CMFAS CACS Paper 2 Free Trial Set Two
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Question 1 of 20
1. Question
The international bond market provides borrowers with a source of medium to long-term funds. Which of the following are constituents of the borrowers?
I. Individuals
II. Multinational corporations
III. Domestic corporations
IV. Supranational financial institutionsCorrect
The international bond market provides borrowers with a source of medium to long-term funds. Borrowers include multinational corporations, domestic corporations, governments, and national as well as supranational financial institutions. It gives investors in the debt markets a way to diversify their portfolios over several different currencies.
Incorrect
The international bond market provides borrowers with a source of medium to long-term funds. Borrowers include multinational corporations, domestic corporations, governments, and national as well as supranational financial institutions. It gives investors in the debt markets a way to diversify their portfolios over several different currencies.
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Question 2 of 20
2. Question
Which of the following types of bonds are bonds denominated in one or more currencies other than the currency of the country in which they are sold?
Correct
Eurobonds are bonds denominated in one or more currencies other than the currency of the country in which they are sold. Bonds denominated in a currency other than the Japanese yen and sold in Japan would be called Eurobonds.
Incorrect
Eurobonds are bonds denominated in one or more currencies other than the currency of the country in which they are sold. Bonds denominated in a currency other than the Japanese yen and sold in Japan would be called Eurobonds.
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Question 3 of 20
3. Question
Which of the following terms refers to the replacement of physical share certificates by electronic records?
Correct
The replacement of physical share certificates by electronic records is referred to as dematerialization. The introduction of dematerialization allowed for accounts to be updated automatically and swiftly.
Incorrect
The replacement of physical share certificates by electronic records is referred to as dematerialization. The introduction of dematerialization allowed for accounts to be updated automatically and swiftly.
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Question 4 of 20
4. Question
Every long position must be matched by a corresponding short position. Which of the following terms refers to the number of open positions at any point in time?
Correct
Open interest refers to the number of open positions at any point in time. Open interest may be measured as the total number of open long positions at a given point in time or, equivalently, as the total number of open short positions.
Incorrect
Open interest refers to the number of open positions at any point in time. Open interest may be measured as the total number of open long positions at a given point in time or, equivalently, as the total number of open short positions.
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Question 5 of 20
5. Question
An economic system is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country. Which of the following is the key role of an economic system?
Correct
The key role of an economic system is to ensure efficient allocation. Economic systems are designed to collect savings in an economy and allocate the available resources efficiently to those who either seek funds for current consumption in excess of what their resources would permit or to invest in productive assets.
Incorrect
The key role of an economic system is to ensure efficient allocation. Economic systems are designed to collect savings in an economy and allocate the available resources efficiently to those who either seek funds for current consumption in excess of what their resources would permit or to invest in productive assets.
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Question 6 of 20
6. Question
The efficient and free flow of resources from one economic entity to another is a sine qua non for a modern economy. Which of the following is a result of a larger flow of resources and a more efficient allocation of those resources?
I. A greater chance that the requirements of all economic agents can be satisfied.
II. A lesser chance that the requirements of all economic agents can be satisfied.
III. The greater the odds that the output of the economy as a whole will be maximized.
IV. The smaller the odds that the output of the economy as a whole will be maximized.Correct
The key role of an economic system is to ensure efficient allocation. The larger the flow of resources and the more efficient their allocation, the greater the chance that the requirements of all economic agents can be satisfied, and consequently the greater the odds that the output of the economy as a whole will be maximized.
Incorrect
The key role of an economic system is to ensure efficient allocation. The larger the flow of resources and the more efficient their allocation, the greater the chance that the requirements of all economic agents can be satisfied, and consequently the greater the odds that the output of the economy as a whole will be maximized.
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Question 7 of 20
7. Question
An investment banker is an investment professional who facilitates the issuance of securities in the primary market. Through which of the following ways do investment bankers help the issue process?
I. They provide insurance to the issuer by underwriting the issue.
II. They sell liquidity to the buy-side traders by giving them the opportunity to trade whenever they desire.
III. They help the borrower comply with various legal and procedural requirements that are usually mandatory for such issues.
IV. They stand ready to sell the portion of the issue that remains unsubscribed.Correct
Investment bankers help the issue process in two ways. They are as follows:
– Help the borrower comply with various legal and procedural requirements that are usually mandatory for such issues.
– Provide insurance to the issuer by underwriting the issue. This means that they stand ready to buy that portion of the issue that remains unsubscribed if the issue were to be undersubscribed.Incorrect
Investment bankers help the issue process in two ways. They are as follows:
– Help the borrower comply with various legal and procedural requirements that are usually mandatory for such issues.
– Provide insurance to the issuer by underwriting the issue. This means that they stand ready to buy that portion of the issue that remains unsubscribed if the issue were to be undersubscribed. -
Question 8 of 20
8. Question
Most public offerings are usually underwritten because issuers are more comfortable with such arrangements. Which of the following refers to the risk that the bank may have to buy the unsold securities in the event of undersubscription?
Correct
Devolvement risk is the risk that the bank may have to buy the unsold securities in the event of undersubscription. Such an eventuality will inevitably lead to a loss for the bank, in the sense that the shares so acquired will have to be subsequently offloaded in the market at a price that is lower than the issue price.
Incorrect
Devolvement risk is the risk that the bank may have to buy the unsold securities in the event of undersubscription. Such an eventuality will inevitably lead to a loss for the bank, in the sense that the shares so acquired will have to be subsequently offloaded in the market at a price that is lower than the issue price.
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Question 9 of 20
9. Question
For which of the following reasons does a fund of hedge funds invest not in any underlying security but in a portfolio of hedge funds?
Correct
A fund of hedge funds, as the name suggests, invests in a portfolio of hedge funds not in any underlying security, in order to minimize idiosyncratic risk. Funds of hedge funds select hedge fund managers and construct portfolios based upon those selections.
Incorrect
A fund of hedge funds, as the name suggests, invests in a portfolio of hedge funds not in any underlying security, in order to minimize idiosyncratic risk. Funds of hedge funds select hedge fund managers and construct portfolios based upon those selections.
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Question 10 of 20
10. Question
Which of the following is a strategy that involves buying the index, selling calls to give up some of the potential upside gains, and buying puts to protect against the potential losses on the long index position?
Correct
The split strike convergence is a strategy that involves buying the index, selling calls to give up some of the potential upside gains, and buying puts to protect against the potential losses on the long index position. Madoff’s strategy simply termed as ‘‘split-strike convergence,’’ simply means buying the S&P 100 index and giving up some of the upside for downside protection.
Incorrect
The split strike convergence is a strategy that involves buying the index, selling calls to give up some of the potential upside gains, and buying puts to protect against the potential losses on the long index position. Madoff’s strategy simply termed as ‘‘split-strike convergence,’’ simply means buying the S&P 100 index and giving up some of the upside for downside protection.
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Question 11 of 20
11. Question
There are layers of middlemen who have made fortunes trying to match investors with the appropriate hedge fund managers. Which of the following is least likely to be considered as middlemen?
Correct
The layers of middlemen who have made fortunes trying to match investors with the appropriate hedge fund managers are in the form of consultants, advisors, fund of funds, and third-party marketers. The middlemen’s main responsibility has been to understand the hedge fund strategies and make the hedge funds less opaque to the end investors.
Incorrect
The layers of middlemen who have made fortunes trying to match investors with the appropriate hedge fund managers are in the form of consultants, advisors, fund of funds, and third-party marketers. The middlemen’s main responsibility has been to understand the hedge fund strategies and make the hedge funds less opaque to the end investors.
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Question 12 of 20
12. Question
Hedge funds are not required to register with any regulatory body like the SEC. Which of the following is a result of the fact that hedge funds are not required to register with any regulatory body?
Correct
Hedge funds are operated from several countries around the world, however, hard to determine the actual number of hedge funds in existence. This is because hedge funds are not required to register with any regulatory body like the SEC.
Incorrect
Hedge funds are operated from several countries around the world, however, hard to determine the actual number of hedge funds in existence. This is because hedge funds are not required to register with any regulatory body like the SEC.
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Question 13 of 20
13. Question
Asset size is an important factor to take into consideration when choosing an optimal asset allocation. Which of the following statements concerning asset size is accurate?
I. Smaller funds often lack the expertise and governance structure to invest in complex strategies.
II. Larger portfolios can generally access greater management expertise in the governance capacity, allowing them to consider complex strategies that smaller funds cannot.
III. Smaller funds face a problem of how to achieve an adequate level of diversification.
IV. The small capital base of smaller funds enables investment in accounts with relatively high minimum investment requirements.Correct
Smaller funds often lack the expertise and governance structure to invest in complex strategies, and therefore, often face a problem of how to achieve an adequate level of diversification. Larger portfolios can generally access greater management expertise in the governance capacity, allowing them to consider complex strategies that smaller funds cannot. Their larger capital base also enables investment in accounts with relatively high minimum investment requirements. This allows large funds to achieve higher levels of diversification.
Incorrect
Smaller funds often lack the expertise and governance structure to invest in complex strategies, and therefore, often face a problem of how to achieve an adequate level of diversification. Larger portfolios can generally access greater management expertise in the governance capacity, allowing them to consider complex strategies that smaller funds cannot. Their larger capital base also enables investment in accounts with relatively high minimum investment requirements. This allows large funds to achieve higher levels of diversification.
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Question 14 of 20
14. Question
As the size of a fund increases, the per-participant cost of the internal governance infrastructure decreases. This gives the fund a competitive advantage in which of the following?
I. Intermitent banking
II. Private equity
III. Hedge fund
IV. Infrastructure investingCorrect
As the size of the fund increases, the per-participant cost of the internal governance infrastructure decreases, giving the fund a competitive advantage in private equity, hedge fund, and infrastructure investing.
Incorrect
As the size of the fund increases, the per-participant cost of the internal governance infrastructure decreases, giving the fund a competitive advantage in private equity, hedge fund, and infrastructure investing.
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Question 15 of 20
15. Question
Managing and monitoring the portfolio in terms of a client’s changing needs is an important element of portfolio management. Which of the following refers to a deviation from strategic asset allocation due to short-term capital market expectations?
Correct
Deviations from strategic asset allocation due to short-term capital market expectations is called TAA. Tactical asset allocation (TAA) is an active management strategy that deviates from the strategic asset allocation (SAA) to take advantage of perceived short-term opportunities in the market. The motives for TAA may include active management and adding alpha.
Incorrect
Deviations from strategic asset allocation due to short-term capital market expectations is called TAA. Tactical asset allocation (TAA) is an active management strategy that deviates from the strategic asset allocation (SAA) to take advantage of perceived short-term opportunities in the market. The motives for TAA may include active management and adding alpha.
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Question 16 of 20
16. Question
Asset allocation approaches attempt to match investors’ goals with their optimal level of risk. There are three types of asset allocation approaches. Which of the following is a type of asset allocation approach?
I. Asset-only approach
II. Goals-based approach
III. Liability-relative approach
IV. Risk-enabled approachCorrect
There are three types of asset allocation approaches. They are as follows:
– Asset-only approaches. They make asset allocation decisions based on the investor’s assets.
– Liability-relative approaches. They involve asset allocation decisions based on funding liabilities.
– Goals-based approaches. They are geared toward asset allocations for subportfolios, which help an individual achieve lifestyle and aspirational financial objectives.Incorrect
There are three types of asset allocation approaches. They are as follows:
– Asset-only approaches. They make asset allocation decisions based on the investor’s assets.
– Liability-relative approaches. They involve asset allocation decisions based on funding liabilities.
– Goals-based approaches. They are geared toward asset allocations for subportfolios, which help an individual achieve lifestyle and aspirational financial objectives. -
Question 17 of 20
17. Question
Which of the following spreads is theoretically correct only if the spot yield curve is flat so that yields are approximately the same across maturities?
I. G-spreads
II. I-spreads
III. H-spreads
IV. F-spreadsCorrect
G-spreads and I-spreads are theoretically correct only if the spot yield curve is flat so that yields are approximately the same across maturities. Normally, the spot yield curve is upward-sloping (i.e., longer-term yields are higher than shorter-term yields).
Incorrect
G-spreads and I-spreads are theoretically correct only if the spot yield curve is flat so that yields are approximately the same across maturities. Normally, the spot yield curve is upward-sloping (i.e., longer-term yields are higher than shorter-term yields).
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Question 18 of 20
18. Question
Which of the following is a method for deriving a bond’s yield spread to a benchmark spot yield curve that accounts for the shape of the yield curve?
Correct
Adding an equal amount to each benchmark spot rate and value the bond with those rates is a method for deriving a bond’s yield spread to a benchmark spot yield curve that accounts for the shape of the yield curve.
Incorrect
Adding an equal amount to each benchmark spot rate and value the bond with those rates is a method for deriving a bond’s yield spread to a benchmark spot yield curve that accounts for the shape of the yield curve.
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Question 19 of 20
19. Question
Which of the following is a mortgage for which the initial interest rate terms, fixed or adjustable, can be changed at the option of the borrower, to adjustable or fixed, for the remaining loan period?
Correct
A convertible mortgage is one for which the initial interest rate terms, fixed or adjustable, can be changed at the option of the borrower, to adjustable or fixed, for the remaining loan period. Convertible mortgages are marketed as a way to take advantage of falling interest rates and usually include specific conditions.
Incorrect
A convertible mortgage is one for which the initial interest rate terms, fixed or adjustable, can be changed at the option of the borrower, to adjustable or fixed, for the remaining loan period. Convertible mortgages are marketed as a way to take advantage of falling interest rates and usually include specific conditions.
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Question 20 of 20
20. Question
Consumer spending is the amount of money spent on consumption goods in an economy. As a percentage of GDP, consumer spending is much larger than business spending. Through which of the following is consumer spending usually gauged?
I. Through the use of retail sales data.
II. Through the use of store sales data.
III. Through the use of gross income benefit data.
IV. Through the use of consumer consumption data.Correct
Consumer spending is usually gauged through the use of store sales data, retail sales, and consumer consumption data. The primary driver of consumer spending is consumer after-tax income, which in the United States is gauged using non-farm payroll data and new unemployment claims.
Incorrect
Consumer spending is usually gauged through the use of store sales data, retail sales, and consumer consumption data. The primary driver of consumer spending is consumer after-tax income, which in the United States is gauged using non-farm payroll data and new unemployment claims.
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