consider the risk profile of the bank.c. Recognize liquidity factors and market price sensitivity to which a bank may be exposed.d. a and b only.e. All of the above.