CFA quiz 1: Financial markets, assets and contracts

Q1: In a well-functioning financial system:

a. Transaction costs are high

b. Analysts can value savings and investments
c. Scarce capital is used discretionary.

Q2: A well-functioning financial system:

a. Has liquid markets

b. Has low transaction costs
c. Has mainly spot markets

Q3: Active portfolio management can best be described as:

a. A pure investment strategy

b. A trading based on unconditional returns and risk measures
c. A trading based on analyzed information about assets and contracts.

Q4: Options can be described best as:

a. Assets
b. Liabilities
c. Contracts

Q5: Alternative investments are most likely:

a. Liquid
b. Easy to value
c. Hard to trade

Q6: Venture capital is:

a. Private equity
b. Belonging to traditional investment markets
c. Sometimes traded at substantial deviations from the intrinsic value

Q7: Sovereign bonds can be best described as:

a. Money market instruments

b. Capital Market Instruments
c. Public debt securities

Q8: Which of the following can be included in the securities market?

a. Forward contracts and futures

b. Shares of pooled investment
c. T-bills and options

Q9: Which of the following pools of instruments are not formed entirely by securities?
 a. Warrants, repos, commercial paper.
b. CD’s, depository receipts, swaps
c. Limited partnership interests, Depository receipts, Units

Q10: Most often ETF’s:

a. Are actively managed close-ended funds

b. Are actively managed open-ended funds
c. Are index-tracking open-ended funds

Q11: Real assets are:

a. Heterogenous
b. Illiquid
c. Easy to manage

Q12: Agreements between traders are most likely linked to:

a. Securities
b. Derivatives
c. Real Assets

ASSETS AND CONTRACTS

The following questions (Q13-Q16) refer to the following list of assets and contracts.

Corporate notes Mutual Funds

Commercial paper Floaters
Copper futures contracts Common stocks
Gold Preferred stocks
T-bills Real estate parcels
ETF’s Cars
Warrants
Q13. Which of these represent ownership in corporations?

Q14. Which of these represent real assets?

Q15. Which of these are pooled investment vehicles?

Q16. Which of these are created by traders rather than issuers?

Answers:

Q1: b is corrects. A is incorrect because the transaction costs have to be low, in order to speed trading
and make the market as liquid as possible.

C is incorrect because the scarce capital in a well-functioning financial system has to be efficiently
distributed.

Q2: a and b are correct. C is incorrect because a financial system has spot markets and forward markets
as well.

Q3: Correct answer: C. Traded-motivated investors are doing active portfolio management.

Q4: Correct answer: C. Options can be seen as both assets (long calls) or liabilities (short calls).

Q5: Correct answer: C

Q6: Correct: a and c

Q7: Correct c. Sovereign bonds are issued by national governments. A and B are incorrect because
sovereign bonds can both be short-term/long-term investments.

Examples of money market sovereign bonds are T-bills, while among capital market sovereign bonds
examples are T-bonds.

Q8: Correct b. Shares of pooled investment

Q9: B is correct. The swaps are not securities but financial contracts

Q10: C is correct

Q11: Correct are a and b. C is incorrect. Outsourcing is a general mechanism for managing real assets
and it can be costly.

Q12. Correct answer: b

Q13. Ownership: common stocks, preferred stocks, warrants.

Q14. Real assets: Real estate parcels, cars

Q15. Pooled investment vehicles: ETF’s, Mutual Funds

Q16. Copper future contracts