Question 1

Explain what a debt security is.What are some common types of debt securities?

Accepted Answer

A debt security represents a contractual claim against the issuer of the instrument who has borrowed the funds.The borrower agrees to abide by the terms of the contract such as meeting covenants.A major part of the contract is the terms of payment to the lender.Corporations issue debt securities such as debentures,term loans,commercial bills,promissory notes and unsecured notes.

Question 2

The flow of funds through financial markets increases the volume of savings and investment by:

Accepted Answer

A)  maintaining low interest rates. 
B)  storing large quantities of cash. 
C)  providing savers with a variety of ways to lend to borrowers. 
D)  offering lower interest rates than could be obtained directly from borrowers. 
A)  maintaining low interest rates. 
B)  storing large quantities of cash. 
C)  providing savers with a variety of ways to lend to borrowers. 
D)  offering lower interest rates than could be obtained directly from borrowers. C

Question 3

If you purchase an Australian government bond,that bond is:

Accepted Answer

A)  an asset to you but a liability for the Australian government. 
B)  an asset to you as well as an asset for the Australian government. 
C)  a liability to you but an asset for the Australian government. 
D)  a liability to you as well as a liability for the Australian government. 
A)  an asset to you but a liability for the Australian government. 
B)  an asset to you as well as an asset for the Australian government. 
C)  a liability to you but an asset for the Australian government. 
D)  a liability to you as well as a liability for the Australian government. A

Question 4

Which of the following is NOT a major advantage of direct finance?

Accepted Answer

A)  Direct finance reduces financial institution' fees. 
B)  Direct finance allows borrowers to diversify sources of funds. 
C)  Direct finance allows greater flexibility in funding types. 
D)  Direct finance reduces search and transactions costs. 
A)  Direct finance reduces financial institution' fees. 
B)  Direct finance allows borrowers to diversify sources of funds. 
C)  Direct finance allows greater flexibility in funding types. 
D)  Direct finance reduces search and transactions costs.

Question 5

The main participants in the financial system are individuals,corporations and governments.Individuals are generally ______ of funds and corporations are net ________ of funds.

Accepted Answer

A)  borrowers; suppliers 
B)  users; providers 
C)  suppliers; users 
D)  demanders; providers 
A)  borrowers; suppliers 
B)  users; providers 
C)  suppliers; users 
D)  demanders; providers

Question 6

Individuals may be categorised as risk averse,risk neutral or risk takers.Risk averse individuals will accept a lower rate of return so as to reduce their risk exposure.

Accepted Answer

A) True 
 B)False

Question 7

Financial institutions whose liabilities specify that,in return for the payment of periodic funds to the institution,the institution will make payments in the future (if and when a specified event occurs)are:

Accepted Answer

A)  money market corporations. 
B)  unit trusts. 
C)  contractual savings institutions. 
D)  depository financial institutions. 
A)  money market corporations. 
B)  unit trusts. 
C)  contractual savings institutions. 
D)  depository financial institutions.

Question 8

Financial intermediaries can engage in credit risk transformation because they:

Accepted Answer

A)  obtain cost advantages owing to their size and business volumes transacted. 
B)  can quickly convert financial assets into cash, close to the current market price. 
C)  develop expertise in lending and diversifying loans. 
D)  can pool savers' short-term deposits and make long-term loans. 
A)  obtain cost advantages owing to their size and business volumes transacted. 
B)  can quickly convert financial assets into cash, close to the current market price. 
C)  develop expertise in lending and diversifying loans. 
D)  can pool savers' short-term deposits and make long-term loans.

Question 9

The flow of funds between the sectors of a nation-state:

Accepted Answer

A)  varies from year to year. 
B)  depends on the business cycle. 
C)  depends on the levels of economic activity. 
D)  relates to all of the given answers. 
A)  varies from year to year. 
B)  depends on the business cycle. 
C)  depends on the levels of economic activity. 
D)  relates to all of the given answers.

Question 10

Which of the following is NOT a feature of forward contracts?

Accepted Answer

A)  Forward contracts are not standardised 
B)  Forward contracts do not trade on organised exchanges 
C)  The contract price may be settled at the end of the contract 
D)  Forward contracts are closed out by trading an opposite contract 
A)  Forward contracts are not standardised 
B)  Forward contracts do not trade on organised exchanges 
C)  The contract price may be settled at the end of the contract 
D)  Forward contracts are closed out by trading an opposite contract

Question 11

Long-term debt financing instruments used by companies are called:

Accepted Answer

A)  bills. 
B)  debentures. 
C)  shares. 
D)  equities. 
A)  bills. 
B)  debentures. 
C)  shares. 
D)  equities.

Question 12

The role of money as a store of value refers to:

Accepted Answer

A)  the value of money falling only when the money supply falls. 
B)  the value of money falling only when the money supply increases. 
C)  the fact that money allows worth to be stored readily. 
D)  the fact that money never loses its value compared with other assets. 
A)  the value of money falling only when the money supply falls. 
B)  the value of money falling only when the money supply increases. 
C)  the fact that money allows worth to be stored readily. 
D)  the fact that money never loses its value compared with other assets.

Question 13

For additional funding,a company decides to issue $15 million in corporate bonds.The securities will be issued into the:

Accepted Answer

A)  retail markets. 
B)  secondary markets. 
C)  money markets. 
D)  capital markets. 
A)  retail markets. 
B)  secondary markets. 
C)  money markets. 
D)  capital markets.

Question 14

Which of the following is NOT usually a short-term discount security?

Accepted Answer

A)  Negotiable certificates of deposit 
B)  Commercial paper 
C)  Bank bills 
D)  Unsecured notes 
A)  Negotiable certificates of deposit 
B)  Commercial paper 
C)  Bank bills 
D)  Unsecured notes

Question 15

A company with a high credit rating can issue _____ directly into the money markets.

Accepted Answer

A)  CDs 
B)  Commercial paper 
C)  unsecured notes 
D)  debentures 
A)  CDs 
B)  Commercial paper 
C)  unsecured notes 
D)  debentures

Question 16

Which of the following is NOT associated with characteristics of shares?

Accepted Answer

A)  Part ownership of a company 
B)  Capital gains 
C)  A fixed interest payment 
D)  Dividends 
A)  Part ownership of a company 
B)  Capital gains 
C)  A fixed interest payment 
D)  Dividends

Question 17

A financial institution that obtains most of its funds from deposits is a/an:

Accepted Answer

A)  investment bank. 
B)  unit trust. 
C)  commercial bank. 
D)  general insurer. 
A)  investment bank. 
B)  unit trust. 
C)  commercial bank. 
D)  general insurer.

Question 18

Secondary markets:

Accepted Answer

A)  allow borrowers to raise long-term funds. 
B)  facilitate capital-raising in the primary market. 
C)  do not raise new funds but offer liquidity. 
D)  all of the given answers. 
A)  allow borrowers to raise long-term funds. 
B)  facilitate capital-raising in the primary market. 
C)  do not raise new funds but offer liquidity. 
D)  all of the given answers.

Question 19

In recent years,depository financial institutions have obtained a large proportion of their funds from the financial markets directly.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is NOT a characteristic commonly associated with preference shares?

Accepted Answer

A)  A specified, fixed return 
B)  No voting rights 
C)  Higher ranking than bond holders on claims on assets 
D)  No entitlement to take possession of assets if the borrower defaults on payment 
A)  A specified, fixed return 
B)  No voting rights 
C)  Higher ranking than bond holders on claims on assets 
D)  No entitlement to take possession of assets if the borrower defaults on payment

Exam 1: A Modern Financial System: An Overview

Explain what a debt security is.What are some common types of debt securities?

The flow of funds through financial markets increases the volume of savings and investment by:

If you purchase an Australian government bond,that bond is:

Which of the following is NOT a major advantage of direct finance?

The main participants in the financial system are individuals,corporations and governments.Individuals are generally ______ of funds and corporations are net ________ of funds.

Individuals may be categorised as risk averse,risk neutral or risk takers.Risk averse individuals will accept a lower rate of return so as to reduce their risk exposure.

Financial institutions whose liabilities specify that,in return for the payment of periodic funds to the institution,the institution will make payments in the future (if and when a specified event occurs)are:

Financial intermediaries can engage in credit risk transformation because they:

The flow of funds between the sectors of a nation-state:

Which of the following is NOT a feature of forward contracts?

Long-term debt financing instruments used by companies are called:

The role of money as a store of value refers to:

For additional funding,a company decides to issue $15 million in corporate bonds.The securities will be issued into the:

Which of the following is NOT usually a short-term discount security?

A company with a high credit rating can issue _____ directly into the money markets.

Which of the following is NOT associated with characteristics of shares?

A financial institution that obtains most of its funds from deposits is a/an:

Secondary markets:

In recent years,depository financial institutions have obtained a large proportion of their funds from the financial markets directly.

Which of the following is NOT a characteristic commonly associated with preference shares?

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

The main participants in the financial system are individuals,corporations and governments.Individuals are generally of funds and corporations are net __ of funds.