ST.

VINCENT COLLEGE
Leganes  Ivisan  Pototan
MIDTERM EXAM – MS8
BSA 4 – ABCDE (Leganes & Ivisan)

Name: Date of Exam: April 24, 2023

Course, Yr. & Sec.: Subject Instructor: Anna Marie P. Villamor

Instruction: Choose the correct letter that corresponds to your best answer. Shade the letter of your answer on the
given answer sheet. Erasures are not allowed in the answer sheet.

1. Which of the following is/are false regarding money market securities?

I. They are usually sold in large denominations.

II. They usually have an active secondary market.
III. Money is one of the securities being traded in the money market.

a. I and II only c. I, II, and III

b. II and III only d. None of the choices

2. Statement 1: Short-term issues enable the government to raise funds until tax revenues are received.
Statement 2: Bank are not prohibited from holding Treasury securities.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. None of the statement is correct.

3. Which of the following is not a purpose of the money market?

a. Money market provides a low-cost source of funds to firms, the government, and intermediaries that need a
long-term infusion of funds.
b. Money market serves as an interim investment that provides a higher return than holding cash or money in
banks.
c. Money market serves as a “warehouse” to surplus funds until they are needed.
d. Money market provide a means to invest idle funds and to reduce opportunity cost.

4. Statement 1: Like insurance companies, pension funds must have sufficient liquidity to meet their obligations.
However, because their obligations are reasonably predictable, large money market security
holdings are unnecessary.
Statement 2: The market for commercial papers is extremely deep and liquid.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

5. Which of the following is not a participant of the money market?

a. U.S. Treasury Department c. Individuals

b. Federal Reserve System d. All are participants

6. Which of the following is not true about Treasury bills?

I. Investors earn interest on Treasury bills.

II. The risk of unexpected changes in inflation is high for Treasury bills.
III. Purchase price of Treasury bills is usually lower than its face or par value.

a. I and II only c. I, II, and III

b. II and III only d. None of the choices

7. Statement 1: Treasury bonds are short-term government-issued securities.

Statement 2: The Federal Reserve System increase the amount of money in the financial system by buying
securities.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. None of the statement is correct.

8. Which of the following is/are correct?

I. Bonds are equity securities.

II. Debt securities include stocks.
III. Bonds represent ownership.

a. I and II only c. I, II, and III

b. II and III only d. None of the statement is correct.
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9. The advantage of this type of mortgage is that it allows retired people to use the equity in their homes without the
necessity of selling it.

a. Graduated-Payment Mortgages c. Second Mortgages

b. Growing-Equity Mortgages d. Reverse Annuity Mortgages

10. Statement 1: When the note is stripped, each of the interest payments and the principal payment becomes a
separate security.
Statement 2: STRIPS are also called zero-coupon securities because the only time an investor receives a
payment during the life of a STRIPS is when it matures.

a. Only statement 1 is incorrect. c. Both statements are incorrect.

b. Only statement 2 is incorrect. d. None of the statement is incorrect.

11. Which is false?

I. Municipal bonds that are issued to pay for essential public projects are subject to federal taxation.
II. General obligation bonds and revenue bonds are example of agency bonds.

a. I only c. Both I and II

b. II only d. Neither I nor II

12. Characteristics of the bond which states that the issuer has the right to force the holder to sell the bond back.

a. Restrictive covenants c. Conversion

b. Call provisions d. Secured

13. Which of the following is not correct regarding call provisions?

I. Call provisions are for the benefit of the bondholders.

II. One of the reasons why issuers of bonds include call provisions is to make it possible for them to buy back
their bonds according to the terms of the sinking fund.
III. A call provision can limit the amount that bondholders can earn from the appreciation of a bond’s price.

a. I only c. I, II, and III

b. II and III only d. None of the choices

14. The following securities are usually issued on a discounted basis, which is not?

a. Treasury bills c. Banker’s acceptance

b. Commercial papers d. None of the choices

15. Statement 1: Treasury bills are zero-coupon securities.

Statement 2: In Treasury bill auctions, competitive bidders are guaranteed that they could buy securities.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. None of the statement is correct.

16. Statement 1: In a primary market transaction, the issuer of the security receives the proceeds of the sale.
Statement 2: Subsequent sale of a firm’s new stocks or bonds to the public are secondary market transactions.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

17. Which of the following statement is not true?

I. Long-term bonds traded in the capital market include long-term government bills, notes, and bonds,
municipal bonds, and corporate bonds.
II. Federal government notes and bonds are risk-free securities.

a. I only c. Both I and II

b. II only d. Neither I nor II

18. Which of the following is not an example of an unsecured bonds?

a. Debenture bonds c. Variable-bonds

b. Subordinated debentures d. Mortgage bonds

19. This type of mortgage is popular among borrowers who expect their incomes to rise in the future. It gives them the
benefit of a small payment at the beginning while still retiring the debt early.

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 a. Graduated-Payment Mortgages c. Second Mortgages
b. Growing-Equity Mortgages d. Reverse Annuity Mortgages

20. Which of the following is not correct regarding preferred stock?

I. Preferred stock is an equity security.

II. Preferred stockholders receive fixed dividend.
III. Preferred stockholders hold a claim on assets that has priority over the claims of common shareholders and
before that of the creditors such as bondholders.

a. I and II only c. I, II, and III

b. II and III only d. None of the choices

21. Which is not untrue?

I. Borrowers tend to prefer fixed-rate loans.

II. Lenders prefer adjustable-rate mortgages.
III. Adjustable-rate mortgages may cause hardship to lenders if interest rates rise.

a. I and II only c. I, II, and III

b. III only d. None of the choices

22. Statement 1: The interest on loans secured by residential real estate is not tax-deductible.
Statement 2: Should the borrower defaults, the second mortgage holder will be paid only after the original loan
has been paid off and only if sufficient funds are available from selling the property.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

23. Which of the following is a purpose of the second mortgages?

I. To give borrowers a way to use the equity they have in their homes as security for another loan.
II. To let the borrower pay off early.
III. To avoid the need to move to more expensive homes as their family size increases.

a. I only c. I, II and III

b. I and II only d. None of the choices

24. Statement 1: Securities not listed on one of the exchanges trade in the over-the-counter (OTC) market.
Statement 2: Organized exchanges trade on an electronic network where bid and ask prices are set by the
market makers.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

25. The following are advantages of Electronic Communications Networks, except

I. It provides the most current information about supply and demand that traders can use to set their strategy.
II. Only the institutional traders had access to trading securities after ECN closes for the day.
III. Middlemen and commission are cut out of the deal making transaction costs to be lowered.

a. I and II only c. I, II, and III

b. I and III only d. None of the choices

26. The PSE has committed itself to develop and maintain an efficient, fair, orderly and transparent market. Market
transparency means

a. that the orders are executed and transactions are settled in the fastest possible way.
b. that no investor will have an undue advantage over another market player in trading by manipulating prices
and engaging into insider trading.
c. that the investor can make informed and intelligent information about the particular stock he wants to buy.
d. None of the choices.

27. Debenture bonds (choose the incorrect one)

a. have lower interest rate than secured bonds.

b. have lower priority than secured bonds if the firm defaults.
c. usually have an attached contract that spells out the terms of the bond and the responsibilities of
management.
d. are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.

28. Statement 1: The Philippine Stock Exchange was formed from the country’s two former stock exchanges, the

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 Manila Stock Exchange and the Marikina Stock Exchange.
Statement 2: The PSE facilitates the selling and buying of the issued stocks and warrants.

a. Only statement 1 is incorrect. c. Both statements are incorrect.

b. Only statement 2 is incorrect. d. None of the statement is incorrect.

29. Statement 1: A mortgage is a long-term loan secured by real estate.

Statement 2: Conventional mortgages are originated by banks or other mortgage lenders but are guaranteed
by
either the Federal Housing Administration (FHA) or the Veterans Administration (VA).

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

30. Statement 1: Ginnie Mae aggregates these mortgages into a pool and issues pass-through securities that are
collateralized by the interest and principal payments from the mortgages.
Statement 2: Pass-Throughs Freddie Mac was created to assist savings and loan associations, which are not
eligible to originate Ginnie Mae–guaranteed loans.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. None of the statement is correct.

31. Statement 1: The theory of PPP suggests that if one country's price level rises relative to another's, its currency
should depreciate (the other country's currency should appreciate).
Statement 2: If a factor increases the relative demand for domestic goods, the domestic currency will
depreciate.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

32. Statement 1: The trading of currencies and bank deposits denominated in particular currencies takes place in
the foreign exchange market.
Statement 2: Forward transactions involve the immediate (two-day) exchange of bank deposits.

a. Only statement 1 is correct. c. Both statements are correct.

b. Only statement 2 is correct. d. None of the statement is correct.

33. Which of the following statement is not true?

I. A currency undergoes depreciation when it takes more of another currency to buy it.
II. A currency experiences appreciation when it takes less of another currency to buy it.

a. I only c. Both I and II

b. II only d. Neither I nor II

34. Statement 1: In the long run, a fall in a country's price level (relative to the foreign price level) causes its
currency
to depreciate.
Statement 2: Increasing trade barriers causes a country's currency to depreciate in the long run.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

35. Statement 1: The sale, barter or exchange of shares of stock listed and traded at the PSE are exempt from
documentary stamp tax.
Statement 2: In the PSE, all equity transactions, whether buying or selling, have a settlement period of trading
plus four working days.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

36. The following are problems faced by intermediaries when trying to sell mortgages, except

a. Mortgages are usually too small to be wholesale instruments.

b. Selling mortgages in the secondary market are standardized.
c. Mortgage loans are relatively costly to service.
d. Mortgages have unknown default risk.

37. Which of the following is true regarding withholding tax of dividends received?
Under the National Internal Revenue Code of 1997, and except in cases where tax treaties are in force,

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 I. dividends received from domestic corporations are subject to a withholding tax of 10% if the recipient is a
citizen or resident alien.
II. dividends received from domestic corporations are subject to a withholding tax of 25% if the recipient is a
non-resident individual engaged in trade or business in the Philippines.

a. I only c. Both I and II

b. II only d. Neither I nor II

38. Which of the following statement is incorrect?

I. When a country's currency appreciates, its goods abroad become cheaper and foreign goods in that country
become more expensive.
II. When a country's currency depreciates, the country's goods abroad become more expensive and foreign
goods in that country become cheaper (holding domestic prices constant in the two countries).

a. I only c. Both I and II

b. II only d. Neither I nor II

39. Statement 1: Like the price of any good or asset in a free market, exchange rates are determined by the
interaction of supply and demand
Statement 2: The Law of One Price states that if two countries produce an identical good, and transportation
costs and trade barriers are very low, the price of the good should be the same throughout the
world no matter which country produces it.

a. TRUE, TRUE c. FALSE, TRUE

b. TRUE, FALSE d. FALSE, FALSE

40. This advantage of Electronic Communications Networks may not be of great significant for many traders but is critical
for those trying to trade on small price fluctuations.

a. Transparency c. Faster execution

b. Cost reduction d. After-hours trading

- - - End of Exam. - - -

"In The Middle of Every Difficulty Lies Opportunity." -Albert Einstein