Chapter Two
Financial Markets and Institutions
This chapter contains 49 multiple-choice questions, 20 short problems and 10 longer problems.
Multiple Choice
1. A market that has no one specific location is termed a(n) ________ market.
(a) over-the-counter (b) geographic location (c) intermediary (d) conceptual
Answer: (a)
2. ________ problems arise because parties to contracts often cannot easily monitor or control one another.
(a) Payment (b) Counter (c) Incentive (d) Exchange
Answer: (c)
3. Incentive problems take a variety of forms and include:
(a) moral hazard (b) adverse selection (c) principal-agent (d) all of the above
Answer: (d)
4. The ________ problem exists when having insurance against some risk causes the insured party to take greater risk or to take less care in preventing the event that gives rise to the loss.
(a) moral hazard (b) adverse selection (c) principal-agent (d) all of the above
Answer: (a)
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5. Life annuities are examples of ________ problems.
(a) moral hazard (b) adverse selection (c) principal-agent (d) all of the above
Answer: (b)
6. ________ means giving the lender the right to seize specific business assets in the event of default.
(a) Increasing moral hazard (b) Increasing adverse selection (c) Collateralization of loans (d) All of the above
Answer: (c)
7. ________ instruments are also called fixed-income instruments.
(a) Debt (b) Equity (c) Derivative
(d) All of the above
Answer: (a)
8. The market for short-term debt (less than one year) is called the ________ market, and the market for long-term debt and equity securities is called the ________ market.
(a) capital; money (b) money; capital
(c) fixed-income; money (d) derivative; equity
Answer: (b)
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9. ________ securities are financial instruments that derive their value from the prices of one or more other assets.
(a) Debt (b) Equity (c) Derivative (d) Fixed-income
Answer: (c)
10. A call option gives its holder the right to ________ some asset at a specified price on or before some specified expiration date.
(a) sell (b) buy (c) loan (d) borrow
Answer: (b)
11. A put option gives its holder the right to ________ some asset at a specified price on or before some specified expiration date.
(a) sell (b) buy (c) loan (d) borrow
Answer: (a)
12. ________ contracts oblige one party to the contract to buy, and the other party to sell, some asset at a specified price on some specified date.
(a) Options (b) Uncertainty (c) Money market (d) Forward
Answer: (d)
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13. The ________ curve depicts the relation between interest rates on fixed-income instruments issued by
the U.S. Treasury and the maturity of the instrument.
(a) long-term (b) short-term (c) yield
(d) exchange rate
Answer: (c)
14. If the short-term rates are higher than the long-term rates, then the yield curve is ________.
(a) upward sloping (b) downward sloping (c) horizontal (d) vertical
Answer: (b)
Questions 15 and 16 are intended to be calculated as a pair.
15. Suppose you are a French investor, who wants a safe investment in terms of francs. You are investing
for one year and the interest rate on a one-year French government bond is 5% and at the same time it is 9% on a U.S. government bond. The exchange rate is currently 6.15 French francs to the dollar. Suppose you invest $1,000 in a U.S. bond. Also suppose that a year from now the French franc/dollar exchange rate is 6.50 French francs to the dollar. What will be the realized French franc rate of return on the U.S. bond?
(a) 5.69% (b) 9.00% (c) 15.2% (d) 7.00%
Answer: (c)
16. In question 15, what would the exchange rate at year’s end have to be in order for the French investor
to earn exactly 4% per year on the investment in U.S. bonds?
(a) 6.20 FF/$ (b) 5.87 FF/$ (c) 6.40 FF/$ (d) 5.42 FF/$
Answer: (b)
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Use the following yield data to answer questions 17 and 18.
Corporate 1-10 yr High Qlty 5.98 Med Qlty 6.17 Corporate 10+ yr High Qlty 6.26 Med Qlty 6.57
17. Calculate the yield spread for Treasury bonds with maturity 1-10 year and corporate bonds of high quality of the same maturity.
(a) 11.56% (b) 0.68% (c) 0.59% (d) 0.40%
Answer: (d)
18. Calculate the yield spread for Treasury bonds with maturity 10+ years and corporate bonds of medium quality of the same maturity.
(a) 12.29% (b) 0.85% (c) 0.54% (d) 0.45%
Answer: (b)
19. You invest in a stock that costs $45.50 per share. It pays a cash dividend during the year of $1.20 and
you expect its price to be $49 at year’s end. What is your expected rate of return if you sell the stock for $49 at the end of the year?
(a) 2.64% (b) 7.69% (c) 10.33% (d) –5.05%
Answer: (c)
Treasury 1-10 yr 10+ yr
2/29/98 5.58% 5.72
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兹维博迪金融学第二版试题库2TB
