CMA Interest Rates & Economic Factors 2

Question 1

Which Federal Reserve tool most directly influences short-term interest rates in the US?

Accepted Answer

Federal funds rate target

Answer

Open market operations

Answer

Discount rate adjustments

Answer

Reserve requirement changes

Question 2

When the yield curve inverts, what does it signal about the economy?

Accepted Answer

Potential recession in 6–18 months

Answer

Strong economic growth ahead

Answer

Inflation is under control

Answer

Housing demand will rise sharply

Question 3

A borrower is choosing between a 5/1 ARM at 5.5% and a 30-year fixed at 6.25%. If rates are expected to rise significantly after 5 years, which is the better long-term choice?

Accepted Answer

30-year fixed, because it locks in today's rate before increases

Answer

5/1 ARM, because initial savings outweigh future risk

Answer

5/1 ARM, because ARMs always adjust downward

Answer

30-year fixed, but only if the borrower plans to refinance

Question 4

Which economic indicator is most closely watched as a leading predictor of mortgage application volume?

Accepted Answer

10-year Treasury yield

Answer

GDP growth rate

Answer

Consumer Price Index (CPI)

Answer

Unemployment claims

Question 5

What is the relationship between inflation expectations and long-term mortgage rates?

Accepted Answer

Higher inflation expectations push long-term rates up

Answer

Higher inflation expectations push long-term rates down

Answer

Inflation expectations have no effect on mortgage rates

Answer

Lower inflation expectations push long-term rates up

Question 6

A mortgage has a periodic cap of 2% on a 3/1 ARM. If the index rises 4% at the first adjustment, what is the maximum rate increase?

Accepted Answer

2%

Answer

4%

Answer

1%

Answer

3%

Question 7

Which of the following best describes the 'spread' on a mortgage rate?

Accepted Answer

The margin added above the benchmark index to determine the mortgage rate

Answer

The difference between the borrower's rate and the prime rate

Answer

The gap between fixed and adjustable rate offerings

Answer

The lender's origination fee expressed as a percentage