12/1/22, 6:20 PM POLYTECHNIC UNIVERSITY OF THE PHILIPPINES Financial Markets Quiz 1

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES    

          Financial Markets Quiz 1
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The sector of the financial markets where financial instruments issued by governments and *
corporations that will mature beyond one year from issuance date (long-term) are traded.

a. Long term Market

b. Stock Market

c. Debt Market

d. Capital Market

This refers to the market where issuers who are not residents of a country can sell or issue *
securities and subsequently traded.

a. Internal/National Market

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b. Domestic Market

c. Foreign Market (Type of Internal/National Market)

d. Non-Resident Market

What is the Annualized Investment rate of a P1,000 Treasury bill with a 91-day tenor that can be *
purchased at 995?

a. 1.98%

b. 2.02%

c. 0.50%

d. 1.00 %

Contract rate where a fixed rate exchange for a certain market rate at a certain maturity. Usually *
the one used as reference is the LIBOR.

a. Swap rate

b. Exchange rate

c. Forward rate

d. Future rate

In this route of fund flows, the borrowing activity between both parties still happens though *
indirectly through the intervention of a financial intermediary

a. Indirect Financing

b. Direct Financing

c. Indirect Funding

d Direct Funding
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d. Direct Funding

Using the present value approach, what is the return of one-year Treasury bill is at P1,000 with an *
annual interest rate of 3%?

a. P 30.00

b. P 29.13

c. P 0.00

d. P57.40

Using the present value approach, what is the market security value of one-year Treasury bill is at *
P1,000 with an annual interest rate of 3%?

a. P 1,030.00

b. P 970.87

c. P 1,000.00

d. P942.60

Which of the following is incorrect about credit risk? *

a. Credit risk is one type of business risk.

b. This is the risk that the lender was not able to repay its obligation. (borrower not
lender)

c. Credit risk also affects the valuation of accounts receivable.

d. Such risk is valuated as a factor to determine the cost of lending or financing

i d b
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using debt.

The sector of the financial system where financial instruments that will mature or be redeemed in *
one year or less from issuance date are traded.

a. Current or Short-term Market

b. Debt Market

c. Money Market

d. Long term Market

This theory is based on the current data and statistical analysis to project the behavior of the *
market in the future

a. Pure Expectation

b. Biased Expectation

c. Liquidity

d. Preferred Habitat

Related to the determination of interest rates, the following are true except: *

a. In finance, interest can be determined by the function of the risk and the
compensation of the investor on the difference between the risk-free rate and the
market fluctuations

b. Another way on how to calculate the interest rate is by the function of the market
value, par value and the interest expense paid by debt securities or bonds.

c. The risk-free rate should the rate that assumes zero default in the market where
this is more or less equivalent to the rates offered by the sovereign
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this is more or less equivalent to the rates offered by the sovereign.

d.The low risk rate can be real or excludes the effect of inflation or the exclusion of
the effect of the purchasing power of Philippine Peso. (Risk free rate)

 In this route of fund flows, the borrower-spenders borrow and deal directly with lenders through *
selling financial instruments (or securities).

a. Indirect Financing

b. Direct Financing

c. Indirect Funding

d. Direct Funding

This economic theory accordingly affects the terms structure of interest rate. This theory assumes *
that the driver of the interest rates are the savings and investment flows.

a. Loanable funds

b. Liquidity preference

c. Expectation

d. Market Segmentation

Market wherein fund demanders such as corporation or a government agency raise funds through *
new issuances of financial instruments e.g. bonds and stocks.

a. New Market

b. Internal Market

c. Initial Public Offering Market

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d. Primary Market

Which of the following is not correct? *

a. One of the challenges in financing is to ensure the ability of the borrowers to settle
the obligation. The risk involve in financing are: default risk, liquidity risk, and market
risk among others.

b. It is theoretically assumed that the cost of financing is affected by the availability

of loanable funds which is the Loanable Funds Theory and the maturity of the loans,
where the longer the life of the loans the higher the rate is Liquidity Premium Theory.
(Liquidity Preference Theory)

c. The three factors that affect the interest rates: (1) industry; (2) risk exposure; and
(3) compensation for the market expectation. Hence, the interest formula will require
the function of default or risk-free rate, inflation and debt premium for the
compensation.

d. In order to mitigate the risk, most businesses hedge forward rates or enter into a
swap rate agreement. It is important for the borrowers and lenders to know what the
spot rate in the prevailing market is and employ certain expectations in the future.

Which of the following is correct about interest rates? *

a. BSP defined interest rates to be a type of price.

b. The interest as a price is similar on the perspective of the lender or borrower.

(different)

c. For borrowers, interest rate is called as lending rate or return. (For lenders)

d. For lenders, these will serve as cost of debt. (For borrowers)

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The following statements are correct, except: *

a. Standard and Poor’s Corporation or S&P is an American financial services

corporation was founded in 1941 by Henry Varnum Poor in New York, USA.

b. Moody’s Investors Services or Moody’s is credit rating company particularly on

equity securities established in 1909 in New York, USA. (debt securities not equity)

c. Fitch Ratings was founded in 1914 in New York, USA. The company was owned by
Hearst.

d. DBRS was established in 1976 in Toronto, Canada. The company was considered
as the fourth largest ratings agency.

What is the Annualized Discount rate of a P1,000 Treasury bill with a 91-day tenor that can be *
purchased at 995?

a. 1.98%

b. 2.02%

c. 0.50%

d. 1.00 %

The market structure where the buyers and sellers propose their price through their brokers who *
conveys the bid in a centralized location.

a. Secondary market

b. Order Driven market (Type of secondary market)

c. Quote Driven market

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c. Quote e a et

d. Auction

Normally contracted rates that fixed the rates and allow a party to assume such risk on the *
difference between the contracted rate and the spot rate.

a. Prevailing rate

b. Spot rate

c. Forward rate

d. Future rate

Private companies who will sell shares to the general public for the very first time is said to undergo *
an ____________________

a. Public Market Offering

b. Initial Public Offering

c. New Market Issuance

d. Primary Market Offering

Which of the following is not correct about financial instruments? *

a. The issuing party usually needs additional funds for investment to further grow
their business.

b. The investors usually have surplus funds that are not earning anything and are
willing to bear some risk to earn something from their surplus funds.

c. At the point of issuance of the financial instrument, the issuer usually receives
something of value (usually cash) from the investor.
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d. The investor is the party that issues the financial instrument and agrees to make
future cash payments to the investor.

This theory includes that there are other factors that affect the term structure of the loans as well *
as the interest to be perceived moving forward. The forward rates will be affected or will be adjusted
if the liquidity of the borrower will be weaker or stronger in the future.

a. Pure Expectation

b. Biased Expectation

c. Liquidity preference

d. Market Expectation

Which if the following is not a source of wealth *

a. labor

b. capital

c. wages (This is technically form of wealth under labor not source of wealth)

d. entrepreneurship

Money market securities have fundamental characteristics, except: *

a. Usually sold in large denominations

b. Low default risk

c. Mature in one year or less from original issue date.

d. Money market securities commonly have an active secondary market.

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Which of the following is not an element of the Financial System *

a. Financial Market

b. Financial Intermediaries

c. Financial Instruments

d. Regulatory Compliance (Regulatory Environment)

This refers to the market where issuers who are considered residents in a country that issues *
securities and where these securities are traded afterwards.

a. Internal/National Market

b. Domestic Market (Type of Internal/National Market)

c. Foreign Market

d. Resident Market

The ______________ are determined by companies that are recognized globally that *
objectively assigns or evaluates countries and companies based on the riskiness of doing business
with them. The riskiness is primarily driven by their ability to manage their liquidity and solvency in
the long run. The higher the grade the lower the default risk associated to the country or company.

a. Credit Ratings

b. Credit Score

c. Investment Rating

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d. Investment Score

The following are major credit ratings company, except: *

a. S&P

b. Moody's

c. Fitch

d. MTRCB

Using the present value approach, what is the return of 90-day Treasury bill is at P1,000 with an *
annual interest rate of 4%?

a. P 9.90

b. P38.46

c. P 0.00

d. P 40.00

This economic theory accordingly affects the term structure of interest rate. Interest rates are *
driven by the expectation of the lender or borrowers in the risks of the market in the future.

a. Loanable funds

b. Liquidity preference

c. Expectation

d. Market Segmentation

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Which of the following is not an economic purpose of financial instruments? *

a. Allows transfer of fund from entities with excess funds (investors) to entities who
needs funds (issuer) for business purposes (e.g. to pay for tangible assets).

b. Permit transfer of fund that allows sharing of inherent risk associated with the
cash flows coming from tangible asset investment between the issuer and investor.

c. Allows the money market to be the preferred place for firms to temporarily store
excess funds up until such time they are needed again by the organization. (Refers
to “Mature Secondary Market for money market instruments” not to financial
instruments)

d. All are economic purposes of financial instruments

Which of the following is not correct about Financial Market? *

a. Financial markets help in creating more efficient allocation of capital which results
in higher production and efficient that ultimately leads to economic growth.

b. Financial market refers precisely to the physical venue where funds and financial
instruments such as stocks, bonds and other securities are exchanged between
willing individuals and/or entities e.g. Philippine Stocks Exchange and Philippine
Dealings and Exchange. (Not precisely a physical venue since it includes channels as
well)

c. Participants in the financial markets include ultimate lenders and borrowers such
as household, government and businesses, financial intermediaries, broker and
dealers, regulators, fund managers and financial exchanges.

d. The main economic function of the financial markets is to serve as a channel to

transfer excess funds from fund providers to fund demanders.

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___________________ are the main vehicle used for transactions in the financial market. *
For the purposes of presentation in financial statements, these may be presented under cash
equivalents or investments.

a. Financial Intermediary

b. Financial Instruments

c. Currency

d. Money

__________ is the interest rate or yield available / applicable for a particular time. *

a. Prevailing rate

b. Spot rate

c. Forward rate

d. Day rate

The common unit of measure for interest rates and other percentage in finance is called BPS. What *
does BPS stand for?

a. Basis points

b. Basic percentages

c. Basic point system

d. Basic percentage system

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d. as c pe ce tage syste

This economic theory accordingly drives the interest rate assumes that the interest rates are *
dependent on the preference of the household whether they hold or use it for investment

a. Loanable funds

b. Liquidity preference

c. Expectation

d. Market Segmentation

Using the present value approach, what is the market security value of 90-day Treasury bill is at *
P1,000 with an annual interest rate of 4%?

a. P 990.10

b. P 961.54

c. P 1,000.00

d. P 1,040.00

Which of the following is not an economic function of Secondary Market *

a. Price discovery

b. Liquidity and reduction in borrowing costs

c. Support to Primary market

d. Implementation of fiscal policy (Monetary policy)

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This refers to the market wherein the securities issued in primary market are subsequently traded *

a. Primary market

b. Secondary market

c. Consequent Market

d. Trading Market

To determine the appropriate interest rate or rates the following factors should be considered *
assuming the cash flows are already been established:

a. Interest rates in the industry

b. Risk exposure

c. Compensation on the market expectation.

d. All of the above

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Which of the following is not correct about Financial System? *

a. Financial system is a set of arrangements embracing the lending and borrowing of

funds by non-financial economic units and the intermediation of this function by
financial intermediaries in order to facilitate the transfer of funds, to create
additional money when required, and to create markets in debt and equity
instruments so that the price and valuation of funds are determined effectively.
(...the price and valuation of funds are determined efficiently not effectively).

b. Financial system allows households, companies and the government who have
available funds to invest these funds in more potentially productive vehicles that can
result in faster growth in the economy.

c. A properly functioning financial system also enhances welfare of individual

consumers as they have immediate access to funds allowing them to purchase
things as they prefer.

d. The financial system encourages fund savings from its stakeholders and
transform these savings efficiently into investment vehicles that help the economy
grow faster.

Identify the risks described in each statement:    1st: Arise on the inability to make payment *
consistently. Most of the businesses was able to raise financing on their demands, however their
cash flows projected were not that guaranteed.    2nd: Identified by ensuring the business to be
capable of meeting all its currently maturing obligation.

a. Liquidity; Default

b. Default; Liquidity

c. Solvency; Default

d. Default; Solvency

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This economic theory accordingly drives the interest rate assumes that it is ideal to supply funds *
when the interests are high and vice versa.

a. Loanable funds

b. Liquidity preference

c. Expectation

d. Market Segmentation

Identify the risks described in each statement:    1st: Dependent on the covenants set and agreed in *
between the lenders and the borrowers.    2nd: Classified as a systematic risk because it arises from
external forces or based on the movement of the industry.

a. Legal; Market

b. Market; Legal

c. Contractual; Industry

d. Industry; Contractual

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