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Quiz 3

This document contains 20 multiple choice questions testing knowledge of financial instruments and markets. The questions cover topics such as medium-term notes, eurobonds, Yankee bonds, government borrowing and deficits, credit ratings, treasury notes, repurchase agreements, real-time gross settlement systems, and American depository receipts.

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natasha
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212 views

Quiz 3

This document contains 20 multiple choice questions testing knowledge of financial instruments and markets. The questions cover topics such as medium-term notes, eurobonds, Yankee bonds, government borrowing and deficits, credit ratings, treasury notes, repurchase agreements, real-time gross settlement systems, and American depository receipts.

Uploaded by

natasha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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QUIZ 3

Medium-term notes (MTNs) issued into the euromarkets may be defined as


having a number of specific features. Which of the following are features of
medium-term notes? i. Include a range of maturities ii. Denominated in a range
of currencies iii. May have fixed-rate interest coupons attached iv. Sold into the
market in a single issue v. May have floating interest rate coupons attached vi.
Issued in various quantities
Select one:
a. i, iii, iv, v, vi
b. All of the given answers.
c. i, ii, iii, iv, v
d. i, ii, iii, v, vi

Consider the following five statements. i. A eurobond is a bond issued by a


foreign borrower in a currency that is not the currency of the country in which
the bond is issued. ii. Eurobonds tend to be bought mainly by banks and
institutional investors, rather than by individuals. iii. Straight eurobonds are
fixed-interest securities with periodic coupon payments. iv. FRNs are coupon
instruments; however, the coupon is reset periodically throughout the term of
the note. v. Convertible notes give the holder the option to convert the bond,
on predetermined terms, into another form of instrument such as equity. Which
of the following are correct?
Select one:
a. i, ii, iii and iv are true.
b. i, iii, iv and v are true.
c. i, ii, iv and v are true
d. i, ii, and iv are true.

Borrowers who wish to access the deep US capital markets require a credit
rating of:
Select one:
a. AA or above.
b. BBB or above.
c. BB or above.
d. B or above.

The key difference between a Yankee bond and a US dollar eurobond is:
Select one:
a. a US dollar eurobond is issued by a foreign company into the US capital
markets.
b. a Yankee bond is issued by a company in Japan but is denominated in US
dollars.
c. a Yankee bond is issued by a foreign company into the US capital
markets.
d. a Yankee bond is issued by a US company into the US capital markets.
Assume the government increases its spending to stimulate the economy. As a
consequence the government budget may go into a _____ deficit. In turn this
would result in _____ government borrowing and _____ crowding out of
private investment spending.
Select one:
a. bigger; larger; larger
b. smaller; larger; smaller
c. bigger; smaller; smaller
d. bigger; larger; smaller

Debt issues with a credit rating of ________ and above are regarded as
investment grade by the S&P rating agency.
Select one:
a. BCC
b. BB-
c. BBB
d. BB+

A $10 million T-note has 63 days until maturity. T-notes with a similar maturity
are currently yielding 3.49% per annum. Find the fair market value of this T-
note.
Select one:
a. $9 940 122
b. $9 803 956
c. $9 939 296
d. $10 077 342

A repo is best described as:


Select one:
a. the purchase of CGSs from the banks by the Reserve Bank on condition
the Reserve Bank will normally buy them back by day’s end.
b. the sale of CGSs to the public by the financial institution on condition the
financial institutions will normally buy them back by day’s end.
c. the sale of CGSs to the public by the Reserve Bank on condition the
Reserve Bank will normally buy them back by day’s end.
d. the sale of CGSs to the Reserve Bank by a financial institution on
condition the seller will normally buy them back by day’s end.

For a credit payment system, the processing of the payment begins at the:
Select one:
a. payer's financial institution.
b. exchange settlement account of the payee.
c. payee's financial institution.
d. Reserve Bank of Australia.

Which of the following statements concerning a eurodollar deposit is correct?


Select one:
a. Eurodollar deposits tend to provide yields above nearly all marketable
securities with similar maturities owing to the higher FX risk.
b. Eurodollar deposits are highly liquid and pay interest only at maturity;
hence the yield is higher than on marketable securities.
c. Eurodollar deposits tend to provide yields above nearly all marketable
securities with similar maturities owing to the lack of a secondary
market.
d. Eurodollar deposits tend to pay yields below all marketable securities
with similar maturities owing to their low risk.

Which of the following statements regarding real-time gross settlement (RTGS)


is NOT correct?
Select one:
a. RTGS settlements are irrevocable.
b. High-value payment transactions that are settled immediately require
transfer of the monies held in settlement accounts of the respective
banks at the Reserve Bank.
c. The aim of RTGS is to minimise potential systematic risk.
d. High-value transactions are those involving more than $100 000.

Currently the yields for fixed-interest euromarket securities (MTNs) are 6.5%
per annum. An existing MTN with a face value of USD 1 million, paying 7.3%
per annum coupons and maturing in three years trades currently at a price of:
Select one:
a. $982 371.28
b. $1 049 367.68
c. $1 000 000.00
d. $1 678 976.97

An appropriate vehicle for investing or borrowing money overnight or intra-day


would be:
Select one:
a. repurchase agreements.
b. Treasury bonds.
c. Treasury notes.
d. shares.

Which of the following is NOT a feature of euro floating rate notes (FRNs)?
Select one:
a. FRNs are a bearer bond issue in the euromarkets.
b. As the coupon is adjusted frequently over its lifetime, the price of the
FRN is quite volatile.
c. An FRN call option gives the issuer the right to redeem the bonds before
maturity.
d. Typically, FRNs issues are at least USD100 million.
State government securities are sold through a central borrowing authority.
These transactions are in the _____ market. A central borrowing authority
seeks to achieve _____.
Select one:
a. secondary; tax savings
b. primary; economies of scale
c. secondary; economies of scale
d. primary; tax savings

Borrowers are attracted to international debt markets because:


Select one:
a. the bid-ask spreads in the international bonds markets are lower than in
the domestic market, and hence offer the opportunity to lower the cost
of borrowing.
b. it is cheaper to borrow money from off-shore markets.
c. international debt markets offer a variety of fund raising options in
different denominating currencies. households.
d. All of the given answers.

A sale of government securities by the Reserve Bank _____ the supply of


funds, which _____ the money supply.
Select one:
a. decreases; decreases
b. increases; increases
c. decreases; increases
d. increases; decreases

If the rate of inflation were too high the Reserve Bank would try to _____ the
cash rate by _____ government securities in the open market.
Select one:
a. decrease; selling
b. increase; buying
c. decrease; buying
d. increase; selling

An American depository receipt (ADR) is:


Select one:
a. a foreign share that has a multiple listing both in the US and its domestic
market, and needs to pay a deposit before listing.
b. a security issued by a foreign company that is listed only on the New
York Stock Exchange.
c. a security issued by a US bank and evidenced by a depository share.
d. a security issued by a foreign company that is listed on both the New
York Stock Exchange and the American Stock Exchange

The difference between a foreign bond and a Eurobond is:


Select one:
a. Eurobonds and foreign bonds are identical.
b. the foreign bond is issued in the currency of the foreign country, while
the Eurobond is not.
c. the Eurobond is issued in the currency of the foreign country, while the
foreign bond is not.
d. None of the answers provided.

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