All of the following regarding Euro straights are true EXCEPT:
a. They make coupon payments semiannually.
b. They are referred to as “plain vanilla” bonds.
c. They are fixed-rate coupon bonds.
d. They are issued on an unsecured basis.
e. They are usually issued by high-quality entities.
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.
Which of the following statements is most correct?
a. Municipalities are not permitted to tax the interest income from securities issued by
the U.S. Treasury.
b. Municipal bonds are securities issued by the U.S. Treasury.
c. The equivalent taxable yield is the before-tax yield on Treasury securities.
d. The yield on municipal bonds is more than that on Treasuries with the same maturity.
e. None of the above.
Beta measures how sensitive the security return is to changes in the market level.
a. True.
b. False.
With all customized interest rate derivatives there is counterparty risk.
a. True.
b. False.
The risk attached to financial assets whose cash flows are not denominated in U.S.
dollars is called:
a. Credit risk.
b. Inflation risk.
c. Foreign-exchange risk.
d. Market risk.
e. None of the above.
A put option can be used to hedge against:
a. An increase in the price of the underlying instrument.
b. A decrease in the price of the underlying instrument.
c. A decrease in interest rates.
d. All of the above.
e. None of the above.
MTNs created when the issuer simultaneously transacts in the derivative markets are
called:
a. Structured notes.
b. Floating-rate securities.
c. Swaps.
d. a and b only.
e. None of the above.
Investment banking firms are highly leveraged companies which means that:
a. Equity is greater than the amount of borrowed funds.
b. The amount of borrowed funds relative to the amount of equity is high.
c. They heavily borrow on a short-term basis.
d. They are very risky.
e. None of the above.
General obligations bonds are secured by:
a. The issuer’s general taxing power.
b. A pledge of special fees/operating revenue from the service provided.
c. FDIC insurance.
d. a and b only.
e. All of the above.
In a defined contribution plan, the plan sponsor is responsible for making:
a. Specified contributions into the plan on behalf of qualifying participants.
b. Specified payments to the employee after retirement.
c. Variable payments linked to an index such as the CPI.
d. Both a and b.
e. Both b and c.
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.