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Financial Institutions & Markets ECN 324

Financial Institutions & Markets ECN 324. Phase 2 Exam Review. Mortgage Markets: Chapter 9 . Why are federally insured mortgages important to a lender? What is a conforming loan? A jumbo loan? What are the desirable features for a mortgage from the perspective of the lender?

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Financial Institutions & Markets ECN 324

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  1. Financial Institutions & MarketsECN 324 Phase 2 Exam Review Dr. David P. Echevarria

  2. Mortgage Markets: Chapter 9 • Why are federally insured mortgages important to a lender? • What is a conforming loan? A jumbo loan? • What are the desirable features for a mortgage from the perspective of the lender? • What important function do Fannie Mae and Freddie Mac provide to the housing market? • What is a pass-through security (PIP)? Who insures them? Dr. David P. Echevarria

  3. Equity Markets: Chapter 10 • What is an IPO? • How does a shelf registration work? • How are buy/sell orders executed in the OTC markets? • How does the OTC differ from the NYSE? • How are prices affected by supply and demand? Dr. David P. Echevarria

  4. Stock Valuation Models: Chapter 11 • What major factors affect stock prices? • How does MPT characterize risk? • How does CAPM characterize risk? Dr. David P. Echevarria

  5. Market Microstructure: Chapter 12 • How does a cash account differ from a margin account? • How does a market order differ from a limit order in terms of execution? • What does it mean to sell short? What are the short-seller’s expectations? What risk do short sellers face? • D.Howdoes a trader earn profits in a short sale? In a long position? • E. What was the primary purpose of the 1933 Securities Act? 1934 Act? • F. What does the SEC’s EDGAR system do? Dr. David P. Echevarria

  6. Futures Markets: Chapter 13 • What is the important difference between a forward contract and a futures contract? • How does a hedger differ from a speculator? A day trader? • How does the short futures position make money? The long position? • If a speculator expects interest rates to rise in the next few months, what position would she/he open? (Long or Short?) • A person with a long spot position would use which type of hedge? (Long or Short?) Dr. David P. Echevarria

  7. Options Markets: Chapter 14 • What is a call option? a put option? • What bet is a call buyer making? A put buyer? • When are options in-the-money? Out-of-the-money? (call vs. put) • What is a naked writer? To what extra risk is the naked writer exposed? • Which options is used to hedge a long stock position? A short stock position? Dr. David P. Echevarria

  8. Interest Rate Futures: Chapter 15 • What is the purpose of a swap? • What is a “plain vanilla” swap? • How does a putable swap differ from callable swap? • If interest rates are expected to decline, do you want to be a borrower or a lender? • How do caps and floors work? Collars? Dr. David P. Echevarria

  9. Foreign Exchange Markets: Chapter 16 • How does supply or demand affect exchange rates? • What role do differentials have in the rate of exchange? • Inflation • Interest Rates • What are the types of exchange rate mechanisms? Dr. David P. Echevarria

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