Fintech and Financial Markets
Chapter Exam Questions
Course Introduction
This course explores the transformative impact of financial technology (Fintech) on modern financial markets. It covers innovations such as digital payments, blockchain, cryptocurrencies, peer-to-peer lending, robo-advisors, and regulatory technology (RegTech). Students examine the evolution of traditional financial services alongside disruptive Fintech models, evaluating implications for market structure, risk management, regulation, and competition. Through case studies and hands-on projects, the course highlights the challenges and opportunities associated with Fintech adoption, preparing students to navigate and contribute to the rapidly evolving financial landscape.
Recommended Textbook
Financial Markets and Institutions 11th Edition by Jeff Madura
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Chapter 1: Role of Financial Markets and Institutions
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Q1) Which of the following is a money market security?
A)Treasury note
B)municipal bond
C)mortgage
D)commercial paper
Answer: D
Q2) Valuing stocks is easier than valuing debt securities because stocks promise to provide investors with specific payments at regular intervals.
A)True
B)False
Answer: False
Q3) When a securities firm acts as a broker, it
A)guarantees the issuer a specific price for newly issued securities.
B)makes a market in specific securities by adjusting its own inventory.
C)executes transactions between two parties.
D)purchases securities for its own account.
Answer: C
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Chapter 2: Determination of Interest Rates
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Q1) At any given point in time, households would demand a ____ quantity of loanable funds at ____ rates of interest.
A)greater; higher
B)greater; lower
C)smaller; lower
D)none of the above
Answer: B
Q2) Due to expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.
A)increase; decrease B)increase; increase C)decrease; increase
D)decrease; decrease
Answer: C
Q3) The relationship between interest rates and expected inflation is often referred to as the loanable funds theory.
A)True
B)False
Answer: False
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Chapter 3: Structure of Interest Rates
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Q1) If a security can easily be converted to cash without a loss in value, it
A)is liquid.
B)has a high after-tax yield.
C)has high default risk.
D)is illiquid.
Answer: A
Q2) If the yield curve is upward sloping, some investors may attempt to benefit from the higher yields on longer-term securities, even when they have funds for only a short period of time. This strategy is known as riding the yield curve.
A)True
B)False
Answer: True
Q3) The graphic comparison of maturities and annualized yields is known as the interest rate curve.
A)True
B)False
Answer: False
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Chapter 4: Functions of the Fed
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Q1) Repurchase agreements are purchased by the Fed to
A)temporarily decrease the aggregate level of bank funds.
B)permanently increase the aggregate level of bank funds.
C)permanently decrease the aggregate level of bank funds.
D)temporarily increase the aggregate level of bank funds.
Q2) To decrease money supply, the Fed could ____ the reserve requirement ratio.
A)increase
B)stabilize
C)reduce
D)eliminate
Q3) The ____ is directly responsible for setting reserve requirements.
A)Federal Advisory Council
B)FOMC
C)Board of Governors
D)President of the United States
Q4) Each member of the Board of Governors is appointed by the president of the United States and serves a nonrenewable 14-year term.
A)True
B)False
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Chapter 5: Monetary Policy
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Q1) If the Fed attempts to reduce inflation, it would likely increase money supply growth.
A)True
B)False
Q2) In the "operation twist" strategy used in 2011 and 2012, the Fed sold _______ Treasury securities and used the proceeds to purchase ________ Treasury securities.
A)long-term; short-term
B)short-term; long-term.
C)short-term; long-term
D)long-term; short-term.
Q3) The ____ is not an indicator of economic growth.
A)producer price index
B)gross domestic product
C)national income
D)unemployment rate
E)All of the above are indicators of economic growth.
Q4) The Fed needs the approval of the presidential administration to make decisions.
A)True
B)False
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Chapter 6: Money Markets
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Sample Questions
Q1) Securities with maturities of one year or less are classified as
A)capital market instruments.
B)money market instruments.
C)preferred stock.
D)none of the above
Q2) Treasury bills
A)have a maturity of up to five years.
B)have an active secondary market.
C)are commonly sold at par value.
D)commonly offer coupon payments.
Q3) LIBOR is:
A)the interest rate charged on international interbank loans.
B)the average rate charged on commercial loans in Europe.
C)the rate charged by the Federal Reserve for loans to banks.
D)the rate charged by the European Central Bank for loans to banks.
Q4) Junk commercial paper is commercial paper that is not rated or rated low.
A)True
B)False
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Chapter 7: Bond Markets
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Q1) Jim purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Jim will hold the bonds until maturity. Thus, he will earn a return of ____ percent.
A)12.00
B)9.00
C)10.50
D)More information is needed to answer this question.
Q2) Bond dealers specialize in small transactions (less than $100,000) in order to enable small investors to trade bonds.
A)True
B)False
Q3) Which of the following is not mentioned in your text as a protective covenant?
A)a limit on the amount of dividends a firm can pay
B)a limit on the corporate officers' salaries a firm can pay
C)the amount of additional debt a firm can issue
D)the appointment of a trustee in all bond indentures
E)All of the above are mentioned in the text as protective covenants.
Q4) High-risk bonds are called trash bonds.
A)True
B)False
Page 9
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Chapter 8: Bond Valuation and Risk
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Sample Questions
Q1) Stephanie would like to purchase a bond that has a par value of $1,000, pays $80 at the end of each year in coupon payments, and has ten years remaining until maturity. If the prevailing annualized yield on other bonds with similar characteristics is 6 percent, how much will Stephanie pay for the bond?
A)$1,000.00
B)$1,147.20
C)$856.80
D)none of the above
Q2) A $1,000 par value bond, paying $50 semiannually, with an 8 percent yield to maturity and five years remaining to maturity should sell for A)$1,000.00.
B)$1,081.11.
C)$798.70.
D)$880.22.
E)none of the above.
Q3) A zero-coupon bond makes no coupon payments.
A)True
B)False
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Chapter 9: Mortgage Markets
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Q1) Speculators sell credit default swaps to benefit from the default of specific subprime mortgages.
A)True
B)False
Q2) Mortgage lenders normally charge a higher initial interest rate on adjustable-rate mortgages than on fixed-rate mortgages.
A)True
B)False
Q3) Federally insured mortgages guarantee
A)loan repayment to the lending financial institution.
B)that the interest rate will not increase during the life of the mortgage.
C)the lending financial institution a selling price for the mortgage in the secondary market.
D)all of the above
Q4) Collateralized mortgage obligations (CMOs) are generally perceived to have
A)no prepayment risk but some default risk.
B)no prepayment risk and no default risk.
C)the same interest rate risk as money market securities.
D)a high degree of prepayment risk.
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Chapter 10: Stock Offerings and Investor Monitoring
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Q1) Venture capital (VC) funds commonly serve as advisors to the businesses in which they invest.
A)True
B)False
Q2) Which of the following is not a barrier to corporate control?
A)antitakeover amendments
B)proxy contests
C)poison pills
D)golden parachutes
E)all of the above are barriers to corporate control
Q3) Common law countries such as the U.S., Canada, and the United Kingdom allow for more legal protection than civil law countries such as France or Italy.
A)True
B)False
Q4) Electronic stock exchanges that execute stock transactions electronically are referred to as electronic communications networks (ECNs).
A)True
B)False
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Page 12
Chapter 11: Stock Valuation and Risk
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Sample Questions
Q1) Value at risk estimates the ____ a particular investment for a specified confidence level.
A)beta of B)risk-free rate of C)largest expected loss to D)standard deviation of
Q2) Protsky Inc. just paid a dividend of $2.20 per share. The dividend growth rate for Protsky's dividends is 3 percent per year. If the required rate of return on Protsky stock is 12 percent, the stock should be valued at $____ per share according to the dividend discount model.
A)24.44
B)25.18
C)18.88
D)75.53
Q3) The beta of a stock portfolio is equal to a weighted average of the A)betas of stocks in the portfolio.
B)betas of stocks in the portfolio, plus their correlation coefficients.
C)standard deviations of stocks in the portfolio.
D)correlation coefficients between stocks in the portfolio.
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Chapter 12: Market Microstructure and Strategies
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Q1) Assume that a stock is priced at $50 and pays an annual dividend of $2 per share. An investor purchases the stock on margin, paying $25 per share and borrowing the remainder from the brokerage firm at 9 percent annual interest. If, after one year, the stock is sold at a price of $65.25 per share, the return on the stock is
A)60 percent.
B)44 percent.
C)30 percent.
D)69 percent.
Q2) You purchase a stock with cash, and you earn a negative return on the stock. If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment would have been A)positive.
B)more negative than if you had covered the entire investment with cash. C)negative, but more favorable than if you had covered the entire investment with cash. D)zero.
Q3) When investors place a limit order, they can place it for the day only.
A)True
B)False
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Chapter 13: Financial Futures Markets
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Sample Questions
Q1) Trading restrictions imposed on specific stocks or stock indices are referred to as
A)index busters.
B)index options.
C)circuit breakers.
D)protective covenants.
Q2) Which of the following statements is incorrect?
A)Circuit breakers are trading restrictions imposed on specific stocks or stock indexes.
B)Circuit breakers guarantee that prices will turn upward.
C)Circuit breakers may be able to prevent large declines in prices that would be attributed to panic selling rather than to fundamental forces.
D)Circuit breakers may allow investors to determine whether circulating rumors are true.
Q3) Purchasers of financial futures contracts usually know who the sellers are, and vice versa.
A)True
B)False
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Chapter 14: Options Markets
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Sample Questions
Q1) The premium on an existing call option should ____ when the underlying stock price decreases.
A)be negative
B)decline
C)increase
D)be unaffected
E)A and B
Q2) Which of the following can normally be found in quotations for stock options provided by the financial media?
A)exercise price, expiration date, and implied volatility
B)exercise price, expiration date, and most recently quoted premium
C)expiration date, implied volatility, and trading volume
D)expiration date, most recently quoted premium, and implied volatility
Q3) When the market price of the underlying security exceeds the exercise price, the
A)call option is in the money.
B)put option is in the money.
C)call option is at the money.
D)call option is out of the money.
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Chapter 15: Swap Markets
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Sample Questions
Q1) When a bank participates in a swap of fixed interest rate payments for floating-rate payments, or a swap of currencies, it
A)can match up two parties but cannot take a position in the swap.
B)can match up two parties or can take a position in the swap.
C)cannot match up two parties and cannot take a position in the swap.
D)cannot match up two parties but can take a position in the swap.
Q2) An advantage of a ____ over other interest rate swaps is that the fixed-rate payer has the flexibility to avoid exchanging future interest payments.
A)callable swap
B)putable swap
C)zero-coupon for floating swap
D)forward swap
Q3) A firm is involved in an agreement in which it makes payments in periods when a market interest rate falls below an interest rate level specified in the agreement. This means that the firm has
A)purchased an interest rate cap.
B)sold an interest rate cap.
C)purchased an interest rate floor.
D)sold an interest rate floor.
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Page 17
Chapter 16: Foreign Exchange Derivative Markets
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Q1) A(n) ____ in the supply of euros for sale will cause the euro to ____.
A)increase; appreciate
B)increase; depreciate
C)decrease; depreciate
D)none of the above
Q2) If the forward rate of a foreign currency ____ the existing spot rate, the forward rate will exhibit a ____.
A)exceeds; discount
B)is below; premium
C)is below; discount
D)A and B
Q3) Generally, a ____ home currency can ____ domestic economic growth.
A)weak; dampen
B)strong; stimulate
C)strong; dampen
D)A and B
Q4) Financial institutions rarely use the forward market.
A)True
B)False
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Chapter 17: Commercial Bank Operations
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Sample Questions
Q1) The operations, management, and regulation of a financial conglomerate are the same irrespective of the types of services offered.
A)True
B)False
Q2) The five largest banks in the United States account for about one-tenth of all assets in U.S. banks.
A)True
B)False
Q3) Cash held ____ represents the major portion of a bank's required reserves.
A)at other commercial banks
B)in a bank's vault
C)on deposit at the federal funds window
D)on deposit with the Board of Governors
Q4) The main use of bank funds is for A)loans.
B)investment securities.
C)fixed assets.
D)repurchase agreements.
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Page 19
Chapter 18: Bank Regulation
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Q1) During the 2008-2010 period, the ____ was implemented to alleviate the financial problems experienced by banks and other financial institutions with excessive exposure to mortgages or mortgage-backed securities.
A)Riegle Program
B)Sarbanes-Oxley Program
C)FDIC Program
D)Troubled Asset Relief Program (TARP)
Q2) Which banking act permanently increased FDIC insurance up to $250,000?
A)DIDMCA
B)Sarbanes-Oxley Act
C)Financial Reform Act
D)Garn-St. Germain Act
Q3) Which of the following is not a specific criterion the FDIC uses to monitor banks?
A)capital adequacy
B)dollar value of fixed assets
C)asset quality
D)earnings
E)sensitivity to financial market conditions
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Chapter 19: Bank Management
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Q1) Other things equal, assets with shorter maturities have ____ durations. Assets that generate more frequent coupon payments have ____ durations.
A)shorter; longer
B)shorter; shorter
C)longer; shorter
D)longer; longer
Q2) As the secondary market for loans has become active, banks are more able to satisfy their liquidity needs with a ____ proportion of loans while achieving ____ profitability.
A)higher; higher B)lower; lower C)higher; lower D)lower; higher
Q3) If a bank has a ____ duration gap, its average asset duration is probably ____ than its liability duration.
A)negative; smaller
B)positive; larger
C)negative; larger
D)none of the above
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Chapter 20: Bank Performance
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Q1) Small banks tend to make more loans to small local businesses, and the rates on these loans are typically lower than the rates that larger banks charge on the loans they provide to large businesses.
A)True
B)False
Q2) A bank's net interest margin represents the proportion of its investments that are financed with borrowed funds.
A)True
B)False
Q3) If the risk premium on a commercial bank rises, so will the required rate of return by investors who invest in the bank.
A)True
B)False
Q4) Even if other external forces (such as interest rates) are unchanged, a commercial bank's expected cash flows can change in response to a change in its management skills.
A)True
B)False
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Page 22
Chapter 21: Thrift Operations
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Sample Questions
Q1) ____ do not represent an asset of credit unions.
A)Mortgage-backed securities
B)Home equity loans
C)Automobile loans
D)Stocks
Q2) ____ are non-profit organizations composed of members with a common bond.
A)Credit unions
B)Savings banks
C)Savings and loan associations
D)Commercial banks
Q3) Credit unions are unregulated as to the types of services they offer.
A)True
B)False
Q4) The capital of savings institutions is primarily composed of retained earnings and funds obtained from issuing stock.
A)True
B)False
Q5) Credit unions obtain most of their funds by borrowing from the U.S. government.
A)True
B)False
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Chapter 22: Finance Company Operations
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Sample Questions
Q1) The most important risk for finance companies is ____ risk.
A)settlement
B)accounting
C)credit
D)exchange rate
Q2) If finance companies with a greater rate-sensitivity of liabilities than assets wanted to reduce interest-rate risk, they could
A)shorten their average asset life.
B)lengthen their average asset life.
C)shorten the maturity of debt that they issue.
D)make greater use of fixed-rate loans.
Q3) Finance companies are subject to
A)a maximum limit on loan size.
B)ceiling interest rates on loans provided.
C)a maximum length on loan maturity.
D)regulations on intra-state banking.
E)all of the above
Q4) Finance companies are exempt from state regulations.
A)True
B)False
Page 24
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Chapter 23: Mutual Fund Operations
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Q1) Large mutual funds can exert some control over the management of firms because they commonly represent the largest shareholders.
A)True
B)False
Q2) Hedge funds are more heavily regulated than mutual funds.
A)True
B)False
Q3) Funds that are designed to mimic particular stock indexes and are traded on a stock exchange are known as
A)index mutual funds.
B)exchange-traded funds.
C)money market funds.
D)none of the above
Q4) A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.
A)True
B)False
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Chapter 24: Securities Operations
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Q1) Funds received from a bridge loan are commonly used to
A)purchase junk bonds.
B)purchase high-grade corporate bonds.
C)provide temporary financing for an acquisition.
D)provide financing for individual investors that wish to purchase Treasury bonds.
Q2) One reason for financial problems of securities firms during the credit crisis is that they used a high degree of financial leverage.
A)True
B)False
Q3) Under SEC Rule 144A, firms may engage in private placements of stock without filing the extensive registration statement that is required for public placements.
A)True
B)False
Q4) If securities firms are subject to systemic risk, this means that their main source of risk is a rise in interest rates, which may cause the value of their bond holdings to decline.
A)True
B)False
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26
Chapter 25: Insurance and Pension Fund Operations
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Q1) Which of the following is a difference in characteristics between life insurance companies and property and casualty insurance companies?
A)Property and casualty policies are longer term.
B)The type of policies offered by life insurance companies are less focused.
C)Future compensation amounts paid on property and casualty policies are more difficult to forecast.
D)Life insurance companies need to maintain a more liquid asset portfolio.
Q2) To reduce interest rate risk, pension fund managers can
A)shift from variable-rate to fixed-rate bonds.
B)increase the average maturity on fixed-rate bonds.
C)decrease the average maturity on fixed-rate bonds.
D)reduce the investment in money market securities.
Q3) Taking speculative positions in stock options is generally not considered appropriate for retirement funds because of the high degree of risk involved.
A)True
B)False
Q4) Group insurance policies are very popular for employers and employees.
A)True
B)False
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