Q&A Hero

Q: Which of the following allows for paying off bonds prior to maturity?a. Conversion feature.b. Sinking fund.c. Call provision.d. Retirement feature.e. All of the above.

Q: An obligation guaranteed by another entity is called a:a. Collateral trust bond.b. Subordinated debenture bond.c. Guaranteed bond.d. Equipment trust certificate.e. None of the above.

Q: Bonds secured by real property or personal property are called:a. Mortgage bonds.b. Debentures.c. Subordinated bonds.d. Collateral trust bonds.e. None of the above.

Q: Corporate bond issues that are arranged so that specified principal amounts become due on specified dates prior to maturity are called:a. Bullet-maturity bonds.b. Serial bonds.c. Term bonds.d. Notes.e. None of the above.

Q: Most corporate bonds are:a. Term bonds.b. Bullet bonds.c. Serial bonds.d. a and b only.e. All of the above.

Q: The important aspects outlined in a bond indenture include the bond's:a. Maturity.b. Security.c. Provisions for retirement.d. a and b only.e. All of the above.

Q: The promises of corporate bond issuers and the rights of investors who buy them are set forth in great detail in the:a. Bond coupon.b. Bond indenture.b. Corporate charter.d. Fiduciary.e. None of the above.

Q: The largest group of investors in corporate bonds is:a. Life insurance companies.b. Pension funds.c. Foreign investors.d. Depository institutions.e. Mutual funds.

Q: Preferred stock is classified as a senior instrument in that holders of these securities:a. Have priority over debtholders in the case of liquidation.b. Have priority over common stockholders in the case of bankruptcy.c. Have first claim to the earnings and assets of the firm.d. Have no risk.e. None of the above.

Q: Describe the basic terms of a loan agreement.

Q: Compare and contrast a single-investor lease and a leveraged lease.

Q: Describe the different forms of credit risk.

Q: That creditors are less informed about the true economic operating conditions of the firmthan is management is espoused in:a. The absolute priority rule.b. The incentive hypothesis.c. The recontracting process hypothesis.d. The stockholders' influence on reorganization plan hypothesis.e. The strategic bargaining process hypothesis.

Q: The market for lease financing is a segment of the larger market for:a. Agency securities.b. Equities.c. Equipment financing.d. Municipal securities.e. None of the above.

Q: When the lessor uses only a portion of its own funds to purchase the equipment and borrows the balance from a bank, the lease is referred to as a:a. Tax-oriented lease.b. Leveraged lease.c. Direct lease.d. Single-investor lease.e. None of the above.

Q: Leasing is a form of:a. Bank borrowing.b. Syndication.c. Tax avoidance.d. Participation.e. None of the above.

Q: Syndicated loans are distributed by:a. Assignment.b. Participation.c. Underwriting.d. a and b only.e. All of the above.

Q: The reference rate on a syndicated loan is typically:a. The Treasury bill rate.b. LIBOR.c. The federal funds rate.d. The discount rate.e. None of the above.

Q: Senior bank loans:a. Have a priority position over subordinated lenders with respect to interest and principal.b. Have first claim to the earnings and assets of the firm.c. Have a fixed term.d. a and c only.e. All of the above.

Q: Loan structures in which no repayment of the principal is made until the maturity date are referred to as:a. Balloon payment loans.b. Term loans.c. Bullet loans.d. Performing loans.e. None of the above.

Q: A loan in which a group of banks provides funds to the borrower is known as a:a. Senior bank loan.b. Syndicated bank loan.c. Domestic bank loan.d. Participation loan.e. None of the above.

Q: Loans made by offshore banks are referred to as:a. Eurocurrency loans.b. Euro medium-term notes.c. Eurobonds.d. Euroloans.e. None of the above.

Q: A rating of Ba3 means that a bond is:a. Very high grade, very high quality.b. Lower medium grade.c. Substantial risk, in poor standing.d. Predominantly speculative. e. Low grade, speculative.

Q: In all rating systems the term high grade means:a. High probability of future payments.b. High credit risk.c. Low credit risk.d. a and b only. e. a and c only.

Q: Corporate governance issues include:a. Traditional ratio analysis.b. Policies for financial disclosure.c. The uncertainty of operating cash flows.d. Net assets and working capital.e. All of the above.

Q: When assessing the credit risk of a corporate issuer rating agencies look at:a. Corporate governance risk.b. Financial risk.c. Business risk.d. a and c onlye. All of the above.

Q: A deterioration in the credit quality of a debt issue or the issuer that is rewarded with a better credit rating is referred to as:a. Upgrading.b. Downgrading.c. Credit improvement.d. Credit deterioration.e. None of the above.

Q: Standard & Poor's Corporation, Moody's Investors Services, and Fitch are companies in the U.S. that:a. Offer investment banking advice to corporations.b. Assign ratings to corporate debt instruments.c. Provide investment advice to institutional investors.d. Give legal advice in the case of bankruptcy.e. All of the above.

Q: The yield on a corporate debt instrument is made up of:a. The yield on a similar maturity Treasury issue.b. Risk premium.c. A credit spread.d. a and c only.e. All of the above.

Q: An investor who lends funds to a corporation by purchasing its debt obligation is exposed to:a. Credit risk.b. Default risk.c. Downgrade risk.d. a and b only.e. All of the above.

Q: The market for corporate debt obligations include the:a. Medium-term note market.b. Bank loan market.c. Commercial paper market.d. a and b only.e. All of the above.

Q: Corporate senior instruments:a. Are financial obligations of a corporation.b. Include debt obligations and preferred stock.c. Have priority over common stock in the case of bankruptcy.d. All of the above.e. None of the above.

Q: How did the Treasury respond to the violation of the auction process by Salomon Brothers?

Q: Describe the role of government dealers and government brokers in the Treasury securities market.

Q: Describe the auction method used by the Treasury to market Treasury securities.

Q: The secondary market for Treasury securities is a(n):a. Active market.b. Over-the-counter market.c. Exchange-traded market.d. Trading floor.e. None of the above.

Q: The Treasury does not issue:a. Zero-coupon Treasury securities.b. Bills.c. Notes.d. Bonds.e. All of the above.

Q: Central governments issue their securities through:a. An ad hoc auction system.b. A Dutch-style system.c. The regular calendar auction.d. The tap system.e. All of the above.

Q: Which of the following foreign governments issue inflation-indexed securities?a. Canada.b. Australia.c. U.K.d. Japan. e. a, b, and c only.

Q: Convertible bonds issued by the British government are referred to as:a. Bunds.b. Gilts.c. TIPS.d. LEAPS.e. None of the above.

Q: GSE securities are not backed by the full faith and credit of the U.S. government. Thus, investors purchasing GSEs are exposed to:a. Credit risk.b. Currency risk.c. Political risk.d. Inflation risk.e. None of the above.

Q: Governments-sponsored enterprises, which issue agency securities include:a. Freddie Mac.b. Fannie Mae.c. Federal Home Loan Banks.d. Federal Farm Credit System. e. All of the above.

Q: Government-sponsored enterprises:a. Are privately owned, publicly chartered entities.b. Issue securities directly in the marketplace.c. Issue debentures and mortgage-backed securities.d. All of the above.e. None of the above.

Q: The financial instruments traded in the Federal agency securities market include:a. Federally related institutions' securities.b. Government-sponsored agency securities.c. Federal funds.d. a and b only.e. All of the above.

Q: The price of a Treasury security is forced to trade near its theoretical value based on spot rates through the process of:a. Coupon stripping.b. Repurchasing.c. Reconstituting.d. a and c only.e. None of the above.

Q: Coupon stripping is the process of:a. Separating each coupon payment as well as the principal.b. Selling securities against each coupon payment and the principal.c. Creating a series of zero-coupon bonds.d. Discounting each coupon payment as well as the principal.e. a, b, and c only.

Q: In which of the following markets are Treasury securities issued when they are traded prior to the issuance of the Treasury?a. The primary market.b. The secondary market.c. The when-issued market.d. The wi market.e. c and d only.

Q: Primary dealers for government securities include:a. Domestic investment banking firms.b. Foreign investment banking firms.c. Foreign commercial banks.d. Domestic commercial banks.e. All of the above.

Q: The highest yield accepted by the Treasury is referred to as the:a. Tail.b. Stop yield.c. Average yield.d. Income yield.e. None of the above.

Q: Which of the following statements is false?a. The auction for Treasury securities is conducted on a noncompetitive bidding basis.b. Competitive bids must be submitted on a yield basis.c. All U.S. Treasury auctions are single-price auctions.d. B and c only.e. None of the above.

Q: Treasury securities that adjust for inflation are referred to as:a. Inflation indexed bonds.b. Real return bonds.c. TIPS.d. LEAPS.e. None of the above.

Q: Treasury securities with an original maturity greater than ten years are called:a. Treasury bills.b. Treasury bonds.c. Treasury strips.d. Cash management bills.e. None of the above.

Q: The fundamental difference between discount and coupon Treasury securities is:a. The spread between the bid and ask prices is narrower than in other sectors of the bond market. b. The form of the payment stream that the holder receives.c. The inflation premium.d. The tax to be paid on the income received by the holder.e. None of the above.

Q: The prominent role of U.S. Treasury securities is due to:a. Liquidity.b. Volume.c. The bid-ask spread.d. a and b only.e. All of the above.

Q: The benchmark interest rate used throughout the U.S. economy is the interest rate on:a. Agency securities.b. Treasury securities.c. Federal funds.d. Repurchase agreements.e. None of the above.

Q: Why does risk occur in a repo transaction?

Q: Compare and contrast Treasury bills, commercial paper, and certificates of deposits.

Q: What is a bankers' acceptance and how is it created?

Q: The federal funds rate:a. Is determined by the supply and demand for federal funds.b. Is the rate at which all money market interest rates are anchored.c. Is often a target of the Fed's monetary policy.d. Is higher than the repo rate because federal funds are borrowed on an unsecured basis.e. All of the above.

Q: There is no single repo rate; rather rates vary from transaction to transaction depending on:a. Quality.b. Term of the repo.c. Delivery requirementd. Availability of collateral.e. All of the above.

Q: The sale of a security with a commitment by the seller to buy the security back from the purchaser at a specified price and a designated future date is referred to as:a. A negotiable CD.b. A repurchase agreement.c. A reverse repo.d. A commercial paper.e. None of the above.

Q: Bankers' acceptances are sold on a discounted basis just like:a. Treasury bills.b. Commercial paper.c. CDs.d. a and b only.e. All of the above.

Q: In a bankers' acceptance:a. The bank accepts the ultimate responsibility to repay the loan to its holder.b. The bank has no responsibility to the parties involved.c. The importer and the exporter share equally in the responsibility to repay the loan to the bank.d. The government guarantees the repayment of the loan to its holder.e. None of the above.

Q: The yields on CDs are a function of:a. The credit rating of the issuing bank.b. The maturity of the CD.c. The supply and demand for CDs.d. The back-up line of credit.e. a, b, and c only.

Q: Certificates of deposits:a. Are issued by commercial banks.b. Are interest-bearing financial assets.c. Can be issued in any denomination.d. May be negotiable or nonnegotiable.e. All of the above.

Q: Eurocommerical paper:a. Is issued and placed outside the jurisdiction of the currency of the denomination.b. Has considerably longer maturity than domestic commercial paper.c. Is almost always dealer placed.d. Has an active secondary market.e. All of the above.

Q: Which of the following statements is most correct?a. Commercial paper may be issues in either a discount form or interest-bearing form.b. Commercial paper is classified as either direct paper or dealer-placed paper.c. The secondary market for commercial paper is very active.d. Commercial paper is more liquid than Treasury bills.e. a and b only.

Q: Investors in commercial paper include:a. Pension funds.b. Money market mutual funds.c. Commercial bank trust departments.d. State and local governments. e. All of the above.

Q: The risk that the issuer will be unable to sell new paper at maturity is called:a. Default risk.b. Credit risk.c. Rollover risk.d. A and b only.e. None of the above.

Q: The maturity of commercial paper is typically less than 270 days because:a. It does not require registration with the SEC.b. It avoids the costs associated with registering issues with the SEC.c. It does not require collateral.d. a and b only.e. All of the above.

Q: Commercial paper provides short-term funds for:a. Seasonal needs.b. Working capital needs.c. Bridge financing.d. A and b only.e. All of the above.

Q: Commercial paper is:a. Is issued by corporations with strong credit ratings.b. A short-term promissory note.c. Issued on an unsecured basis.d. B and c only.e. All of the above.*

Q: Treasury bills have a:a. Are sold on an auction basis.b. Maturity of one year or less.c. Are sold at a discount from par.d. Zero coupon rate.e. All of the above.

Q: Market participants perceive Treasury securities to carry no default risk because:a. They are short-term in nature.b. They are backed by the full faith and credit of the U.S. government.c. They can be bought and sold easily.d. They are not affected by changes in interest rates.e. None of the above.

Q: Depository institutions have obligations that include:a. Commercial paper.b. Bankers acceptances.c. Certificates of deposits.d. b and c only.e. All of the above.

Q: For entities that borrow funds using securities as collateral, the most common financial instrument is:a. Certificates of deposits.b. Federal funds borrowing.c. Repurchase agreements.d. Bankers acceptance.e. None of the above.

Q: The assets traded in the money market include:a. Commercial paper.b. Bankers acceptances.c. Treasury bills.d. Corporate bonds.e. a, b, and c only.

Q: The money market is the market for:a. Long-term bonds.b. Common stock.c. Short-term financial instruments.d. Agency securities.e. None of the above.

Q: Differentiate between price risk and reinvestment risk.

Q: Compare and contrast the three forms of the expectations theory.