7
CHAPTER 2
FIXEDINCOME MARKETS:
ISSUANCE, TRADING,
AND FUNDING
PROBLEMS
1. In most countries, the bond market sector with the smallest amount of bonds outstanding
is most likely the:
A. government sector.
B. financial corporate sector.
C. non-financial corporate sector.
2. e distinction between investment grade debt and non-investment grade debt is best
described by differences in:
A. tax status.
B. credit quality.
C. maturity dates.
3. A bond issued internationally, outside the jurisdiction of the country in whose currency
the bond is denominated, is best described as a:
A. Eurobond.
B. foreign bond.
C. municipal bond.
4. Compared with developed markets bonds, emerging markets bonds most likely:
A. offer lower yields.
B. exhibit higher risk.
C. benefit from lower growth prospects.
8 Part I: Learning Objectives, Summary Overview, and Problems
5. With respect to floating-rate bonds, a reference rate such as the London interbank offered
rate (Libor) is most likely used to determine the bond’s:
A. spread.
B. coupon rate.
C. frequency of coupon payments.
6. Which of the following statements is most accurate? An interbank offered rate:
A. is a single reference rate.
B. applies to borrowing periods of up to 10 years.
C. is used as a reference rate for interest rate swaps.
7. An investment bank that underwrites a bond issue most likely:
A. buys and resells the newly issued bonds to investors or dealers.
B. acts as a broker and receives a commission for selling the bonds to investors.
C. incurs less risk associated with selling the bonds than in a best efforts offering.
8. In major developed bond markets, newly issued sovereign bonds are most often sold to the
public via a(n):
A. auction.
B. private placement.
C. best efforts offering.
9. A mechanism by which an issuer may be able to offer additional bonds to the general
public without preparing a new and separate offering circular best describes:
A. the grey market.
B. a shelf registration.
C. a private placement.
10. Which of the following statements related to secondary bond markets is most accurate?
A. Newly issued corporate bonds are issued in secondary bond markets.
B. Secondary bond markets are where bonds are traded between investors.
C. e major participants in secondary bond markets globally are retail investors.
11. A bond market in which a communications network matches buy and sell orders initiated
from various locations is best described as an:
A. organized exchange.
B. open market operation.
C. over-the-counter market.
12. A liquid secondary bond market allows an investor to sell a bond at:
A. the desired price.
B. a price at least equal to the purchase price.
C. a price close to the bond’s fair market value.
13. Sovereign bonds are best described as:
A. bonds issued by local governments.
B. secured obligations of a national government.
C. bonds backed by the taxing authority of a national government.
14. Agency bonds are issued by:
A. local governments.
B. national governments.
C. quasi-government entities.
15. e type of bond issued by a multilateral agency such as the International Monetary Fund
(IMF) is best described as a:
A. sovereign bond.
B. supranational bond.
C. quasi-government bond.
Chapter 2 Fixed-Income Markets: Issuance, Trading, and Funding 9
16. Which of the following statements relating to commercial paper is most accurate?
A. ere is no secondary market for trading commercial paper.
B. Only the strongest, highly rated companies issue commercial paper.
C. Commercial paper is a source of interim financing for long-term projects.
17. Eurocommerical paper is most likely:
A. negotiable.
B. denominated in euro.
C. issued on a discount basis.
18. When issuing debt, a company may use a sinking fund arrangement as a means of
reducing:
A. credit risk.
B. inflation risk.
C. interest rate risk.
19. Which of the following is a source of wholesale funds for banks?
A. Demand deposits
B. Money market accounts
C. Negotiable certificates of deposit
20. A characteristic of negotiable certificates of deposit is:
A. they are mostly available in small denominations.
B. they can be sold in the open market prior to maturity.
C. a penalty is imposed if the depositor withdraws funds prior to maturity.
21. A repurchase agreement is most comparable to a(n):
A. interbank deposit.
B. collateralized loan.
C. negotiable certificate of deposit.
22. e repo margin on a repurchase agreement is most likely to be lower when:
A. the underlying collateral is in short supply.
B. the maturity of the repurchase agreement is long.
C. the credit risk associated with the underlying collateral is high.