Coursera Financial Markets Quiz Answer

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Financial Markets

Offered By “Yale University”

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Week- 4

Lesson #10 Quiz

1. Which of the following is FALSE of Direct Participation Programs (DPPs)?

They may skip corporate profits tax.
A major example of a DPP is a real estate partnerships.
They must operate for at least some minimum amount of time.

They are for accredited investors only

2. If Sabine is “under water”, what can we say about her situation?

She has sent her keys to the bank and abandoned her house.
The value of her home is less than the value of her mortgage.
She has no choice but to declare bankruptcy.

She does not have enough money to make payments on her home.

3. Why does the 30 year mortgage rate so closely match the 10 year treasury bond YTM?

People could choose to finance their home with 10 year treasury bonds instead of with 30 year mortgages.
Banks intentionally track the 10 year treasury bond YTM.
The interest rate of 30 year mortgages and the price of 10 year treasury bonds are set by the same organization.

There are similar psychological causes which influence both the 30 year mortgage rate and the 10 year treasury YTM.

4. Who pays for private mortgage insurance on a mortgage?

The US government
The homeowner
Thank banks

Fannie Mae and Freddie Mac

5. Before the recession in 2007, why were banks giving out mortgages to people who could not afford them?

Banks would resell to mortgages to CMOs, and thus they were not incentivized to make sure their mortgages were unlikely to default.
CMOs were incentivized to buy mortgages which were likely to default, since these would only affect their lowest tranche.
Many people faked documents in order to get a mortgage, known as a “liar loan”

Banks had no way to verify whether people would be able to pay.

6. Select TWO key causes of the housing bubble which crashed in 2007:

Fraudulent mortgage lending
Over-optimistic mortgage lending
Hyper-inflation

Corruption within the government

7. During the housing bubble of 2007, which of the following tended to fluctuate with home price index?

The percentage of new homeowners who regretted their decision.
The percentage of new homeowners who think that investing in real estate is a good long term investment.
The percentage of new homeowners who have been evicted from their home.

The percentage of new homeowners who think investing in real estate is a bad long term investment.

8. What in 2005 indicated the housing market might be a bubble?

The expected 10 year home price appreciation dropped below the 30 year mortgage rate.
Media was discussing a home-buying mania in the American public.
Media was discussing how people were no longer purchasing houses.

Time magazine predicted that the housing market was a bubble.

Lesson #11 Quiz

1. Why might companies like the idea of regulation?

It helps them ensure they are representing the interests of their customers.

Regulation could be used to give them a legal monopoly over a particular sector.
Companies have enough money to bribe government officials to create regulation that favors them.
It allows them to compete on a level at which they do not have to use (potentially unethical or unfair) special tricks to avoid letting their competitors gain a competitive advantage.

2. What is tunneling?

When management of a company transfers cash from a corporate account to a personal account.

When a member of the board of directors fires a high ranking employee so that a family member can take their place.
When a small group of majority shareholders in a company allow the company to be bought out for a very low price by another company in which the small group are also majority shareholders.
Any trick that somebody in the company uses to steal money from the company.

3. Ideally, who must the board of directors be loyal to?

The government

The shareholders
The general public
The CEO

4. What is a fixed commission?

The opposite of dividends, i.e. fixed per-share prices charged by companies to shareholders.

The rate charged in order to join a trade groups.
Fixed taxes imposed on brokerages if they wished to operate in the stock market.
A fixed rate charged by all brokerages to buy or sell shares on the stock market.

5. Which of the following describes the contrast of federal vs state regulation in the US?

Securities regulation and corporate regulation are both primarily controlled by the state governments.

Securities regulation and corporate regulation are both primarily controlled by the federal government.
Securities are primarily regulated by federal government but corporate regulation is primarily by the state governments.
Securities are primarily regulated by state governments but corporate regulation is primarily by the federal government.

6. What is the US Securities and Exchange Commission (SEC) NOT responsible for doing?

To authorize companies to be traded publicly on the stock market.

To provide reliable and timely information on the performance of securities.
To force organizations to maintain financial transparency.
To manage the EDGAR database.

7. Which of the following is NOT an example of insider trading?

Mohammed is a secretary for a large corporation and overhears that they are about to take over a smaller corporation. He tells his wife, who purchases a large number of shares in the company immediately before the acquisition is announced.

Leah is a short sells shares for a company she used to work for and then creates a fake press release with bad news from the company.
Martha receives private information about a company from her stock broker. As a result, she sells all of her shares in this company, which fall substantially in price the next day.
Chenxiang, the CEO of a company, directs the purchase and company-wide deployment of software written by his brother.

8. What happened when Goodbody and Company failed?

People began to distrust brokerages and pulled their money out of stocks.

None of the retail investors lost any money.
Goodbody and Company had to mail everybody their stocks before they failed.
Because Goodbody and Company held the shares for their clients, people lost most or all of their stocks.

9. Which of the following describes the Bank for International Settlements (BIS)?

A bank for citizens of any country which allows them to deal in other currencies.

A former financial institution which was replaced by the G20.
The English name for the national bank of Switzerland, which strategically fosters relationships between banks internationally.
A bank for central banks which provides an intermediary for the central banks to deal with each other.

Peer-graded Assignment: Financialization of Housing

Project Title *
Give your project a descriptive title

Financialization of Housing

How did the learner perform on this assignment?

Financialization of housing, the incident happens when housing is treated as a ware a vehicle for riches and investment rather than a social decent. Inhabitants are regularly delivered destitute, supplanted by extravagance lodging that frequently stands empty

Week- 5

Lesson #12 Quiz

1. What is the effect of traders storing grain to wait for higher prices?

It is essential in preventing grain shortages.
Most shortages could have been prevented if traders had not speculated on grain prices.
Most grain ends up getting moldy in storage.

Traders are able to monopolize the market.

2. In commodities trading, what is the role of forwards and futures?

Farmers and warehouses sell exclusively in futures.
Farmers sell in forwards and warehouses sell in futures.
Warehouses buy from the farmer in forwards, and then hedge on futures.

Farmers and warehouses sell crops in both forwards and futures.

3. When an investor uses margin to buy or sell securities, how are the securities paid for?

A combination of an investor’s own funds and futures
On money borrowed from a broker only
On money borrowed from a broker whereby the broker may tell the investor at any time to sell securities or contribute money.

A combination of an investor’s own funds and money borrowed from a broker.

4. What is the primary purpose of purchasing futures if they are rarely delivered?

To purchase the industry standard of a commodity, such as those put out by the Chicago Board of Trade (CBOT)
To protect against price fluctuations.
To allow a corporation to buy and sell commodities, which would be impossible without futures.

To negotiate the best price on a commodity with a farmer.

5. What often happens to futures at the time of the crop for commodities with a specific well-defined harvest window?

They tend to be traded above the expected spot price at the contract’s maturity.
Due to defaults, investors could lose a lot of money.
They tend to be traded below the expected spot price at the contract’s maturity.

They tend to be traded exactly at the expected spot price at the contract’s maturity, making it difficult to profit as an investor.

6. How is it possible to have a future based on the S&P500?

On the last day, there is a final settlement of a combination of the other commodities on the futures market.
There is a large fine on anyone who still holds the security on the final day.
Anyone still holding the security on the final day will receive a proportionate number of shares in an S&P500 index fund.

On the last day there is a final settlement of the difference between the futures price and the actual index.

7. What is the fair value of a futures contract with a storage cost of 3%, an interest rate of 5%, and a spot price of $1000 over a 1 year time period?

$1800.00
$1080.00
$1081.50
$1000.00

8. How can you determine whether a future is in backwardation or contango?

If the price is rising at an increasingly fast rate (has a positive second derivative), it is backwardation, but if it is falling at an increasingly fast rate (has a negative second derivative), it is contango.
If the price is falling at an increasingly fast rate (has a negative second derivative), it is backwardation, but if it is rising at an increasingly fast rate (has a positive second derivative), it is contango.
If the price rises over time (has a positive derivative), it is backwardation, but if it falls (a negative derivative), it is contango.
If the price falls over time (has a negative derivative), it is backwardation, but if it rises (a positive derivative), it is contango.

9. What is the Federal Funds Futures Market?

Futures contracts created by the government which are settled at the end of each year for 100 minus the federal funds rate averaged over the month.
Futures contracts created by an exchange board which are settled at the end of each month for 100 minus the federal funds rate averaged over the month.
Futures contracts created by an exchange board which are settled at the end of each year for 100 minus the federal funds rate averaged over the month.
Futures contracts created by the government which are settled at the end of each month for 100 minus the federal funds rate averaged over the month.

Lesson #13 Quiz

1. What are the two types of options?

A “call” option is the right to buy and a “put” option is the right to sell.
A “put” option is the right to buy and a “call” option is the right to sell.
A “get” option is the right to buy and a “push” option is the right to sell.
A “push” option is the right to buy and a “get” option is the right to sell.

2. Why do some stock options have an exercise price which is more than the cost of the stock?

New investors often mistake “put” and “call” options, leading to an easy profit for the dealer.
For “call” options, this provides the option to buy at this price if the stock goes up before the exercise date.
These options are “put” options, giving you the option to sell at a higher price.
The stock options sell for negative prices, because the investor will lose money if the stock price does not fluctuate.

3. Which of the following is NOT a behavioral reason why people buy options?

Portfolio managers will usually buy options for clients without them knowing so that if the stock price goes down, the manager will come across as thinking ahead and watching out for their clients.
People will feel better about themselves if their stocks go down if they have purchased a put option on them, regardless of whether or not they gained or lost overall.
They are fooled by salespeople.
People will pay attention to specific aspects of their portfolio more so than others, so they will buy options when they hear about volatility in the market to protect certain components of their portfolio.

4. Are mortgages in the US similar to options from the perspective of the homeowner?

No, because defaulting does not eliminate liability.
Yes, because people always have the option to default.
Yes, because they can be sold by banks to Fannie Mae and Freddie Mac.
No in recourse states, yes in non-recourse states.

5. What is the put-call parity relationship?

A relationship between the put price, the call price, and the stock price for European-style stock options.
A method of arbitrage for options exchanges.
Another name for the Black-Scholes model.
A mathematical formula specifying that the put price of an option minus the call price of an option equals the price of the stock

6. What is a stop-loss order?

An instruction to your broker indicating that they should sell your shares once it drops below some price.
A type of stock that will protect you against losses.
The same thing as a put option, except you do not have to pay for it.
An instruction to your broker indicating that they should sell your shares once they get above a certain price.

Week 6

Lesson #14 Quiz

1. Which of the following two options are deals that underwriters make with corporations?

Best efforts: the underwriters tries to sell shares at some price, and the deal collapses if they don’t.
Short cut: the underwriters will cut the price of the shares if some of them remain unsold.
Loss safe: the underwriter will pay a penalty to the company if not all of the shares sell.
Bought deal: the underwriter will purchase all unsold shares.

2. Why do underwriters usually underprice IPOs?

They don’t know how much the company is really worth
They want to create public excitement
They do not want the company to make as much money as it could.
They want their favorite customers to be able to buy shares for cheaper

3. Which of the following was NOT a feature that Charles Ellis believed made Goldman Sachs successful?

Becoming prestigious
Making money
Absolute loyalty to the firm
Personal anonymity

4. What is a rating agency?

Any agency which refuses to take money from corporations for rating their securities.
An agency which assigns credit scores to individuals.
An agency which rates the business practices of corporations.
An agency which publishes its ratings on the reliability of securities.

5. Why was the Glass-Steagall Act of 1933 repealed in 1999?

American banks claimed that it made it hard to compete with European banks, which offered both investment and commercial banking services.
Investment banking was too costly for some companies, which could not manage both investment and commercial banking services.
Investors felt inconvenienced that a single bank could not function as both an investment and a commercial bank.
It was ruled unconstitutional by the supreme court.

6. What were the two biggest assets of the average (not median) US household in 2015?

Real estate and mutual funds
Real estate and corporate equities
Mutual funds and corporate equities
Real estate and pension funds

7. Which best describes the “prudent person” rule?

A new rule for fund managers which is starting to apply to newer regulations.
A law which mandates that investment managers must do what another educated, experienced investment manager might do in a similar circumstance.
A law which limits the amount of risk with which funds managers may invest money
A guideline that individuals should look for funds managers who show prudence.

8. Which of the following is NOT true of mutual funds?

Mutual funds are closed end funds.
They are defined and regulated by the SEC.
You join the fund at 4:00 PM on the day you decide to invest.
Massachusetts Investment Trust was an early model for mutual funds in the US.

Lesson #15 Quiz

1. The difference between dealers and brokers is:

Dealers make, on average, more profits than brokers.
Brokers do not serve as a principal in transactions and dealers do.
Brokers are market makers and dealers are not.
Dealers do not serve as a principal in transactions and brokers do.

2. Stock exchanges did not flourish until the 19th century in the U.S. because:

Basic information technology was not yet available.
The cost of creating such an exchange was perceived to be too high.
There was no demand for such a stock exchange.
The number of potentially listed companies was too small.

3. Consider a hypothetical NASDAQ level II screen for the shares of a corporation. Suppose the displayed ask is $20.05 for 100 shares and the displayed bid is $20 for 150 shares. What happens if another dealer places a limit order to buy 50 shares for $20.02?

There will be a transaction of 50 shares at $20.
There will be a transaction of 100 shares at $20.05.
There will be a transaction of 50 shares at $20.05.
No transaction will occur.

4. Investment firms which specialize in high frequency trading try to locate their servers close to the exchanges where they execute their transactions because they want to:

Take advantage of the maintenance services provided by the exchanges if any of their servers fails.
Minimize the time to transmit orders to the exchange.
Benefit from the highest possible demand for trades.
Receive price discounts on transactions from exchanges that come with co-location.

5. A payment for order flow is:

Equal to the bid-ask spread.
A transaction cost which is only associated with stop-loss orders.
A transaction cost which is only associated with limit orders.
The compensation and benefit a brokerage receives by directing orders to different parties to be executed.

Lesson #16 Quiz

1. Some of Carmen Reinhart’s historical findings on sovereign defaults include: (check all that apply)

Governments who cannot repay their creditors often tend to repudiate their sovereign debt contracts.
Sovereign defaults historically tend to occur in waves.
It is common for governments to solve their debt problems by inflating their currencies.
Governments have rarely repudiated their sovereign debt contracts

2. Which of the following are justifications given for the existence of a corporate profits tax? (check all that apply)

Governments may be forced to bail companies out or assist companies during bankruptcy proceedings, as exemplified by General Motors in the aftermath of the financial crisis from 2007-2008.
Governments may have to step in for environmental damages beyond the limited liability of the company that has caused the damages, as exemplified by TEPCO in Japan following the earthquake from 2011.
Corporations participate, through the existence of a corporate profits tax, to the investment and maintenance of public infrastructures.
A specific share of nationalized companies in the profit-sector is a necessary ingredient for an efficient antitrust law.

3. How do local governments typically make use of the money generated by municipal bond issues?

Municipalities use the money to finance public works projects.
Municipalities use the money to finance purchase of equipment such as fire trucks.
Municipalities use the money to finance the salaries of public works employees.
Municipalities use the money to finance local events.

4. The social insurance system in the U.S. is commonly referred to as the OASDI. What kinds of insurance does this abbreviation encompass? (check all that apply)

Asset Insurance.
Survivors insurance.
Disability Insurance.
Old age insurance.

Week- 7

Lesson #17 Quiz

1. The percentage of the workforce in nonprofit organizations is:

Very small if advanced economies.
Higher in advanced economies.
Higher in emerging economies.
About the same in both emerging and advanced economies.

2. Which of the following are examples for nonprofit organizations? (check all that apply)

Robert Shiller’s Case Shiller Weiss Incorporated
Peter Tufano’s Doorways to Dreams.
Dean Karlan’s Innovations for Poverty Action.
Wendy Kopp’s Teach for America.

3. The main differences between cooperatives and nonprofit organizations are: (check all that apply)

Cooperatives have a specific voting system for its members.
Cooperatives may distribute profits.
Cooperatives do not have the maximization of profits as the very first objective.
There are no fundamental differences between cooperatives and nonprofit organizations, the unique difference is their different legal treatment.

4. Which of the following tend to be true for cooperatives? (check all that apply)

Cooperatives are rarely successful.
Cooperatives tend to charge higher prices or lower wages to their employees.
Cooperatives aim to maximize the welfare of the group.
Cooperatives aim to maximize the profits for the group.

5. A benefit corporation is halfway between:

For-profit and not-for-profit organizations.
For-profit organizations and cooperatives.
None of the above.
Not-or-profit organizations and cooperatives.

Lesson #18 Quiz

1. What does the term “democratization of finance” mean?

It should benefit real people; everyone, not just the rich.
It should benefit the youngest people; not the old.
It should benefit the oldest people; not the young.
It should benefit rich people; not the poor.

2. What is ‘odious’ debt?

standard debt raised by corporations, to create new products.
illegitimate debt raised by corporations
Illegitimate debt raised by government, used for ill purposes against the will of the people.
standard debt raised by government

3. Malthus contended that:

Poverty causes resource depletion rather than the reverse.
All of the above.
By providing additional workers human population growth enhanced economic development.
Human population can grow faster than humans can produce commensurate amounts of food.

4. Malthus contented that population, when unchecked, increased in a ______ ratio; and subsistence for man in an _______ ratio.

linear; geometrical
geometrical; arithmetical
arithmetical; linear
arithmetical; geometrical

5. What are some reasons that inequality exists? (check all that apply)

Unmanaged risks
Political power
failure to democratize finance.

Final Exam

1. Why was the Yale portfolio primarily in bonds and other “safe” investments?

Yale was following the best practice advice of Joe McNay
Yale did not want the strong variation that are common in investment
Yale had too much money for other investments
Yale did not have a portfolio manager

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2. Which of the following is NOT an example of moral hazard?

Lying about farming yields to collect insurance money.
Neglecting to replace smoke detector batteries when insured against fire.
Knowingly building a house in an area susceptible to floods
Not farming efficiently because farming insurance will cover the cost of a bad crop.

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3. All rational investors, seeking to manage risk by optimally diversifying across a common set of different assets:

Only focus on the mean of the overall portfolio.
Can ultimately hold different, fully diversified portfolios.
Are concerned about by the performance of the riskier assets once they have created the diversifying portfolio.
Ultimately earn the same return if they share the same level of risk-aversion.

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4. If you want to protect the risk consisting in the fluctuations of the value of your home, you would ideally:

Want to be long (buyer) in the market for homes in your city.
Want to stay market-neutral (neither long nor short) in the market for homes in your city.
Avoid investing in the housing market in your city.
Want to short the market for homes in your city.

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5. Regarding the Efficient Market Hypothesis:

The strong form states that stock prices reflect all the information that can be observed on the trading floor.
The weak form states that current market prices reflect all information that can be relevant to the valuation of the firm.
The semi-strong form states all publicly available information about a firm’s prospects are reflected within the firm’s stock price.
The hypothesis does not hold if asset prices reflect all -including inside- relevant information.

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6. Nastya’s makes risky investments with 25% of her portfolio and invests the rest of the portfolio in low-variance investments. This is an example of

Attention anomalies
Disjunction effect
Representativeness heuristic
Mental compartmentalization

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7. Today, the nominal rate of interest is 6% and the inflation rate is 2%. The real rate of interest is therefore:

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8. The potential upside of share dilution is that:

The capital received by the company after the dilution can improve the company’s profitability and its stock price.
The ownership of the company becomes more concentrated.
The company will increase its dividend payments over the short to medium-term.
There is no potential upside of share dilution.

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9. If both dividends and capital gains are taxed at the same ordinary income tax rate, some difference in the tax effect still exists because:

Dividends are immediately taxed while capital gains are deferred until the stock is sold.
Capital gains are immediately taxed while dividends are deferred until the stock is sold.
Both dividends and capital gains are theoretically taxed every year but in practice, capital gains are rarely taxed.
There is no difference: both dividends and capital gains are taxed every year.

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10. What was the major sign that lead Professor Shiller to predict the crash of the housing market?

Housing prices had been rising for 100 years, but then suddenly started to fall.
Housing prices had been rising at a steady rate for 100 years, but then suddenly started to rise at a much higher rate.
Housing prices had been falling for 100 years, but then suddenly started to rise.
Housing prices had been relatively constant for 100 years, but then suddenly started to rise.

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11. How does the Dodd-Frank incentivize banks to only offer mortgages which they believe will not default?

Of the mortgages that a bank initiates, at least 5% must be Qualifying Residential Mortgages (QRMs).
A bank must sell at least 5% of the Qualifying Residential Mortgages (QRMs) that it initiates.
A bank must hold at least 5% of the Qualifying Residential Mortgages (QRMs) that it initiates.
With the exception of Qualifying Residential Mortgages (QRMs), a bank must hold 5% of the mortgages that it initiates.

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12. Which of the following is an example of tunneling?

Selling an asset far above or below its value.
Insider trading.
Telling friends inside information which helps them exploit a business opportunity.
All of the above are examples of tunneling.

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13. What is Front Running?

A broker, after receiving a large order from a client, purchases many shares of that stock for herself first (or tells her friends to do so) knowing that this order will cause the price to go up.
A broker, after receiving a large order from a client, purchases all of the shares at the same time, causing the price of the stock to fluctuate and creating instability in the price of the stock.
A broker uses decimalization, or the fact that stocks are traded in pennies instead of 1/16ths of a dollar, to take advantage of other investors.
A broker temporarily invests a client’s entire portfolio in a single investment so that the price goes up, and then sells it quickly with the higher price.

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14. Suppose Maria invests in futures. Which of the following is true?

Maria must negotiate a contract with another individual.
Maria’s margin account will be adjusted each day to account for price changes.
Maria must be an employee at a warehouse because only they have the commodities to trade.
Maria is responsible for making margin calls to ensure that she has enough money to honor the price of her futures.

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15. Which of the following correctly define backwardation and contango?

Backwardation is when futures prices are above their expected price at maturity, whereas contango is when they are below their expected price at maturity.
Backwardation is when warehouses quote a negative storage cost, whereas contango is when they quote a positive storage cost.
Backwardation is when futures prices are below their expected price at maturity, whereas contango is when they are above their expected price at maturity.
Backwardation is when warehouses quote a positive storage cost, whereas contago is when they quote a negative storage cost.

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16. What is the theoretical reason options exist?

Companies would like people to purchase put options for their stocks, because it reduces their risk. Call options serve as the natural extension of put options.
A single stock price does not represent a single risk; it represents many risks, which matter in different ways to different people.
Companies would like people to purchase call options for their stocks, because then it reduces their risk. Put options serve as the natural extension of call options.
Options serve the same role as insurance for investors, because they are able to insure themselves against large losses for long periods of time.

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17. Why does the put-call parity relationship only come close to holding, but not predict the exact price?

In practice, excessive amounts of arbitrage weakens the strength of the relationship.
European-style options add complexities not present in American-style options.
Transaction costs cause the prices to be slightly different from the prediction.
The put-call parity relationship is a theoretical finding which cannot be expected to hold in practice.

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18. What was the most remembered aspect of the Glass-Steagall Act of 1933?

It officially legalized insider trading.
It inspired a series of related laws across Europe.
It specified that a single company cannot be both an investment bank and a commercial bank.
It required that every commercial bank also offer investment banking.

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19. A limit buy order is an order to buy stock that is executed