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| With the ___________________, premiums are invested in stock, bond, or money market funds, and the value of the policy changes in accordance with investment performance. | variable life insurance |
| The largest item on the liability side of the balance sheet for life insurance companies is: | policy reserves |
| The __________________ combines pure life insurance with a savings element. If the insured lives to some specified time, he/she receives the policy's face value. | endowment life policy |
| In property/casualty insurance, the actual losses incurred on an insurance line, divided by the premiums earned, is called the: | loss ratio |
| A/an _________________ will pay a beneficiary a fixed amount, periodically, over some specified period of time. | annuity |
| Loans made by a life insurance company to its own policy holders are called: | policy loans |
| Consider Justin PC Insurance Company's data: loss ratio 75% .Expense ratio 31% . Dividend ratio 1% Net investment income/premiums earned 8% Compute Justin's "combined ratio after dividends | 107 |
| The customers most eager to apply for an insurance contract will be those most likely to have a claim against the insurance company. This is the essence of the _______________ problem in insurance. | adverse selection |
| Life insurance companies show a tendency to have: | long term assets and long term liabilities |
| Major lines of property-casualty insurance would include all of the following except: | universal variable life |
| _______________ is essentially insurance acquired by insurance companies. | reinsurance |
| Trusted Securities is taking an order from Paul, who wants to acquire 300 shares of General Electric stock. Trusted Securities is acting in the capacity of a/an: | broker-dealer |
| _____________ refers to a professionally managed pool of money directed to the financing of newer, often higher-risk firms. The investors are taking an equity position, and are not passive investors. | venture capital |
| Darlene tries to spot situations where the same basic security is selling for two different prices in two different markets. She wants to buy at the cheaper price and immediately sell at the more expensive Darlene is trying to engage in: | pure arbitrage |
| The ____________________ is the key Federal regulator of securities transactions. | SEC |
| With __________________, corporations can register new securities with the SEC up to two years in advance, and be prepared to issue them on relatively short notice. | shelf registration |
| Suppose an investment bank promises an issuing firm a fixed amount for a new issue of stock. Then, the investment bank intends to sell the stock to the public. This exemplifies a/an _________________ arrangement. | firm commitment underwriting |
| Insurance companies, commercial banks and investment banks may now affiliate with each other and engage in similar lines of business. These powers were granted by the | financial services modernization act |
| The _______________ protects investors against losses of up to $500,000, resulting from securities firm failures. | SIPC |
| When a securities firm helps support a secondary market for an asset, it is involved in: | market making |
| One kind of mutual fund deploys its funds in short-term instruments, including such things as Treasury bills, commercial paper, and large CDs. This is the: | money market mutual fund |
| The number of shares outstanding for a mutual fund is determined by customer demand for the shares; hence, mutual funds are referred to as: | open end |
| A "growth" mutual fund would be expected to purchase: | stocks |
| a no load mutual fund is | typically marketed directly to customers, charging no commission |
| which of the following is most obviously not a long term fund | tax exempt money market mutual fund |
| a mutual fund prospectus | indicates the investment objectives of the fund |
| a hybrid fund is one that | invests in both bonds and stocks |
| So-called 12b-1 fees are: | fees charged by some mutual funds, due to distribution and marketing costs |
| If we divide the current value of a mutual fund's investment portfolio by the number of the mutual fund's own shares outstanding, we have: | the net asset value of the fund |
| A mutual fund that charges a commission or fee on its sales of shares to is classified as a/an: | load fund |
| A mutual fund that invests solely in stocks would be categorized as a/an: | equity fund |
| A large number (about 25%) of long-term mutual funds are _____________ funds, buying securities in proportions similar to those of a major stock index. | index |
| open end mutual funds guaranee | to redeem investors shares upon demand at current NAV |
| As the economy weakens, one would expect investment in _________ funds to increase and investment in __________ funds to decrease, ceteris paribus. | money market mutual, equity |
| Money market mutual funds (MMMFs) have caused disintermediation at banks at times. This is because MMMFs | Sometimes pay higher interest rates than bank deposits |
| The largest proportion of long term mutual fund assets is held by ___________________. | the household sector |
| the primary regulator of mutual funds is the | SEC |
| Which one of the following fund types is likely to have the lowest annual expense ratio? | index funds |
| A ___________ fund must hold substantial cash reserves in order to meet fund redemptions from shareholders. | open end mutual fund |
| A fund that has a fixed number of shares outstanding and is traded on an exchange is called a/an | closed end fund |
| ETFs have several advantages over index funds including the ability to: I. Trade throughout the day at continuously updated prices II. Purchase ETF shares on margin II. Sell ETF shares short IV. Sell the shares back to the fund | I,II, and III only |
| An unregistered issue sold to a few large institutional buyers is an example of a | private placement |
| An investment banker may be unwilling to engage in a firm commitment offer if | both A and C |
| In July 2002 the U.S. Congress passed the Sarbanes-Oxley bill. Among other things, this bill I. Created an independent auditing oversight board run by the SECII. Increased penalties for corporate wrongdoers | I and II only |
| As a result of the alleged conflicts of interest between analysts and underwriting, which of the following rules changes were implemented? `` | I AND II ONLY |
| Which one of the following securities firms' activities is normally the most risky? | firm commitment offering |
| The term "variable" in a variable life policy refers to the | variable growth rate of the cash value of the policy |
| The primary regulator of insurance firms is the | state insurance regulator |
| Which one of the following statements concerning annuities offered by insurers is not true? | annuity payments must cease upon the policyholders death |
| The largest asset category of life insurers is _____ and the largest liability category is _____. | bonds, policy reserves |
| Property and casualty insurers hold _____ short term assets than life insurers because property and casualty loss rates are _____ predictable than life insurance loss rates. | more, less |
| In property and casualty insurance the combined ratio is equal to the ____________________ divided by total premiums written. | sum of the loss ratio plus general expenses and brokers commissions |
| the two major components of expense risk for P&C insurers are | Loss adjustment expenses and variations in commission and other expenses |
| In the mid-2000s, a number of banks lost billions of dollars on failing mortgage loans. The risk of such occurrences would be categorized as: | credit risk |
| Bank-X's outstanding loans all have fixed interest rates, with maturities in excess of two years. The bank's deposit liabilities all have maturities of no more than six months. Bank-X most obviously is facing: | interest rate risk |
| Which of the following would bring about "off balance sheet" risk for a financial institution? | a bank issues a letter of credit |
| Suppose a bank is holding a portfolio of long-maturity assets, and has financed it with short-maturity liabilities. Which of the following risks is most obvious? | refinancing risk |
| We've encountered so-called "subprime" loans, which have been especially newsworthy over the last year or two. These are: | loans to higher risk borrowers |
| A/an ________________ can be viewed as a multi-class pass-through security, arising when mortgage loans are securitized. | collaterized mortgage obligation |
| "Freddie Mac" and "Fannie Mae" are important institutions that came up in connection with: | securization of mortgage loans |
| If a mortgage loan is called "conventional," this means that the loan: | is not a VA of FHA mortgage |
| With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the ______ bears the interest rate risk. | lender, borrower |
| Mortgage payments are _____ on a 15 year fixed rate mortgage than on a 30 year fixed rate mortgage, and _____ is paid on a 15 year mortgage than on a 30 year mortgage, ceteris paribus | higher, less interest |
| ______________ are specialized investment funds established to invest in distressed loans. | vulture funds |
| A/an ________________ is similar to a "pass through" security, but it assigns different combinations of risk and return to various investor groups. | CMO |
| In the loan sale market, a bank buying a/an __________________ faces risks from the borrower as well as from the original lending institution. | loan participation |
| With a _________________bond, mortgage loans are serving as collateral for the bond, but the bond's interest and principal payments are not necessarily directly connected to the mortgage payments. | mortgage backed |
| If the Fed is targeting interest rates and money demand increases an appropriate policy response would be to | buy US treasure securities from government bond dealers |
| a decrease in reserve requirements could lead to an | both A and B |
| If the Fed wishes to stimulate the economy it could I. Buy U.S. government securities II. Raise the discount rate III. Lower reserve requirements | I and III only |
| is actively acquiring the stock of An Corp., after concluding that Android is a likely candidate for a buyout . If a buyout is, announced, Benjamin feels that Android's stock price will rise significantly. This activity would be categorized as ___by Ben | risk arbitrage |
| *BONUS* Actively managed funds find it difficult to consistently earn higher risk adjusted returns than a broad stock market index. The difference in return between actively managed funds and passively managed index funds can be explained by which of the | I and III only |
| You wish to invest $17,445 in a mutual fund with a NAV of $26.03. The fund charges a front end load of 4.50%. How many fund shares will you receive? | 640 |
| ______ has an important influence on types of merger and acquisition transactions involving securities firms in recent years. In particular, we've observed a number of securities firm combinations involving other financial firms, insurance, and banks | the financial services modernization act |
| In 2007 and 2008, mortgage delinquencies and foreclosures increased, leading to: | a collapse in the value of mortgage backed securities |
| _____________ refers to the incentive for sellers of loans to offload their "bad" loans, while retaining their "good" ones. | moral hazard |
| The propensity of mortgage borrowers to _______________________ means that realized cash flows on pass-through securities can deviate from the stated coupon flows. | prepay their mortgages |
| In November 2010 the Fed announced that it would buy $600 billion in long-term Treasuries over the next eight months. The bond purchases aimed at stimulating the economy. The policy is called __________. | quantitative easing |