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| 1 | |
Regarding a bearer bond |
| | A) | Possession is evidence of ownership |
| | B) | The owner's name is on the bond and registered with the issuer. |
| | C) | The owner's name registered with the issuer but not on the bond. |
| | D) | There is a serial number on the bond and the owner's name is assigned to that serial number |
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| 2 | |
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. |
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| 3 | |
Other things equal, investors will generally ______________ on bearer bonds than on registered bonds of comparable terms. |
| | A) | demand a higher credit rating |
| | B) | demand a higher yield |
| | C) | accept a lower yield |
| | D) | a) and b) are both correct |
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| 4 | |
Six-month U.S. dollar LIBOR is currently 4.375%; 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) | $48.75 |
| | C) | $24.375 |
| | D) | $46.875 |
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| 5 | |
Consider a 10 percent euro/British pound dual currency bond that pays €2,000 at maturity per £1,000 of par value. What is the implicit €/£ exchange rate at maturity? |
| | A) | €2.00 = £1.00 |
| | B) | €0.50 = £1.00 |
| | C) | €2.10 = £1.00 |
| | D) | €1.8182 = £1.00 |
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| 6 | |
Standard & Poor's 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. |
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| 7 | |
The credit rating of an international borrower: |
| | A) | Depends on the volatility of the exchange rate. |
| | B) | Depends on the volatility, but not absolute level, of the exchange rate. |
| | C) | Is usually never higher than the rating assigned to the sovereign government of the country in which it resides. |
| | D) | Is unrelated to the rating assigned to the sovereign government of the country in which it resides. |
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| 8 | |
Suppose your firm issues a €100,000,000 one-year bond with a coupon rate of 8 percent per annum. The underwriting spread is 2 percent. Your actual cost of this debt is: |
| | A) | 8 percent |
| | B) | 10 percent |
| | C) | 10.2 percent |
| | D) | None of the above. |
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| 9 | |
Dual currency bonds would be most appropriate for |
| | A) | A domestic borrower who wants to speculate in the exchange rate markets. |
| | B) | A borrower with a long-term project that has large cash outflows at maturity. |
| | C) | A borrower who has a long-term project that will be financed with the home currency, but is expected to produce enough foreign currency profits to repay the principal at maturity. |
| | D) | Japanese banks. |
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| 10 | |
With regard to dual-currency bonds versus comparable straight fixed-rate bonds. |
| | A) | Dual currency bonds usually trade at a premium to reflect the value of the forward contract implicit in their repayment schedule. |
| | B) | The interest on dual-currency bonds is usually lower than on comparable straight fixed-rate debt. |
| | C) | The interest on dual-currency bonds is usually higher than on comparable straight fixed-rate debt. |
| | D) | none of the above |
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