Financial Markets and Institutions Exam 1 Practice

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• Which money market instrument is a secured short-term funding agreement backed by collateral?
• LCR stands for?
• How do deposit insurance and FDIC resolution processes promote banking stability?
• Which regulator regulates futures and options markets?
• Which money market instrument is essentially a collateralized loan using securities such as Treasury bills as collateral?
• Which term describes a financing transaction between sources of funds (lenders) and users of funds (borrowers) which is facilitated by an intermediary?
• Which statement best describes how higher market liquidity affects trading costs?
• Which banks are chartered by the Office of the Comptroller of the Currency (OCC)?
• Why is maintaining an orderly functioning of capital markets important for corporate financing?
• Basel III aims to achieve which of the following regarding bank capital?
• Which statement best describes purchasing power parity (PPP) and uncovered interest rate parity (UIP)?
• Which statement best describes the distinction between systemic risk and idiosyncratic risk?
• Which institution focuses on pooling client money to create diversified investment portfolios across multiple asset classes?
• Under what conditions is quantitative easing typically deployed?
• Which statement about derivatives is correct?
• Which description best captures how capital markets support a firm's growth beyond bank lending?
• Which of the following is a non-deposit-taking financial institution?
• Which regulator supervises nonbanking activities of foreign banks?
• Open market operations are primarily conducted by which entity to adjust bank reserves?
• Which statement best distinguishes solvency risk from liquidity risk?
• Which of the following is an objective of a modern central bank?
• What is Basel III and name two key components of its capital and liquidity requirements?
• Which factor most directly influences the size of credit spreads?
• Which term describes the ease of trading assets in markets, as opposed to the ability to obtain cash?
• How did stress tests contribute to post-crisis regulation and bank resilience?
• NSFR stands for?
• Which of the following is a policy instrument central banks may use to influence bank lending by paying interest on reserves?
• Which of the following were main causes of the 2007-2009 financial crisis?
• In the expectations plus term premium framework for long-term bond yields, what components comprise the yield?
• How do banks create money through fractional reserve banking?
• What distinguishes a market order from a limit order?
• Market microstructure studies how trading mechanisms, order types, and information flow affect price formation and liquidity. Which statement best describes its importance?
• Which organization independently regulates securities firms?
• Which statements correctly describe post-2008 regulatory reforms like Dodd-Frank and the Volcker Rule?
• Which formula correctly defines net interest margin?
• Explain the difference between systemic risk and idiosyncratic risk.
• Which description best captures the lender-of-last-resort concept?
• When was the Federal Reserve Act signed into law?
• Which of the following is NOT a typical role of the Federal Reserve Banks?
• Which entity would you consult for rules governing the issuance and trading of securities in markets?
• Which of the following is an example of a nonbank financial intermediary?
• What do rating agencies do and when can conflicts arise?
• Capital Markets are markets for which instruments?
• Under Basel III, which ratio measures short-term liquidity risk?
• Besides lower funding costs, what is another effect of higher credit ratings?
• Certificates of Deposit are time deposits with fixed maturity. Which option reflects this feature?
• What is payment system risk?
• Net stable funding ratio measures stability over what horizon?
• What is the primary difference between primary markets and secondary markets?
• Which money market instrument is a time draft payable to a seller with payment guaranteed by a bank?
• What is the difference between gross and net interest margin?
• On a bank's balance sheet, which item is an asset?
• Which type finances itself by issuing debt instruments and lends to customers to purchase fixed assets?
• What is financial innovation and what are potential risks and benefits?
• Which statement describes the expectations hypothesis of the term structure?
• Which statement about shadow banking is accurate?
• On a bank's balance sheet, which item is a liability?
• Capital adequacy is calculated as?
• Which institution is primarily financed by member deposits and uses those funds to offer consumer loans at low rates?
• Which regulator charters, regulates and supervises federal chartered credit unions?
• How do ETFs differ from mutual funds in trading?
• Which statement about bond ratings is true?
• Define systemic risk and explain how contagion can exacerbate it.
• What is the role of risk-weighted assets in regulatory capital calculations?
• Negotiable Certificates of Deposit are:
• Which bonds can be called back by the issuer at a future date?
• Which option describes a typical systemic crisis response by authorities?
• What are the primary U.S. payment systems and their roles?
• State member Banks are chartered by the state and are members of which system?
• In macroprudential policy, what is a systemic risk buffer (SyRB) used for?
• In a defined contribution plan, who bears investment risk?
• Equities Markets are markets where which instruments are issued and traded?
• Expansionary monetary policy typically affects bond prices and yields in what way?
• What is the most common denomination for negotiable certificates of deposit?
• What is a bank's leverage ratio, and how does it differ from a risk-weighted capital ratio?
• Explain uncovered interest rate parity (UIP) and its implication for currency movements.
• If interest rates rise, a bond with higher duration will experience what?
• Which institution is financed by customer deposits and primarily lends in the form of mortgages?
• Which components constitute the core structure of the Federal Reserve System?
• An exchange rate regime describes how a country manages its currency value. What distinguishes a fixed regime from a floating regime?
• Which statement best contrasts central bank roles in fiat currency systems versus commodity-backed systems?
• Which bonds mature on a single date?
• What is the objective of the net stable funding ratio (NSFR)?
• Under the Efficient Market Hypothesis, abnormal gains and losses are minimized.
• Which statement best describes how banks fund themselves and its impact on liquidity risk?
• What is a repurchase agreement (repo) transaction?
• Which institution is mainly engaged in retirement savings planning and distributions?
• Which statement best describes shadow banking?
• Which EMH critique suggests markets react too strongly or too weakly to new information?
• Which statement correctly distinguishes money markets from capital markets and gives typical instruments traded in each?
• Which of the following is a deposit-taking financial institution?
• Which Discount Window arrangement helps small depository institutions manage seasonal swings in loans and deposits?
• Which statement best describes the net stable funding ratio (NSFR)?
• What is a credit default swap (CDS) and what does it hedge?
• Which statement most accurately describes Treasury Notes and Treasury Bonds?
• Which statement best describes duration and convexity in bond portfolios?
• What are the main tools of monetary policy used by a central bank?
• What distinguishes money markets from capital markets in terms of instruments and maturities?
• Explain securitization and how it can impact credit availability and risk transfer.
• How many members constitute the Board of Governors?
• If a bond's yield to maturity falls, its price tends to what?
• Which type of bond involves a sinking fund—a pool of money set aside as collateral?
• Net interest margin (NIM) is defined as which?
• Which methods are commonly used to estimate default risk?
• Which regulator supervises bank holding companies, member state banks, foreign branches of member banks, foreign banks with US operations, and nonbanking activities of foreign banks?
• What is credit risk, default risk, and spread, and how are they connected?
• Fed funds transactions can be initiated by:
• What is purchasing power parity (PPP) and when does it hold?
• Subordinated debentures are unsecured debt that ranks lower than other debt in liquidation.
• How can parallel shifts vs twists in the yield curve be interpreted in terms of monetary policy expectations?
• Foreign Exchange Markets are where which assets are traded?
• What triggers bank runs, and which regulatory tools help prevent them?
• Federal Funds are best described as:
• Which tools are sometimes used by central banks beyond traditional monetary policy tools to influence expectations and longer-term rates?
• Which of the following describes the bank risk type typically discussed in relation to market contagion and interconnectedness?
• What best defines Money Markets?
• Which market would you associate with stock exchanges?
• Money market instruments have original maturities of what?
• Capital Markets include which of the following descriptions?
• Which institution is a cooperative depository owned by its members and typically lends to members at low rates?
• Which statement about capital markets in corporate financing is true?
• What is the purpose of the liquidity coverage ratio (LCR) and how is it calculated?
• Which term describes the EMH argument that concerns the effect of information disclosure on prices?
• Which tool is used by central banks to influence the level of bank reserves and short-term interest rates?
• Shadow banking refers to which concept?
• Under the Efficient Market Hypothesis, prices can be used to assess a firm's cost of capital.
• What is shadow banking and give an example of a regulation gap it creates?
• Which of the following is NOT typically a function of financial intermediaries?
• Which organization finances its lending activities by issuing debt instruments and funds consumer purchases of assets?
• How does inflation influence bond prices and real yields?
• Which statement about reserve requirements is true?
• Which statement about the secondary market for Commercial Paper is generally true?
• What is a primary purpose of financial regulation?
• Which factor is NOT typically considered when deciding between debt and equity financing?
• Which components primarily determine mortgage rates?
• A bank's balance sheet lists assets and liabilities, while its income statement reports income. Which statement is true?
• In a standard over-the-counter forward contract, who bears the primary default risk?
• Which statement correctly describes a key difference between futures and options?
• Which statement correctly distinguishes funding liquidity from market liquidity?
• Which instrument is an unsecured short-term promissory note issued by a corporation to raise short-term cash?
• What is the primary tool used by the FOMC to conduct monetary policy?
• Which item is NOT a typical function of a bank as a financial intermediary?
• Define duration and why it matters for interest rate risk.
• Which money market instrument has a short maturity and is issued by the government as zero coupon?
• Explain the difference between liability-driven and asset-driven bank risk management approaches.
• Which statement correctly describes the effect of central bank open market operations when the central bank buys government securities?
• Which instrument is typically traded in capital markets rather than money markets?
• Which institution specializes in savings plans for retirement for their customers?
• What is meant by 'living wills' in post-crisis financial regulation?
• What is forward guidance in monetary policy?
• Which discount window is available to depository institutions that are generally in sound financial condition?
• Why are risk-weighted assets used in capital adequacy calculations?
• What is the primary purpose of the net stable funding ratio (NSFR)?
• Which money market instrument is short-term unsecured debt issued by corporations?
• Which debt instrument can be converted into equity?
• Mortgage Markets are markets where which instruments are issued and traded?
• Standard original maturities for U.S. Treasury Bills are:
• Which of the following best describes corporate bonds?
• In a repo transaction, what does the repurchase obligation create?
• What is the role of the Federal Reserve's Federal Open Market Committee (FOMC) in monetary policy decisions?
• Which group is involved in underwriting securities issues and providing brokerage and trading services?
• What are benefits of index funds and passive investing?
• What is a commonly cited risk of financial innovation?
• What is the Federal Reserve's primary role in the U.S. economy?
• Which funding components influence a bank's liquidity risk and resilience?
• Which term describes a financing transaction between sources of funds (lenders) and users of funds (borrowers) which is conducted without an intermediary?
• The Federal Funds rate is defined as:
• Which input is commonly used in credit scoring?
• What is counterparty risk and how can central clearing reduce it?
• What is an option's intrinsic value and time value?
• What is open market operations (OMO) and how do they influence the money supply?
• In financial regulation, moral hazard occurs when?
• What is the typical maturity range for Commercial Paper?
• Which municipal bonds are backed by the full faith and credit of the municipality?
• Which regulator independently regulates securities firms?
• Which statement best describes quantitative easing?
• Describe the concept of systemic importance and how regulators identify SIFIs.
• What does the Efficient Market Hypothesis imply for investing?
• Describe the differences in funding risk between defined benefit and defined contribution plans.
• Treasury Bills are issued at what relative to par value?
• Which of the following is listed as an argument for the Efficient Market Hypothesis?
• Which statement about municipal bonds is true?
• Bond Markets are markets where which instruments are issued and traded?
• The Federal Reserve is an independent central bank but is subject to oversight by which body?
• What does daily settlement (mark-to-market) mean in futures contracts?
• Yield to maturity (YTM) and bond pricing are related how?
• In FX markets, what do currency pairs represent and what is the bid-ask concept?
• What is the typical shape of the yield curve in a healthy economy, and what do shifts imply?
• Which entity pools resources from clients and invests in a diversified portfolio across debt, equity, and other assets?
• What is the term structure of interest rates, and which theories explain its shape?
• Which statement correctly characterizes capital markets?
• Which of the following is not typically used to designate systemically important financial institutions (SIFIs)?
• Which payment system provides real-time gross settlement for large-value transfers?
• What is the minimum denomination for publicly traded corporate bonds?
• In central bank operations, what does cash vs collateral refer to?
• Debt Markets are markets where which instruments are issued and traded?
• The monetary transmission mechanism operates through several channels; which of the following is NOT typically cited as a channel?
• What is financial contagion?
• Money Markets primarily deal with which type of securities?
• An example of money market instruments would be which of the following?
• How do credit ratings influence banks' funding costs and access to capital?
• Revenue bonds are backed by cash flows from a specific project.
• Which statement best describes primary markets vs secondary markets and their role in price discovery?
• What does a rising credit spread indicate about credit risk and market conditions?
• Financial intermediation channels funds from savers to borrowers. Which statement best contrasts banks and nonbank intermediaries?
• In a bank balance sheet, which of the following describes typical assets and liabilities?
• Treasury Bills are:
• Differentiate between forwards and futures contracts.
• What is the primary function of the money market?
• Which institution protects individuals and companies from financial losses due to adverse events?
• A repurchase agreement is:
• Which of the following is a money market instrument?
• Which agency insures deposits?
• Which regulatory body regulates the issue and trade of financial securities?
• What is securitization, and how do MBS/CMOs relate to bank risk?
• Which regulator insures deposits and examines and supervises non-FRS member state-chartered banks?
• What is an interest rate swap and what risks does it introduce?
• What is the purpose of a stress test in banking regulation?
• Which bonds carry a fixed interest rate through maturity?
• Which corporate bond is not secured by physical assets or collateral?
• Which financial institution is funded largely by customer deposits and makes loans to other customers, including mortgages?
• Which statement best summarizes the evolution from Bretton Woods to today’s international monetary system?
• Which factor is a primary consideration in a firm's choice between debt and equity financing?
• When an option is out-of-the-money, its intrinsic value is zero.
• Explain what a liquidity coverage ratio (LCR) is and its purpose.
• Which term describes markets for equity instruments such as stocks?
• Risk-weighted assets are used in regulatory capital to calculate which ratio?
• Which asset class is generally considered high risk and high return?
• Which sequence best describes the transmission mechanism of monetary policy through the banking system?
• Which institution pools owners' resources to invest in innovative projects or startup enterprises?
• Which type of corporate bond is owned by the holder of the physical bond?
• Market liquidity is best described by which statement?
• Which is a non-deposit-taking financial institution?
• Which regulator supervises national banks and federal savings associations?
• What is the role of rating agencies (NRSRO) in financial markets, and what are their limitations?
• What is the primary claim of the Efficient Market Hypothesis?
• How is a bond price determined in relation to its cash flows and yield?
• What is a key impact of fintech on traditional markets?