International Financial Management, 8e (Eun)
1) Eurobonds sold in the United States may not be sold to U.S. citizens.
2) 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
3) Proportionately more domestic bonds than international bonds are dominated in
A) the dollar.
B) the yen.
C) the dollar and the yen.
D) none of the options
4) 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 that
nation’s currency.
C) for example, a German MNC issuing dollar-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).
5) 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.
6) A “Eurobond” 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) 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
7) Proportionately more domestic bonds than international bonds are denominated in the
________ and the ________ while more international bonds than domestic bonds are denominated
in the ________ and the ________.
A) euro; yen; dollar; pound sterling
B) dollar; pound sterling; euro; yen
C) euro; pound sterling; dollar; yen
D) dollar; yen; euro; pound sterling
8) In any given year, rightly 80 percent of new international bonds are likely to be
A) Eurobonds.
B) foreign currency bonds.
C) domestic bonds.
D) none of the options
9) “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
10) “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
11) “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
12) “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
13) 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.
14) 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
15) 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
16) Eurobonds are usually
A) bearer bonds.
B) registered bonds.
C) bulldog bonds.
D) foreign currency bonds.
17) 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
18) With a bearer bond,
A) possession is evidence of ownership.
B) the issuer keeps records indicating only who the current owner of a bond is.
C) the owner’s name is on the bond.
D) the owner’s name is assigned to the bond serial number, but not indicated on the bond.
19) Publicly traded Yankee bonds must
A) meet the same regulations as U.S. domestic bonds.
B) meet the same regulations as Eurobonds if sold to Europeans.
C) meet the same regulations as Samurai bonds if sold to Japanese.
D) none of the options
20) Securities sold in the United States to public investors must be registered with the SEC, and a
prospectus disclosing detailed financial information about the issuer must be provided and made
available to prospective investors. This encourages foreign borrowers wishing to raise U.S. dollars
to use
A) the Eurobond market.
B) their domestic market.
C) bearer bonds.
D) none of the options
21) 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
22) The shorter length of time in bringing a Eurodollar bond issue to market, coupled with the
lower rate of interest that borrowers pay for Eurodollar bond financing in comparison to Yankee
bond financing, are two major reasons why the Eurobond segment of the international bond market
is roughly ________ the size of the foreign bond segment.
A) four times
B) two times
C) ten times
D) one hundred times
23) 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
24) 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
25) The withholding tax on bond income was originally called the interest equalization tax.
A) You can thank John F. Kennedy for imposing this tax.
B) You can thank Ronald Reagan for imposing this tax.
C) You can thank Jimmy Carter for imposing this tax.
D) You can thank George Washington for imposing this tax.
26) Shelf registration
A) allows the shelves in a set of bookshelves to remain level.
B) allows an issuer to preregister a securities issue, and then “shelve” the securities for later sale.
C) allows an investment bank to increase the fees they charge by charging for storage of the
“shelved” securities.
D) eliminates the information disclosure that many foreign firms found objectionable in the
foreign bond market.
27) 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
28) One unintended consequence of Sarbanes-Oxley
A) is that international companies are starting to prefer issuing Eurobonds in the private placement
market in the U.S. to avoid costly information disclosure required of registered bonds.
B) is that international companies are starting to prefer to issue Yankee bonds in the private
placement market in the U.S.
C) is that international companies are starting to prefer issuing Yankee bonds in the bearer bond
market in the U.S. to avoid costly information disclosure required of registered bonds.
D) is that international companies have left the bond market in the U.S. to avoid costly information
disclosure required of registered bonds.
29) Global bond issues were first offered in
A) 1889.
B) 1989.
C) 1999.
D) 2007.
30) 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
31) 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.
32) 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
33) Global bond issues
A) can save U.S. issuers 20 basis points relative to domestic bonds, all else equal.
B) tend to have increased liquidity relative to Eurobonds or domestic bonds.
C) have been partially facilitated by rule 144A.
D) all of the options
34) In terms of the types of instruments offered,
A) the Yankee bond market has been more innovative than the international bond market.
B) the international bond market has been much more innovative than the U.S. market.
C) the most innovations have come from Milan, just like any other fashion.
D) none of the options
35) Find the present value of a 2-year Treasury bond that pays a semi-annual coupon, has a coupon
rate of 6 percent, a yield to maturity of 5 percent, a par value of $1,000 when the yield to maturity
is 5 percent.
A) $1,018.81
B) $1,231.15
C) $699.07
D) none of the options
36) Find the present value of a 3-year bond that pays an annual coupon, has a coupon rate of 6
percent, a yield to maturity of 5 percent, a par value of €1,000 when the yield to maturity is 5
percent.
A) €1,018.81
B) €1,027.23
C) €1,099.96
D) none of the options
37) Find the present value of a 30-year bond that pays an annual coupon, has a coupon rate of 6
percent, a yield to maturity of 5 percent, a par value of €1,000 when the yield to maturity is 5
percent.
A) €1,018.81
B) €1,027.23
C) €1,153.73
D) none of the options
38) 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.
39) The vast majority of new international bond offerings
A) make annual coupon payments.
B) have fixed coupon payments.
C) have a fixed maturity.
D) all of the options
40) In contrast to many domestic bonds, which make ________ coupon payments, coupon interest
on Eurobonds is typically paid ________.
A) semiannual; annually
B) annual; semiannually
C) quarterly; semiannually
D) quarterly; annually
41) Straight fixed-rate bond issues have
A) a designated maturity date at which the principal of the bond issue is promised to be repaid.
During the life of the bond, fixed coupon payments, which are a percentage of the face value, are
paid as interest to the bondholders.
B) a designated maturity date at which the principal of the bond issue is promised to be repaid.
During the life of the bond, coupon payments, which are a percentage of the face value, are
computed according to a fixed formula.
C) a fixed payment, which amortizes the debt, like a house payment or car payment.
D) none of the options
42) The coupon interest on Eurobonds
A) is paid annually.
B) is paid in cash.
C) is paid in arrears.
D) all of the options
43) Eurobonds are usually
A) registered bonds.
B) bearer bonds.
C) floating-rate, callable and convertible.
D) denominated in the currency of the country that they are sold in.
44) 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
45) 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
46) 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
47) Find the yield to maturity for this floating rate note: The reset date is today; coupons are paid
annually according to the formula (LIBOR + ¼ percent); since issuance, there has not been a
change in the issuer’s credit rating. The bond has ten years to maturity and LIBOR = 3.5 percent.
A) 3.5 percent
B) 4 percent
C) 3.75 percent
D) There is not enough information provided to make a determination.
48) Floating-rate notes (FRN)
A) experience very volatile price changes between reset dates.
B) are typically medium-term bonds with coupon payments indexed to some reference rate (e.g.,
LIBOR).
C) appeal to investors with strong need to preserve the principal value of the investment should
they need to liquidate prior to the maturity of the bonds.
D) are typically medium-term bonds with coupon payments indexed to some reference rate (e.g.,
LIBOR), and appeal to investors with strong need to preserve the principal value of the investment
should they need to liquidate prior to the maturity of the bonds.
49) On a reset date, floating-rate notes
A) experience very volatile price changes.
B) market price will usually gravitate toward par.
C) market price will usually gravitate toward par, unless the borrowers’ credit rating has declined.
D) none of the options
50) Floating-rate notes
A) are a form of adjustable rate bond.
B) have contractually specified coupon payments, therefore they are fixed rate bonds.
C) always trade at par value.
D) are a form of adjustable rate bond and always trade at par value.
51) 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
52) Floating rate notes behave differently in response to interest rate risk than straight fixed-rate
bonds.
A) True since FRNs experience only mild price changes between reset dates, over which time the
next period’s coupon payment is fixed (assuming, of course, that the reference rate corresponds to
the market rate applicable to the issuer).
B) False since all bonds experience an inverse price change when the market rate of interest
changes.
C) all of the options
D) none of the options
53) A ten-year floating-rate note (FRN) has coupons referenced to 3-month pound LIBOR, and
pays coupon interest quarterly. Assume that the current 3-month LIBOR is 4 percent. If the risk
premium above LIBOR that the issuer must pay is 1/8 percent, the next period’s coupon payment
on a £1,000 face value FRN will be
A) £31.25.
B) £82.50.
C) £165.00.
D) £41.25.