Insurance and Risk Management

281. Which of the following might explain why an upward sloping yield curve is 'normal'?

  1. Long-dated bonds are less liquid than short-dated bonds
  2. The bond market is dominated by capital risk averse investors
  3. The bond market is dominated by income risk averse investors
  4. Short-dated bonds are less liquid than long-dated bonds
  5. People expect future short-term interest rates to be higher than today

Correct answer: (B)
The bond market is dominated by capital risk averse investors

282. Which of the following play a part in the regulation of the US financial system?
(a) FRB
(b) FDIC
(c) MMF
(d) FSLIC
(e) OCC
(f) NCUA
(g) FFIEC
(h) FOMC
(i) SEC(j) NASD(a), (b), (c), (f), (g), (i) and (j)

  1. (a), (b), (e), (f), (i) and (j)
  2. (a), (b), (e), (g), (h), (i) and (j)
  3. (a), (b), (e), (f), (g) and (i)
  4. (a), (b), (d), (f), (g), (i) and (j)
  5. (a), (b), (e), (f), (g), (i) and (j)

Correct answer: (D)
(a), (b), (d), (f), (g), (i) and (j)

283. Which of the following statements are false?

  1. The Single European Act had little significance for the Italian financial system
  2. Because the savings ratio in Italy has been falling, there has been little growth in investment funds there
  3. The ownership of banks in Italy is more concentrated than is suggested by the number of banks
  4. The profits of Italian banks remain relatively low
  5. The Bank of Italy is not an independent central bank

Correct answer: (, B, D )
The Single European Act had little significance for the Italian financial system
Because the savings ratio in Italy has been falling, there has been little growth in investment funds there
The profits of Italian banks remain relatively low

, B, D

284. Which of the following statements are true?

  1. The profits of Italian banks remain relatively low
  2. The Bank of Italy is not an independent central bank
  3. The movement towards monetary union and membership of the eurozone has had a large impact on the Italian financial system
  4. Savings ratios in Italy have risen but are still low
  5. Banks in Italy have on average become much larger in recent years

Correct answer: (, C)
The profits of Italian banks remain relatively low
The movement towards monetary union and membership of the eurozone has had a large impact on the Italian financial system

, C

285. Which of the following ways of forming expectations are forward-looking?

  1. Rational expectations
  2. Regressive expectations
  3. Psychological expectations
  4. Adaptive expectations
  5. Exogenous expectations

Correct answer: (A)
Rational expectations

286. Why were the charters of the First Bank of the United States and the Second Bank of the United States not renewed?

  1. Because they operated inflationary monetary policies
  2. Because their profit rates were too low
  3. Because they conflicted with American democratic ideals
  4. Because they gave too much power to the Federal Reserve System
  5. Because they collapsed in bank panics

Correct answer: (C)
Because they conflicted with American democratic ideals

287. You are thinking of making an investment in government bonds and you propose to hold the bonds to maturity. Which measure of bond yield is the most appropriate in making your choice:

  1. Simple yield to maturity
  2. Holding period yield
  3. Interest yield
  4. Current yield
  5. Redemption yield

Correct answer: (E)
Redemption yield

288. You buy a portfolio of long-dated bonds at a price of £101 each. Shortly afterwards, interest rates rise by 1% and the market value of your bonds falls to £96. This is an example of:

  1. Default risk
  2. Reinvestment risk
  3. Income risk
  4. Capital risk
  5. Business risk

Correct answer: (D)
Capital risk

289. You hold a portfolio of government bonds and you expect interest rates to fall in the near future. In order to take advantage of this you should now:

  1. Sell the whole portfolio
  2. Buy high-coupon bonds
  3. Sell long-dated bonds
  4. Buy long-dated, low-coupon bonds
  5. Buy short-dated bonds

Correct answer: (D)
Buy long-dated, low-coupon bonds

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