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

Exchange-traded derivatives use standardized contracts with central clearing, reducing counterparty risk, while OTC derivatives are privately negotiated with terms tailored between parties.

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

QE involves a central bank buying financial assets (typically government bonds) to increase money supply and lower long-term interest rates when conventional rate cuts are exhausted.

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

A CCP becomes the buyer to every seller and seller to every buyer, mutualizing and managing counterparty risk through margin requirements and default funds.

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

The S&P 500, comprising 500 large-cap US companies weighted by market capitalization, is the most widely referenced benchmark for US equity market performance.

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

Sovereign risk is the probability that a government will fail to honor its debt repayments, as seen in defaults by Argentina, Greece, and others.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Global Financial Markets 4