Question 1

Capital appreciation funds are suited to investors who are more willing to risk a possible loss in value.

Accepted Answer

A) True 
 B)False

Question 2

Money market funds commonly invest in

Accepted Answer

A)  stocks. 
B)  real estate. 
C)  commercial paper. 
D)  U.S. Treasury bonds. 
E)  none of the above 
A)  stocks. 
B)  real estate. 
C)  commercial paper. 
D)  U.S. Treasury bonds. 
E)  none of the above

Question 3

Most closed-end funds invest in

Accepted Answer

A)  stock and bonds. 
B)  money market securities. 
C)  gold. 
D)  derivatives. 
A)  stock and bonds. 
B)  money market securities. 
C)  gold. 
D)  derivatives.

Question 4

The majority of mutual fund assets are in the form of

Accepted Answer

A)  common stocks. 
B)  preferred stocks. 
C)  U.S. government bonds. 
D)  municipal bonds. 
A)  common stocks. 
B)  preferred stocks. 
C)  U.S. government bonds. 
D)  municipal bonds.

Question 5

A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.

Accepted Answer

A) True 
 B)False

Question 6

The expenses incurred by a mutual fund are billed separately to investors and are not included in the calculation of the fund's net asset value (NAV).

Accepted Answer

A) True 
 B)False

Question 7

Funds that are designed to mimic particular stock indexes and are traded on a stock exchange are known as

Accepted Answer

A)  index mutual funds. 
B)  exchange-traded funds. 
C)  money market funds. 
D)  none of the above 
A)  index mutual funds. 
B)  exchange-traded funds. 
C)  money market funds. 
D)  none of the above

Question 8

Hedge funds:

Accepted Answer

A)  are typically organized as limited partnerships. 
B)  hedge funds were accused of making market conditions worse during the credit crisis because they commonly took short positions in the stock of financial institutions that held subprime mortgages. 
C)  commonly rely heavily on financial leverage. 
D)  generally charge both a management fee and an incentive fee. 
E)  All of the above are correct. 
A)  are typically organized as limited partnerships. 
B)  hedge funds were accused of making market conditions worse during the credit crisis because they commonly took short positions in the stock of financial institutions that held subprime mortgages. 
C)  commonly rely heavily on financial leverage. 
D)  generally charge both a management fee and an incentive fee. 
E)  All of the above are correct.

Question 9

Hedge funds are more heavily regulated than mutual funds.

Accepted Answer

A) True 
 B)False

Question 10

Private equity funds use most of their money to invest in stocks of publicly traded companies.

Accepted Answer

A) True 
 B)False

Question 11

_____ funds contain both stocks and bonds, with the proportions changing automatically as the investor ages.

Accepted Answer

A)  Alternative strategy 
B)  Automatic allocation 
C)  Target date 
D)  Age-in-place 
A)  Alternative strategy 
B)  Automatic allocation 
C)  Target date 
D)  Age-in-place

Question 12

Exchange-traded funds differ from open-end funds in that their share price is adjusted only at the end of each day.

Accepted Answer

A) True 
 B)False

Question 13

Index mutual funds are not traded throughout the day, while exchange-traded funds are.

Accepted Answer

A) True 
 B)False

Question 14

Shares of open-end mutual funds are purchased and sold on exchanges.

Accepted Answer

A) True 
 B)False

Question 15

Compared to open-end mutual funds, exchange-traded funds generate much more capital gain income that must be distributed to their shareholders, who must pay tax on the gains.

Accepted Answer

A) True 
 B)False

Question 16

Mutual funds that include both non-U.S. stocks and U.S. stocks are called ____ funds.

Accepted Answer

A)  global 
B)  foreign 
C)  combined 
D)  mixed 
A)  global 
B)  foreign 
C)  combined 
D)  mixed

Question 17

_______ are promoted strictly by the mutual fund of concern and do not involve a sales charge.

Accepted Answer

A)  Closed-end funds 
B)  Load mutual funds 
C)  No-load mutual funds 
D)  Open-end mutual funds. 
A)  Closed-end funds 
B)  Load mutual funds 
C)  No-load mutual funds 
D)  Open-end mutual funds.

Question 18

The Securities and Exchange Commission's Regulation FD allows a firm to provide advance information about its earnings exclusively to hedge funds.

Accepted Answer

A) True 
 B)False

Question 19

When interest rates decline, investors who want to earn a high return may ____ their investments in stock mutual funds and ____ their deposits in depository institutions.

Accepted Answer

A)  reduce; reduce 
B)  reduce; increase 
C)  increase; reduce 
D)  increase; increase 
A)  reduce; reduce 
B)  reduce; increase 
C)  increase; reduce 
D)  increase; increase

Question 20

____ are beneficial for investors who want to invest in tax-exempt securities.

Accepted Answer

A)  Municipal bond funds 
B)  Growth and income funds 
C)  International and global funds 
D)  Money market funds 
A)  Municipal bond funds 
B)  Growth and income funds 
C)  International and global funds 
D)  Money market funds

Exam 23: Mutual Fund Operations

Capital appreciation funds are suited to investors who are more willing to risk a possible loss in value.

Money market funds commonly invest in

Most closed-end funds invest in

The majority of mutual fund assets are in the form of

A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.

The expenses incurred by a mutual fund are billed separately to investors and are not included in the calculation of the fund's net asset value (NAV).

Funds that are designed to mimic particular stock indexes and are traded on a stock exchange are known as

Hedge funds:

Hedge funds are more heavily regulated than mutual funds.

Private equity funds use most of their money to invest in stocks of publicly traded companies.

_____ funds contain both stocks and bonds, with the proportions changing automatically as the investor ages.

Exchange-traded funds differ from open-end funds in that their share price is adjusted only at the end of each day.

Index mutual funds are not traded throughout the day, while exchange-traded funds are.

Shares of open-end mutual funds are purchased and sold on exchanges.

Compared to open-end mutual funds, exchange-traded funds generate much more capital gain income that must be distributed to their shareholders, who must pay tax on the gains.

Mutual funds that include both non-U.S. stocks and U.S. stocks are called ____ funds.

_______ are promoted strictly by the mutual fund of concern and do not involve a sales charge.

The Securities and Exchange Commission's Regulation FD allows a firm to provide advance information about its earnings exclusively to hedge funds.

When interest rates decline, investors who want to earn a high return may ____ their investments in stock mutual funds and ____ their deposits in depository institutions.

____ are beneficial for investors who want to invest in tax-exempt securities.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

When interest rates decline, investors who want to earn a high return may their investments in stock mutual funds and their deposits in depository institutions.