FIN 423 Final Exam Practice Questions | Answered with complete solutions

FIN 423 Final Exam Practice Questions | Answered with complete solutions Domestic bonds account for the largest share of outstanding bonds, equaling approximately what percent of the total? A) 78 percent B) 45 percent C) 25 percent D) 15 percent A "foreign bond" issue is __________ A) one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. B) one offered by a foreign borrower to investors in a national market and denominated in another nation's currency. C) for example, a German MNC issuing euro-denominated bonds to U.S. investors. D) one offered by a foreign borrower to investors in a national market and denominated in that nation's currency (e.g., a German MNC issuing dollar-denominated bonds to U.S. investors). The four currencies in which the majority of domestic and international bonds are denominated are ____ A) U.S. dollar, the euro, the Indian rupee, and the Chinese yuan. B) U.S. dollar, the euro, the pound sterling, and the Swiss franc. C) U.S. dollar, the euro, the Swiss franc, and the yen. D) U.S. dollar, the euro, the pound sterling, and the yen. A "Eurobond" issue is ___ A) denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. B) usually a bearer bond. C) for example, a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. D) all of the options "Yankee" bonds are _________ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) yen-denominated foreign bonds originally sold in Japan. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options "Samurai" bonds are ______ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) yen-denominated foreign bonds originally sold in Japan. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options "Dragon" bonds are _____ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) dollar-denominated bonds originally sold in Asia with non-Japanese issuers. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options "Bulldog" bonds are ______ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) yen-denominated foreign bonds originally sold in Japan. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options A "bearer bond" is one that ______ A) shows the owner's name on the bond. B) the owner's name is recorded by the issuer. C) possession is evidence of ownership. D) shows the owner's name on the bond, and the owner's name is recorded by the issuer. A "registered bond" is one that _______ A) shows the owner's name on the bond. B) the owner's name is recorded by the issuer. C) the owner's name is assigned to a bond serial number recorded by the issuer. D) all of the options U.S. security regulations require Yankee bonds and U.S. corporate bonds sold to U.S. citizens to be __________ A) municipal bonds. B) registered bonds. C) bearer bonds. D) none of the options Eurobonds are usually ______ A) bearer bonds. B) registered bonds. C) bulldog bonds. D) foreign currency bonds. Investors will generally accept a lower yield on __________ than on __________ of comparable terms, making them a less costly source of funds for the issuer to service. A) bearer bonds; registered bonds B) registered bonds; bearer bonds C) Eurobonds; domestic bonds D) domestic bonds; Eurobonds Because __________ do not have to meet national security regulations, name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market. A) Eurobonds B) Foreign bonds C) Bearer bonds D) Registered bonds The Eurobond segment of the international bond market A) is roughly four times the size of the foreign bond segment. B) has considerably less regulatory hurdles than the foreign bond segment. C) typically has a lower rate of interest that borrowers pay in comparison to Yankee bond financing. D) all of the options U.S. corporations ________ A) are allowed to issue bearer bonds to non-U.S. citizens. B) are not allowed to issue bearer bonds. C) are allowed to issue treasury bonds but not T-bills. D) none of the options Which of the following statements regarding shelf registration is not true? A) has eliminated the time delay in bringing a foreign bond issue to market in the United States. B) allows an issuer to preregister a securities issue, and then "shelve" the securities for later sale. C) has not eliminated the information disclosure that many foreign borrowers find too expensive. D) eliminates the information disclosure that many foreign firms found objectionable in the foreign bond market. Private placement bond issues ___________ A) do not have to meet the strict information disclosure requirements of publicly traded issues. B) have auditing requirements that do not adhere to publicly traded issues. C) meet the strict information disclosure requirements of publicly traded issues, but have larger minimum denominations. D) none of the options In 1990, the SEC instituted Rule 144A which ________ A) allows qualified institutional buyers in the U.S. to trade in private placement issues that do not have to meet the strict information disclosure requirements of publicly traded issues. B) was designed to make the U.S. capital markets more competitive with the Eurobond market. C) issues are non-registered and make only trade among qualified institutional buyers. D) all of the above. Global bond issues were first offered in _____ A) 1889. B) 1989. C) 1999. D) 2007. Purchasers of global bonds are ___________ A) mainly institutional investors to date. B) desirous of the increased liquidity of the issues. C) have been willing to accept lower yields. D) all of the options A "global bond" issue __________ A) is a very large international bond offering by several borrowers pooled together. B) is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets. C) has higher yields for the purchasers. D) has a lower liquidity. A global bond issue denominated in U.S. dollars and issued by U.S. corporations ______ A) trade as Eurobonds overseas. B) trade as domestic bonds in the U.S. domestic market. C) trade as Eurobonds overseas and trade as domestic bonds in the U.S. domestic market. D) none of the options The vast majority of new international bond offerings A) are straight fixed-rate notes. B) are callable and convertible. C) are convertible adjustable rate. D) are adjustable rate, with interest rate caps and collars. The first floating-rate notes (FRN) were introduced in A) 1970 B) 1980 C) 1985 D) 1975 Unlike a bond issue, in which the entire issue is brought to market at once, __________ is partially sold on a continuous basis through an issuance facility that allows the borrower to obtain funds only as needed on a flexible basis. A) a Euro-medium term note issue B) bearer bond C) a Euro-long term note issue D) a Euro-short term note issue Euro-medium term notes ___________ A) are typically fixed-rate corporate notes issued with maturities ranging from less than a year to about ten years. B) are typically fixed-rate corporate notes issued with maturities ranging from three years to about ten years. C) are sold just like bonds in the primary market. D) none of the options Six-month U.S. dollar LIBOR is currently 4.25 percent; your firm issued floating-rate notes indexed to six-month U.S. dollar LIBOR plus 50 basis points. What is the amount of the next semi-annual coupon payment per U.S. $1,000 of face value? A) $43.75 B) $47.50 C) $23.75 D) $46.875 0.5x(.0425+.005)x$1,000 = $23.75 A five-year floating-rate note has coupons referenced to six-month dollar LIBOR, and pays coupon interest semiannually. Assume that the current six-month LIBOR is 6 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a $1,000 face value FRN will be _________ A) $29.375 B) $30,000 C) $30.625 D) $61.250 0.5x(.06+.00125)x$1,000 = $30.625 There are two types of equity related bonds: A) convertible bonds and dual currency bonds. B) convertible bonds and kitchen sink bonds. C) convertible bonds and bonds with equity warrants. D) callable bonds and exchangeable bonds. Bonds with equity warrants A) are really the same as convertible bonds if the stated price of exercising the warrant is the par value of the bond. B) can be viewed as straight debt with a call option (technically a warrant) attached. C) can only be exercised on coupon dates. D) typically are convertible as well. "Investment grade" ratings are in these categories. A) Moody's: AAA to BBB and S&P Global Ratings: Aaa to Baa B) Moody's: Aaa to Baa and S&P Global Ratings: AAA to BBB C) Moody's: AAA to A and S&P Global Ratings: Aaa to A D) Moody's: Aaa to A and S&P Global Ratings: AAA to A S&P Global Ratings has, for years, provided credit ratings on international bonds. A) The ratings reflect the safety of principal for a U.S. investor. B) Their ratings reflect the creditworthiness of the borrower and not exchange rate uncertainty. C) Their ratings reflect creditworthiness of the lender and predict the exchange rate expected to prevail at maturity. D) The ratings are biased since 40 percent of Eurobond issues are rated AAA and 30 percent are AA. A disproportionate share of Eurobonds have high credit ratings in comparison to domestic and foreign bonds. (Approximately 40 percent of Eurobond issues are rated AAA and 30 percent are AA). Explanations for this include A) the issuers receiving low credit ratings invoke their publication rights and have had them withdrawn prior to dissemination. B) the Eurobond market is accessible only to firms that have good credit ratings and name recognition to begin with; hence, they are rated highly. C) there is "grade inflation" on the part of the bond rating agencies which are paid by the issuers and have to compete for business. D) Both A and B Investors in corporate bonds would still be interested in sovereign credit ratings A) because the sovereign credit rating usually represents a ceiling on corporate credit ratings within that country. B) because they might play the TED spread. C) because they are the rating assigned by the country's regulators. D) none of the options One of the five main sovereign rating factors, institutional assessment, comprises an analysis of how a government's institutions and policymaking affect a sovereign's credit fundamentals by A) delivering sustainable public finances. B) promoting balanced economic growth. C) responding to economic or political shocks. D) all of the options Underwriters for an international bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically _____ A) in the 1 to 1.5 percent range. B) in the 2 to 2.5 percent range. C) in the 3 to 3.5 percent range. D) in the 4 to 4.5 percent range. The role of an underwriter is to ___________ A) help negotiate terms with the borrower. B) ascertain market conditions. C) manage the issuance. D) all of the options The secondary market for Eurobonds __________ A) is an over-the-counter market. B) is an organized exchange. C) has never developed—there is only a primary market for Eurobonds. D) none of the options Eurobond market makers and dealers are members of the __________, a self-regulatory body based in Zurich. A) International Currency Market Association (ICMA) B) International Bond Marketers Association (IBMA) C) International Bond Regulators Association (IBRA) D) International Capital Market Association (ICMA) Market makers in the secondary bond market A) stand ready to buy or sell for their own account. B) quote bid and ask spreads. C) trade directly with one another, through a broker or with retail customers. D) all of the options With regard to clearing procedures for bond transactions A) it is a system for transferring ownership of bonds. B) it is a system for ensuring payment from buyers to sellers. C) most Eurobond trades clear through two major clearing systems. D) all of the options Two major clearing systems for international bond transactions are A) Euroclear and Clearstream International. B) Euroclear and Clearasil. C) Deutsche Börse Clearing and Cedel International. D) none of the options During the 1980s, cross-border equity investment was largely confined to the equity markets of A) developing countries. B) developed countries. C) both developing and developed countries. D) none of the options Investment in foreign equity markets became common practice in the A) 1960s. B) 1970s. C) 1980s. D) none of the options Only in the ________ did world investors start to invest sizable amounts in the emerging equity markets. A) 1970s B) 1980s C) 1990s D) none of the options Investment in foreign equity markets became common practice in the 1980s as investors became aware of the benefits of A) international portfolio diversification. B) debt forgiveness. C) international portfolio diversification and debt forgiveness. D) none of the options Only in the 1990s did world investors start to invest sizable amounts in the emerging equity markets, as A) the economic growth and prospects of the developing countries improved. B) the economic growth and prospects of the developing countries declined. C) the economic growth and prospects of the developed countries stagnated. D) none of the options At year-end 2018, total market capitalization of 80 organized stock exchanges tracked by the World Federation of Exchanges stood at A) $74,667 billion. B) $74,667 trillion. C) $67,125 billion. D) $67,125 trillion. Generally, the higher the turnover ratio, A) the less liquid the secondary stock market, indicating ease in trading. B) the more liquid the secondary stock market, indicating ease in trading. C) the more liquid the primary stock market, indicating ease in trading. D) the more efficient the stock market is. The turnover velocity percentages for 74 of the stock exchanges for 2018 were measured. Over 40 percent of the exchanges, in most years, had in excess of ___ A) 15 percent turnover per month. B) 25 percent turnover per month. C) 30 percent turnover per month. D) 75 percent turnover per month. Relatively low turnover ratios indicate A) poor liquidity. B) good liquidity. C) strong investment performance. D) low market concentration. A measure of "liquidity" for a stock market is A) the times interest earned ratio. B) the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market. C) the LIBOR rate. D) the ratio of the market capitalization of the largest ten companies divided by the total market capitalization. Many of the small foreign equity markets (e.g., Argentina, Sri Lanka) A) have poor liquidity at present. B) are very liquid stock markets. C) have fairly high turnover ratios indicating strong liquidity. D) none of the options Many of the larger emerging equity markets (e.g., China, India) A) have poor liquidity at present. B) are more liquid stock markets than the developed world. C) have high turnover ratios. D) none of the options A market-value index A) is calculated such that the proportion of the index a stock represents is determined by its proportion of the total market capitalization of all stocks in the index. B) is calculated as the average price of all the stocks in the index that trade that day,