___________ are a type of mutual funds that is required by law to invest in highly liquid and low-risk securities such as certificates of deposits or government securities. These funds pay dividends that generally reflect short-term interest rates and are not federally insured. Due to low-risk nature of the investments, these funds rarely lose money.
A. Money market funds
B. Trust funds
C. Collateral funds
D. Index funds
A mutual fund that invested primarily in utility companies and bonds would be an example for an income mutual fund. Which of the following risk/s is/are NOT associated with bond funds?
A. Credit risk
B. Prepayment risk
C. Liquidity risk
D. Interest rate risk
The management of index funds is _________ than the management of non-index funds, because an index fund manager only needs to track a relatively fixed index of securities.
A. More "Passive"
B. More "Active"
C. Less "Passive"
D. Relatively less "Active"
Risks related to assets/liability management that auditors should be aware of include all of the following EXCEPT:
A. Deficient information processing, accounting, reconcilement, and reporting systems in relation to transaction volume and complexity
B. Failure to effectively manage third-party vendors
C. Failure to use legal counsel effectively
D. Deficiencies in the integration of purchase-oriented businesses with the responsibilities associated with fiduciary relationships
Auditors should be aware that the investment objectives of a mutual fund are usually based on a risk profile outlined in the fund prospectus. For example, aggressive growth funds may invest in highly volatile stock issues and a money market fund may invest in lo risk money market instruments. Other funds have investment objectives based on the type or location of companies they invest in, such as:
A. Funds that invest only in non-profit organizations
B. Funds that invest only in environmentally conscious companies
C. Funds that invest only in U.S. government organizations
D. None of these
Most municipal and corporate bonds are rated by an independent rating firm such as Standard and Poor's (SandP) or Moody's. These ratings provide investors with information regarding the risk of default on the bond issue. The higher rated bonds are considered _________.
A. Investment grade bonds
B. Speculative bonds
C. Junk bonds
D. Blue chip bonds
Banks should develop policies related to ALM, including specific guidelines regarding risk/reward tradeoffs. The goal is to manage risks while achieving acceptable returns on investments. In developing these policies bank officials analyze:
A. Cash flows
B. Liabilities
C. Cash flows and liabilities by reviewing historical reports, ratio reports, balance sheet, the income statement, liquidity reports and other available information
D. Liabilities by reviewing historical reports, ratio reports, balance sheet, the income statement, liquidity reports and other available information
As interest rate change, the price of an issued bond also changes. The change in price has an inverse relationship to changes in interest rates (if one rises, the other falls). If new bond issues are paying a higher interest rate than existing bonds, investors will not purchase existing bonds unless:
A. The bond is discounted
B. The new bond prices fall
C. The new issue is finished
D. The interest rate declines
These are the most common type of municipal bonds and are backed by projected revenue streams from the infrastructure built by the bond. These revenues can be in the form of rental r user fees for facilities or even tolls for road improvements. What are these?
A. Doubled barreled bonds
B. Moral obligation bonds
C. Special tax bonds
D. Revenue bonds
Negotiable certificates are:
A. Mutual funds that invests in short-term liquid securities.
B. Tradable certificates issued by commercial banks in exchange for time deposits.
C. Are instruments issued by corporations with good credit ratings and are in effect an unsecured promissory note
D. Are U.S. currency deposited in banks outside the United States
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