II. True or False Questions! q N/ E! U: K# ?; L
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.
e1 \5 S# X# V3 W2 q/ S) R2 A8 v+ v A.True B.False
2 {0 m1 U' @4 s& d& p 27. Investors in the capital markets are not subject to any tax on their investments.
- O1 w Z& a& s) ]4 {4 g A.True B.False
0 i2 i) s$ H( S 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.7 V2 T+ Z% V5 n6 j
A.True B.False! o( a% d9 R( V9 A: a
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.
: O' s9 c5 W5 v" K% I A.True B.False6 c8 q8 S- _( C9 @2 h2 J1 X
30. According to the Phillips Curve, the economy cannot be at full employment and stable prices at the same time.
0 C: U. ^. Y; Z6 |! Y A.True B.False i7 k0 K* x9 L+ O
31. When total reserves are equal to required reserves, the banking system cannot extend loans anymore.: u7 I8 p+ P% E# V, V
A.True B.False
6 R5 c, u( Q5 W. ^ 32. A bill of lading that covers the shipment of goods on two separate vessels is known as thorough bill of lading.
- `( n! m& L8 f f j# a5 N- {& o2 W A.True B.False% c: K" E! ]% h& ?* K" }) _
33. Usually the more liquid asset is less risky.
& I, `, U" U" D, P* _& t A.True B.False9 Q' a1 ?0 {0 T% U; T
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.& W4 l& o& Q7 h; K# L8 p
A.True B.False6 M& p/ c" k3 q
35. The velocity of money is the speed with which it can be converted into a liquid asset.
8 A# [# R/ K0 B6 j) |! P# H A.True B.False2 J' j: G% _) c" p: b
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.- }% Q# z5 x; k
A.True B.False
, g# \& {" ~3 k) i: P6 r* {/ c- m4 A 37. A car loan offered by a bank is a derivative security.
7 p7 M" ]9 Q/ U2 ]4 E' [ A.True B.False
& d$ {2 l- A9 v" @/ G" F9 R/ M 38. Options give buyers the obligation to buy or sell an asset at a present price over a specific period.
4 @7 B3 ^0 X% S1 h! i A.True B.False
q0 P* f9 e& m6 e7 N 39. Futures contracts usually end in the delivery of the underlying commodity.0 V5 r8 q) q" _" _9 k& z. t
A.True B.False* e# ^, o6 W2 h$ D0 z7 h% k
40. The forward exchange rate is the current spot rate adjusted for the interest rate differentials.
) P9 B4 v! P+ a+ i A.True B.False
* |# n; s5 F4 q9 b" B0 P, ^, n 41. Dirty price is the bond price excluding accrued interest, i.e., the price paid by the bond buyer.% I3 z8 ~# m5 H( I P3 ^4 f
A.True B.False
- e* b8 O# ~9 J9 N: U9 I 42. Every transaction must produce a debit and credit entry of the same financial amount.% A3 M: a, q1 c. |1 w+ K! S# B
A.True B.False
8 O a3 c& R6 N6 |7 p- | 43. There are three parties to a life policy in addition to the issuing company: the insurer, the life assured and the beneficiary.
8 @* _ t" o$ y8 F0 Q6 [) o) s A.True B.False
) B+ R- U* a4 e7 x. `+ ? 44. A guarantee is an agreement that may be evidenced in writing or in oral form. ^5 P* D! n; R. I- o
A.True B.False
) g. }8 T. }- ]$ W0 v$ o 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.
?5 ?: N2 L! ` A.True B.False/ A$ L H& k" P6 O8 ?
46. Profit does not equal cash and some profitable businesses have failed for want of cash.
5 l$ ~! z) ?9 T& M A.True B.False7 f5 U- c* r; `& z5 w6 m" ^; c
47. Bills are negotiated with recourse to customers in the event of nonpayment.4 u. S2 H3 ?9 Q! h% _0 [; V( B8 W
A.True B.False' @0 c' M* N- T: j
48. A firm's gearing is the level of fixed assets as a percentage of total assets.
! N. c3 b7 b) ^ Q/ R4 } A.True B.False
" T b! S$ N2 I% i& C 49. A bank must obtain a judgment if it wishes to pursue its legal remedies against a debtor.# G% ~) w5 E' b* |- I
A.True B.False
* U5 T( S) m* }1 h% l 50. When a country borrows from abroad, its balance of international payments shows an outflow of foreign exchange.4 Z5 O1 o; m% z/ n& ?$ y4 G0 z/ [8 ^
A.True B.False |