II. True or False Questions! x: \0 x- P) E+ w r2 g) n
26. As a general rule, the shorter the maturity of an asset and the more readily it can be sold, the more liquid is the asset.; ]- N5 A4 i) M1 l5 D( k% y
True False; y E+ M% {, i/ p0 V
27. Investors in the capital markets are not subject to any tax on their investments.
# v y, A. r- Y9 b v6 G True False! e" J3 L2 O/ }" M! ~
28. CMO is a security backed by a pool of pass-through rates, structured so that there are several classes of bondholders with varying maturities, called tranches.* `4 t1 d& |( j: z2 C
True False7 ^' G; {4 M! L
29. The purpose of the letter of credit is to facilitate trade, typically international trade by substituting the known credit worthiness of a bank for the buyer, which may be unknown or unacceptable to the seller.1 `7 Q, ~0 ?5 W) x
True False
( U# @, k# r3 s6 _! y) t 30. According to the Phillips Curve, the economy cannot be at full employment and stable prices at the same time.
8 Z/ X- C+ x8 M. x4 r True False1 A- O1 o+ {: ^+ V& o I$ c
31. When total reserves are equal to required reserves, the banking system cannot extend loans anymore.
3 C4 F0 h) r, T" J( U" W True False( r: X; L; F. Q$ H3 X: l
32. A bill of lading that covers the shipment of goods on two separate vessels is known as thorough bill of lading.3 o, ^: [7 s) h3 `$ f' y$ @
True False/ E; e$ H$ O1 z4 ~
33. Usually the more liquid asset is less risky.9 O. S& U4 S9 F9 K
True False0 {! q1 Z. r. ~9 x
34. Where the bill of exchange is not accompanied by documents, these having been sent to the importer, the transaction is known as a clean collection.
' T0 Y W; X4 U2 ] True False- u+ _# X* r; ]2 Q
35. The velocity of money is the speed with which it can be converted into a liquid asset.1 w2 J5 c6 b0 F3 ?
True False
3 L, J$ ~6 z! N: Z) x4 m+ Z 36. Primitive securities yield returns that depend on additional factors pertaining to the prices of( i, S) \' u- p
other assets, while a derivative security offers returns based only on the status of the issuer.
* k0 o7 m- y! C6 Z9 }. Z True False
, ]" o! m/ ]( w( ^( K6 \) H, A0 \ 37. A car loan offered by a bank is a derivative security.
$ o) M$ P# K' c/ v8 y6 F$ ^ True False" j5 o) T9 s+ V7 S7 ?) Y
38. Options give buyers the obligation to buy or sell an asset at a present price over a specific period.. Z6 R- y, `: x
True False& \( X% M8 G. M R" n0 {
39. Futures contracts usually end in the delivery of the underlying commodity.1 |4 [# A6 y' d1 L8 e1 B
True False [* s! q P$ X
40. The forward exchange rate is the current spot rate adjusted for the interest rate differentials.$ e& d" f$ e; H' E
True False: n5 F: v3 I# e! [, {2 [! ?
41. Dirty price is the bond price excluding accrued interest, i.e., the price paid by the bond buyer.
+ X! ~% a" }- a1 g True False
' S$ Z5 `/ i4 e4 S& i6 Y5 u6 o! E9 W 42. Every transaction must produce a debit and credit entry of the same financial amount.
! K" r' t, P3 f7 Y" R$ Y True False
9 S0 l0 B6 [* x# Y 43. There are three parties to a life policy in addition to the issuing company: the insurer, the life assured and the beneficiary.
6 R* O1 y! }- {, W True False
. J* S. D, q2 v% W1 \- d) A 44. A guarantee is an agreement that may be evidenced in writing or in oral form.
( u3 f5 a9 ~( e# c) r2 ]4 G' L5 d" _ True False
$ p2 |! `9 e2 a 45. An insurable interest is assumed where people take life assurance on their own lives or where the relationship is that of husband and wife.
9 Y! g" g" ?8 Q/ o- j True False1 t7 x0 f2 e2 C+ }, q
46. Profit does not equal cash and some profitable businesses have failed for want of cash.
* T. o) I4 z* ]4 {8 S- |4 y True False2 p& v! f5 t$ w X, K( D: P) \( u
47. Bills are negotiated with recourse to customers in the event of nonpayment./ u+ w2 _' w9 `; \! D4 q
True False4 B9 E5 s1 f5 B% S B
48. A firm's gearing is the level of fixed assets as a percentage of total assets.
# h) b. L. _6 h6 x( m/ i True False1 |: q. b3 R- _- s r" s
49. A bank must obtain a judgment if it wishes to pursue its legal remedies against a debtor.& O' u2 Q8 l9 q! o" v) [0 c
True False- B" |/ v0 C1 p" Y$ `) M+ e4 F5 T
50. When a country borrows from abroad, its balance of international payments shows an outflow of foreign exchange.
6 h) J. R+ B6 Q, Y0 c2 ^( H8 | True False |