Asset Classes & Financial Instruments

Question 1

1. MULTIPLE CHOICE. Which of the following securities is traded in the money market?

A. Preferred Stock.

B. Options and futures.

C. T-Bond.

D. T-Bill.

Answer 1

D

Question 2

2. MULTIPLE CHOICE. Which of these securities is not traded in the capital market?

A. Corporate stock.

B. Corporate bonds.

C. Commercial paper.

D. Municipal bonds.

Answer 2

C

Question 3

3. MULTIPLE CHOICE. Which of the following statements regarding financial markets is false? A. Marketable securities are long-term debt securities.

B. The key capital market securities are bonds and stock.

C. The money market enables suppliers and demanders of short-term funds to make transactions.

D. The capital market enables suppliers and demanders of long-term funds to make transactions.

Answer 3

A

Question 4

4. MULTIPLE CHOICE. Which of the following statements regarding the foreign exchange market is false?

A. A direct exchange rate quote states how many dollars you can buy for one unit of foreign currency.

B. In the forward market you buy and sell currency for future delivery.

C. The purchasing power parity states a market basket of goods should cost the same in every country.

D. The interest parity theory says that the difference in interest rates must equal the difference between the forward and swap exchange rates.

Answer 4

D

Question 5

5. If the direct exchange rate is $1.50/£, what is the indirect exchange rate?

Answer 5

£.6667

Question 6

6. MULTIPLE CHOICE. Which of the following statements regarding futures and forward contracts is false?

A. The long-position holder in a futures contract will profit if the original futures price is higher than the market price at maturity.

B. The distinction between ‘future’ and ‘forward’ does not apply to the contract itself but how the contract is traded.

C. Futures contracts are traded in organized exchanges.

D. A futures contract is a zero-sum game.

Answer 6

A