FIA Global Financial Markets 4

Question 1

In global derivatives markets, what is the difference between an 'exchange-traded' and an 'OTC' derivative?

Accepted Answer

Exchange-traded derivatives are standardized and cleared centrally; OTC derivatives are customized bilateral contracts

Answer

OTC derivatives must be reported to stock exchanges before trading

Answer

Exchange-traded derivatives always carry higher counterparty risk than OTC

Answer

OTC derivatives are only available to retail investors

Question 2

Which of the following best describes 'quantitative easing' (QE) as a monetary policy tool?

Accepted Answer

A central bank purchases large-scale assets to inject liquidity when interest rates are near zero

Answer

A government increases taxation to reduce inflation

Answer

A central bank raises reserve requirements for commercial banks

Answer

A government issues new currency to pay off sovereign debt

Question 3

What is the function of a central counterparty (CCP) in financial markets?

Accepted Answer

It interposes itself between buyer and seller, guaranteeing settlement and reducing counterparty risk

Answer

It sets the official interest rate for interbank lending

Answer

It regulates the listing requirements for new securities

Answer

It manages sovereign wealth fund investments

Question 4

Which indicator is most commonly used to measure overall stock market performance in the United States?

Accepted Answer

S&P 500 Index

Answer

Dow Jones Transportation Average

Answer

Russell Microcap Index

Answer

Wilshire 5000 Equal-Weighted Index

Question 5

What does 'sovereign risk' mean in the context of global bond markets?

Accepted Answer

The risk that a national government will default on its debt obligations

Answer

The risk that a corporation's bonds are downgraded by a rating agency

Answer

The risk of currency fluctuation eroding bond returns

Answer

The risk that central banks will raise interest rates unexpectedly

Question 6

In international trade finance, what is a 'letter of credit' (LC)?

Accepted Answer

A bank guarantee that a buyer's payment to a seller will be received on time and for the correct amount

Answer

A government permit allowing imports above a specified tariff quota

Answer

A credit rating issued by an international agency for an exporting firm

Answer

A multilateral agreement reducing trade barriers between member nations

Question 7

Which of the following best describes the concept of 'financial contagion'?

Accepted Answer

The spread of financial distress from one market or institution to others through direct or indirect linkages

Answer

The deliberate export of inflation from one country to its trading partners

Answer

The synchronized rise of asset prices across multiple countries

Answer

The adoption of a common currency by multiple nations