33. Which of the following is true about GNMA pass-throughs? I) They aggregate individual home mortgages into heterogeneous pools. II) The purchaser of a GNMA receives monthly interest and principal...


33. Which of the following is true about GNMA pass-throughs?




I) They aggregate individual home mortgages into heterogeneous pools.


II) The purchaser of a GNMA receives monthly interest and principal payments received from payments made on the pool.


III) The banks that originated the mortgages maintain ownership of them.


IV) The banks that originated the mortgages continue to service them.



A) II, III, and IV



B) I, II, and IV



C) II and IV



D) I, III, and IV



E) I, II, III, and IV


Answer: B Difficulty: Moderate



Rationale: III is not correct because the bank no longer owns the mortgage investments.



34. Although derivatives can be used as speculative instruments, businesses most often use them to



A) attract customers.



B) appease stockholders.



C) offset debt.



D) hedge.



E) enhance their balance sheets.


Answer: D Difficulty: Easy



Rationale: Firms may use forward contracts and futures to protect against currency fluctuations or changes in commodity prices. Interest-rate options help companies control financing costs.





35. A WEBS security



A) limits the diversification potential of investors who hold it.



B) may be traded only in the primary market.



C) is linked directly to the value of a composite index of futures contracts.



D) must be earned as a performance bonus within a corporation rather than purchased.



E) tracks the performance of an index of share returns for a particular country.


Answer: E Difficulty: Moderate



Rationale: WEBS (World Equity Benchmark Shares) allow investors to trade portfolios of foreign stocks in a selected country. They can be traded by investors in secondary markets (Amex) and allow U.S. investors to diversify their portfolios of foreign stocks.

May 26, 2022
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