1. Financial instruments may be divided into three broad categories: equity, debt and derivatives. There are also hybrid instruments, which may be most accurately described as:

   1. a form of equity that provides limited ownership rights in a corporation.

   2. financial instruments that entitle the holder to a claim that ranks ahead of shareholders.

   3. financial instruments that entitle the holder to a claim over specified assets.

2. Debt may be either secured or unsecured. Which of the following is correct?

   1. Secured debt is debt that can be traded in the capital market.

   2. The promise that secured debt will be repaid is supported by a claim over specified assets.

   3. Secured debt is more risky for the lender than unsecured debt.

   4. The risks of secured and unsecured debt are essentially the same.

3. Identify which of the following is controlled by the Reserve Bank to target desired economic performance outcomes.

   1. the exchange rate

   2. the interest rate

   3. the employment rate

   4. the gross domestic product (GDP)

4. Several theories have been advanced to explain the shape of the yield curve. Which of the following is not one of those theories?

   1. expectations theory

   2. loanable funds theory

   3. market segmentation theory

   4. liquidity premium theory

5. Hedge funds tend to have higher returns because:

   1. they use exotic instruments.

   2. they tend to be highly leveraged.

   3. they use derivative instruments.

   4. all of the answers provided.