Question 1

The reasons U.S. and international asset managers have aggressively acquired U.S. funds include ________.

Accepted Answer

A)  the rapidly declining U.S. mutual fund business. 
B)  the general regulatory framework in Asian countries. 
C)  the general regulatory framework in European countries. 
D)  the continuing deregulation of the U.S. asset management business. 
A)  the rapidly declining U.S. mutual fund business. 
B)  the general regulatory framework in Asian countries. 
C)  the general regulatory framework in European countries. 
D)  the continuing deregulation of the U.S. asset management business.

Question 2

ETFs have grown very rapidly since their introduction in 1993 proving to be very attractive to investors. What are the relative advantages and disadvantages of ETFs?

Accepted Answer

First, mutual funds are priced only once

Question 3

What is a family of funds? In your answer specify two advantages of an investor belonging to a family of funds.

Accepted Answer

A concept that revolutionized the fund i

Question 4

________ allow investors to purchase funds from participating companies without investors having to contact each fund company.

Accepted Answer

A)  Distribution channels 
B)  Supermarkets 
C)  Malls 
D)  Wrap programs 
A)  Distribution channels 
B)  Supermarkets 
C)  Malls 
D)  Wrap programs

Question 5

Organizations such as Morningstar and Lipper provide key performance data on mutual funds in ways that prevent meaningful comparisons among them.

Accepted Answer

A) True 
 B)False

Question 6

Which of the below statements is FALSE?

Accepted Answer

A)  ETFs do not have ticker symbols. 
B)  ETFs can be sold short or bought on margin (i.e., with borrowed money), and it is even possible to trade options on many ETFs. 
C)  To assure that the price of the ETF would be very close to the continuously known NAV of the portfolio, an agent could be commissioned to arbitrage between the ETF and the underlying portfolio and keep their values equal. 
D)  Rather than dealing directly with the fund company, investors buy ETF shares from another individual investor via an exchange at a price determined by supply and demand for the ETF, not the ETF's underlying NAV as is the case for mutual funds. 
A)  ETFs do not have ticker symbols. 
B)  ETFs can be sold short or bought on margin (i.e., with borrowed money), and it is even possible to trade options on many ETFs. 
C)  To assure that the price of the ETF would be very close to the continuously known NAV of the portfolio, an agent could be commissioned to arbitrage between the ETF and the underlying portfolio and keep their values equal. 
D)  Rather than dealing directly with the fund company, investors buy ETF shares from another individual investor via an exchange at a price determined by supply and demand for the ETF, not the ETF's underlying NAV as is the case for mutual funds.

Question 7

There is often a difference between the NAV of a ________ underlying portfolios and the price of its funds that are bought and sold. This difference is called a ________ when the price is greater than the NAV.

Accepted Answer

A)  opened-end fund's; discount 
B)  mutual fund's; premium 
C)  closed-end fund's; premium 
D)  mutual fund's; discount 
A)  opened-end fund's; discount 
B)  mutual fund's; premium 
C)  closed-end fund's; premium 
D)  mutual fund's; discount

Question 8

Large fund families offer economic benefits and usually include a variety of fund types such as money market funds, U.S. bond funds, global stock and bond funds, and broadly diversified and specialized U.S. stock funds.

Accepted Answer

A) True 
 B)False

Question 9

Mutual fund investors can control the size of the capital gains distributions and, as a result, the timing and amount of the taxes paid on their fund holdings is controlled.

Accepted Answer

A) True 
 B)False

Question 10

The Investment Company Institute (ICI) provides data that permit the assessment of investors to the annual expense sales, that is, not including the sales charge or load. Describe how this is done.

Accepted Answer

First, the ICI calculate the simple aver

Question 11

For both equity and bond funds, the lowering of front-end loads along with the growth of alternatives to front-end loads together with more funds adopting ________ fees resulted in them becoming a much larger portion of distribution costs.

Accepted Answer

A)  mix and match 
B)  contingent deferred sales load 
C)  12b-1 
D)  management 
A)  mix and match 
B)  contingent deferred sales load 
C)  12b-1 
D)  management

Question 12

A ________ is not active in trading of the bonds in the portfolio, have a fixed termination date, and are common in Europe.

Accepted Answer

A)  closed-end fund 
B)  opened-end fund 
C)  whole fund 
D)  unit trust 
A)  closed-end fund 
B)  opened-end fund 
C)  whole fund 
D)  unit trust

Question 13

Which of the below statements is FALSE?

Accepted Answer

A)  The operating expense, also called the expense ratio, is debited annually from the investor's fund balance by the fund sponsor. 
B)  The management fee, also called the investment advisory fee, is the fee charged by the investment advisor for managing a fund's portfolio. 
C)  While covering the annual operating expenses, the fund prospectus does not provide the fees, which are imposed only at the time of a transaction. 
D)  In 1980, the SEC approved the imposition of a fixed annual fee, called the 12b-1 fee, which is, in general, intended to cover distribution costs, including continuing agent compensation and manufacturer marketing and advertising expenses. 
A)  The operating expense, also called the expense ratio, is debited annually from the investor's fund balance by the fund sponsor. 
B)  The management fee, also called the investment advisory fee, is the fee charged by the investment advisor for managing a fund's portfolio. 
C)  While covering the annual operating expenses, the fund prospectus does not provide the fees, which are imposed only at the time of a transaction. 
D)  In 1980, the SEC approved the imposition of a fixed annual fee, called the 12b-1 fee, which is, in general, intended to cover distribution costs, including continuing agent compensation and manufacturer marketing and advertising expenses.

Question 14

All the cost information on a fund, including selling charges and annual expenses, are included in the annual report.

Accepted Answer

A) True 
 B)False

Question 15

The Investment Company Institute (ICI) has developed a measure that combines a fund's annual expense ratio and the annualized sales charge investors pay for one-time sales loads. From 1980 to 2006, this measure declined. There were three reasons for this decline. Which of the below is NOT one of these?

Accepted Answer

A)  Loads in general declined and investors have shifted to lower load funds. 
B)  The growth in no-load mutual funds have contributed to this decline. 
C)  Mutual fund expenses have declined due to economies of scale and intense competition in the mutual fund industry. 
D)  Investors have gotten wiser and avoided companies by understanding all costs even those hidden. 
A)  Loads in general declined and investors have shifted to lower load funds. 
B)  The growth in no-load mutual funds have contributed to this decline. 
C)  Mutual fund expenses have declined due to economies of scale and intense competition in the mutual fund industry. 
D)  Investors have gotten wiser and avoided companies by understanding all costs even those hidden.

Question 16

Fees charged by mutual funds are subject to regulation.

Accepted Answer

A) True 
 B)False

Question 17

A concept that revolutionized the fund industry and benefitted many investors is what the mutual fund industry calls a ________, a group of funds or a complex of funds provided by the same fund company.

Accepted Answer

A)  group of funds 
B)  benefit funds 
C)  family of funds 
D)  complex funds 
A)  group of funds 
B)  benefit funds 
C)  family of funds 
D)  complex funds

Question 18

An investment that embodied a combination of the desirable aspects of mutual funds and closed-end funds would require portfolios to be traded like stocks throughout the day at a price equal to the continuously known ________ and would be, in effect, an ________.

Accepted Answer

A)  premium; exchange-traded fund. 
B)  NAV; exchange-traded fund. 
C)  NAV; open-end fund. 
D)  price; mutual fund. 
A)  premium; exchange-traded fund. 
B)  NAV; exchange-traded fund. 
C)  NAV; open-end fund. 
D)  price; mutual fund.

Question 19

Two decades ago, sales charges on mutual funds were related to the manner of distribution. Which of the below types characterize the two types of distribution?

Accepted Answer

A)  sales force and direct 
B)  sales force and wholesale 
C)  sales force and indirect 
D)  wholesale and indirect 
A)  sales force and direct 
B)  sales force and wholesale 
C)  sales force and indirect 
D)  wholesale and indirect

Question 20

Mutual funds may be included in several different investment vehicles. One vehicle is often referred to as a nonqualified vehicle because it ________.

Accepted Answer

A)  does not qualify for auto taxes. 
B)  does not qualify for reduced management fees. 
C)  does not qualify for investment fees. 
D)  does not qualify for tax advantages. 
A)  does not qualify for auto taxes. 
B)  does not qualify for reduced management fees. 
C)  does not qualify for investment fees. 
D)  does not qualify for tax advantages.

Exam 7: Investment Companies and Exchange Traded Funds

The reasons U.S. and international asset managers have aggressively acquired U.S. funds include ________.

ETFs have grown very rapidly since their introduction in 1993 proving to be very attractive to investors. What are the relative advantages and disadvantages of ETFs?

What is a family of funds? In your answer specify two advantages of an investor belonging to a family of funds.

________ allow investors to purchase funds from participating companies without investors having to contact each fund company.

Organizations such as Morningstar and Lipper provide key performance data on mutual funds in ways that prevent meaningful comparisons among them.

Which of the below statements is FALSE?

There is often a difference between the NAV of a ________ underlying portfolios and the price of its funds that are bought and sold. This difference is called a ________ when the price is greater than the NAV.

Large fund families offer economic benefits and usually include a variety of fund types such as money market funds, U.S. bond funds, global stock and bond funds, and broadly diversified and specialized U.S. stock funds.

Mutual fund investors can control the size of the capital gains distributions and, as a result, the timing and amount of the taxes paid on their fund holdings is controlled.

The Investment Company Institute (ICI) provides data that permit the assessment of investors to the annual expense sales, that is, not including the sales charge or load. Describe how this is done.

For both equity and bond funds, the lowering of front-end loads along with the growth of alternatives to front-end loads together with more funds adopting ________ fees resulted in them becoming a much larger portion of distribution costs.

A ________ is not active in trading of the bonds in the portfolio, have a fixed termination date, and are common in Europe.

Which of the below statements is FALSE?

All the cost information on a fund, including selling charges and annual expenses, are included in the annual report.

Fees charged by mutual funds are subject to regulation.

A concept that revolutionized the fund industry and benefitted many investors is what the mutual fund industry calls a ________, a group of funds or a complex of funds provided by the same fund company.

An investment that embodied a combination of the desirable aspects of mutual funds and closed-end funds would require portfolios to be traded like stocks throughout the day at a price equal to the continuously known ________ and would be, in effect, an ________.

Two decades ago, sales charges on mutual funds were related to the manner of distribution. Which of the below types characterize the two types of distribution?

Mutual funds may be included in several different investment vehicles. One vehicle is often referred to as a nonqualified vehicle because it ________.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

There is often a difference between the NAV of a underlying portfolios and the price of its funds that are bought and sold. This difference is called a when the price is greater than the NAV.

An investment that embodied a combination of the desirable aspects of mutual funds and closed-end funds would require portfolios to be traded like stocks throughout the day at a price equal to the continuously known and would be, in effect, an .