AFM 121 FINAL QUESTIONS AND ANSWERS WITH COMPLETE
SOLUTIONS GRADED A++
Bonds - Call provision
Allows issuer to buy back bonds at specified call price before bonds mature.
Issuer does this to prevent having to pay more coupon when market is paying less.
Money market - Prime rate
Basic interest rate on ST loans that banks charge their most creditworthy corporate
customers
Bellwether rate
Rate serving as leader of future trends
(Bell => warning)
Bank rate
Rate that BoC lends to commercial banks for overnight reserve loans (shortest term
loans)
London Eurodollar Bank Offered Rate
International banks charge each other this rate for overnight euro loans
High rate implies distrust between banks
Treasury bill (T-bill)
ST govt federal debt instrument. Very liquid, "safe asset"
Ted spread
SOLUTIONS GRADED A++
Bonds - Call provision
Allows issuer to buy back bonds at specified call price before bonds mature.
Issuer does this to prevent having to pay more coupon when market is paying less.
Money market - Prime rate
Basic interest rate on ST loans that banks charge their most creditworthy corporate
customers
Bellwether rate
Rate serving as leader of future trends
(Bell => warning)
Bank rate
Rate that BoC lends to commercial banks for overnight reserve loans (shortest term
loans)
London Eurodollar Bank Offered Rate
International banks charge each other this rate for overnight euro loans
High rate implies distrust between banks
Treasury bill (T-bill)
ST govt federal debt instrument. Very liquid, "safe asset"
Ted spread
