FIA Global Financial Markets 5

Question 1

What is the role of the Financial Stability Board (FSB) in global financial markets?

Accepted Answer

To monitor and make recommendations about the global financial system to prevent systemic risk

Answer

The FSB coordinates international financial regulation among G20 nations, identifying vulnerabilities and promoting policies to maintain global financial stability.

Question 2

Which concept explains why investors demand a higher return for longer-maturity bonds compared to shorter-maturity bonds under normal conditions?

Accepted Answer

Liquidity preference and term premium — compensation for locking up capital and bearing greater uncertainty

Answer

Investors require a term premium on longer-maturity bonds to compensate for the additional risk, reduced liquidity, and uncertainty over a longer time horizon.

Question 3

In global equity markets, what is the difference between 'developed markets' and 'emerging markets'?

Accepted Answer

Developed markets have mature, liquid capital markets with strong regulation; emerging markets are growing economies with higher risk and return potential

Answer

Developed markets such as the US, UK, and Japan feature deep, liquid, well-regulated capital markets, while emerging markets like Brazil, India, and China offer higher growth but greater political and liquidity risks.

Question 4

What is meant by 'hot money' in the context of international capital flows?

Accepted Answer

Short-term speculative capital that moves rapidly between countries in search of higher returns

Answer

Hot money refers to volatile, short-term capital that flows quickly across borders in response to interest rate differentials or changing risk sentiment, destabilizing exchange rates and local markets.

Question 5

Which of the following best describes the function of the repo market in global finance?

Accepted Answer

A short-term borrowing mechanism where securities are sold with an agreement to repurchase them at a higher price

Answer

In a repurchase agreement (repo), a borrower sells securities to a lender and agrees to buy them back at a specified future date and price, effectively using the securities as collateral for a short-term loan.

(FIA) Financial Information Associate Certification Practice Test

(FIA) Financial Information Associate Certification Practice Test

FIA Global Financial Markets 5