Financial Institutions

1
Financial Institutions MarketsECN 324

• Phase 2 Exam Review
• 45 M/C Questions

2
Mortgage Markets 6Chapter 9

• Why are government insured mortgages important to
  a lender?
• How are banks holding mortgages affected by
  increasing rates? Mortgagees by decreasing rates?
• Who insures PIPs (privately issued pass-through)?
  
• Which agencies of the US Government insure
  mortgages? Why were they created?
• What is prepayment risk?

3
Equity Markets 5Chapter 10

• What is an IPO?
• What behavior impacts IPO prices on the date of
  issuance?
• How do venture capital firms assist new ventures?
• What are registered exchanges?
• How are orders executed on registered exchanges?
  In the OTC market?

4
Stock Valuation Models 5Chapter 11

• What does it mean to Weak-form efficient?
  Semi-strong form efficient? Strong-form
  efficient?
• How does MPT characterize risk?
• How does CAPM characterize risk?
• What proxy does the CAPM use for the risk free
  rate in the pricing equation?

5
Market Microstructure 6Chapter 12

• How does a market order differ from a limit order
  in terms of execution?
• How does a Cash account differ from a Margin
  account?
• What does it mean to sell short? What are the
  short-sellers expectations?
• What is a margin call?

6
Futures 6 Chapter 13

• What are the features of a futures contract?
• What is a hedge? Who is likely to use a hedge?
• When would you open a long position? A short
  position?
• What is basis in a futures position?
• What are day traders? Scalpers?

7
Options Markets 6Chapter 14

• What is a call option? a put option?
• What bet is a call buyer making? A put buyer?
• What is a covered writer? What is a naked writer?
  To what extra risk is the naked writer exposed?
• When is a call option in-the-money? A put option?
  Out-of-the-money? at-the money?
• What does it mean to exercise an option? How is
  price determined in an exercise?

8
Interest Rate Futures 6 Chapter 15

• What is the purpose of a swap?
• How does a putable swap differ from callable
  swap?
• If interest rates decline, do you want to be a
  borrower or a lender?
• Who benefits most from an interest rate cap? An
  interest rate floor?
• What is sovereign risk?

9
Foreign Exchange Markets 5 Chapter 16

• Who is most likely to provide a forward currency
  contract to businesses?
• How will an increase in demand for a foreign
  currency affect the exchange rate? An increase in
  the supply of a foreign currency?
• How does an arbitrager use the cross-rate table
  to make riskless profits?
• Why are the principal advantages of currency
  futures contracts?