II. True or False Questions3 {+ X1 p9 c- d1 c: ?/ w
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.3 o0 ?( D2 a8 k. [% P* O4 z$ \
A.True B.False
, Q1 |, ?! g+ l& y% |% { E# { 27. Investors in the capital markets are not subject to any tax on their investments.
1 D5 S; e4 G' m4 | P" F; A A.True B.False
: P/ B0 a$ m$ }4 h& j* X 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.% Q2 y- w b4 }, K4 S
A.True B.False; F0 ^! g+ t5 N3 L5 z
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.
+ [9 V- L& f0 G# w# l A.True B.False
! R$ D/ C' V2 u* b3 \ 30. According to the Phillips Curve, the economy cannot be at full employment and stable prices at the same time.
: u( z3 r7 g& t4 T A.True B.False2 I7 I8 U1 u9 B+ V i! ~* N) _
31. When total reserves are equal to required reserves, the banking system cannot extend loans anymore.1 e# _/ D' \' z% x* g
A.True B.False0 _* v1 T0 [6 ]/ U/ m1 Y8 s, W+ s. o
32. A bill of lading that covers the shipment of goods on two separate vessels is known as thorough bill of lading.
& V! q/ m9 K) r% y6 o1 F0 D: ?8 \0 S( c A.True B.False
( [) B) ?: X# ?2 g 33. Usually the more liquid asset is less risky.! b( \: K2 f3 n* S
A.True B.False; V9 f) @8 a- N3 w' 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.- z# n1 }; n9 F2 O
A.True B.False
7 z+ V( V) L, W1 ]& z+ Y' a* m 35. The velocity of money is the speed with which it can be converted into a liquid asset.4 c: Y3 _& E1 e
A.True B.False
$ [6 ^. K) d2 h% k. [& I 36. Primitive securities yield returns that depend on additional factors pertaining to the prices of other assets, while a derivative security offers returns based only on the status of the issuer." S9 u" t, y1 J+ V- \5 p4 Q
A.True B.False
. l) e! [4 x' z3 |' N+ C 37. A car loan offered by a bank is a derivative security./ g, w. l' k, _/ d* Z
A.True B.False
. l' K% W |) p" _ 38. Options give buyers the obligation to buy or sell an asset at a present price over a specific period.
! o, K5 N: _* J" a, v A.True B.False
7 r( w8 ^) M9 J! V 39. Futures contracts usually end in the delivery of the underlying commodity.
* _& N, I. ? `: w; k A.True B.False
& e. M. q- ?+ C7 S! w; N 40. The forward exchange rate is the current spot rate adjusted for the interest rate differentials.
! j" I- N( A! S1 t# c A.True B.False
2 o. o; n. X5 I) W- l& ~ 41. Dirty price is the bond price excluding accrued interest, i.e., the price paid by the bond buyer.
/ v' z8 r0 t% }' e A.True B.False( V& V) x$ X: s- K0 R
42. Every transaction must produce a debit and credit entry of the same financial amount.
9 e( t$ @" G. [8 m b A.True B.False
: O+ C1 x2 I8 s) | 43. There are three parties to a life policy in addition to the issuing company: the insurer, the life assured and the beneficiary.- ~( t" \( l Z4 Y
A.True B.False- d) d: Y9 _( K
44. A guarantee is an agreement that may be evidenced in writing or in oral form.
, V2 W& X7 c, Y5 O A.True B.False
* J& l2 D9 g' U: H) I 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.
+ V z9 p! Z/ t2 k, h# { A.True B.False
; h' d/ L F, M# L 46. Profit does not equal cash and some profitable businesses have failed for want of cash.2 Z8 v% S: i& K) X- \4 y
A.True B.False, [+ x8 L3 M, C) ]+ z$ w
47. Bills are negotiated with recourse to customers in the event of nonpayment.
( A z6 ?% P1 i! M8 b/ S+ O$ d A.True B.False; d, K( O. D! T7 \& ?7 \% I4 i
48. A firm's gearing is the level of fixed assets as a percentage of total assets.7 p, C' X8 I# j9 Y5 E7 Z1 n) Q
A.True B.False
6 x: A- B: _; P0 ]) w 49. A bank must obtain a judgment if it wishes to pursue its legal remedies against a debtor.
8 m3 |1 d% C! o" r A.True B.False8 n1 n, J" v( `+ e+ H
50. When a country borrows from abroad, its balance of international payments shows an outflow of foreign exchange.
8 A. o0 X. {( }" T A.True B.False |