Question 1

________ are those that are not subsidiaries of equipment manufacturing firms or bank holding companies.

Accepted Answer

A)  Bank holding companies 
B)  Dependent finance companies 
C)  Captive finance companies 
D)  Independent finance companies 
A)  Bank holding companies 
B)  Dependent finance companies 
C)  Captive finance companies 
D)  Independent finance companies D

Question 2

A medium-term note (MTN) ________.

Accepted Answer

A)  is a corporate debt instrument, with the unique characteristic that notes are offered continuously to investors by an agent of the issuer. 
B)  cannot be registered with the SEC under Rule 415 (the shelf registration rule). 
C)  was not traditionally used to refer to debt issues with a maturity greater than one year but less than 15 years. 
D)  have not been sold with maturities from nine months to 30 years, and even longer. 
A)  is a corporate debt instrument, with the unique characteristic that notes are offered continuously to investors by an agent of the issuer. 
B)  cannot be registered with the SEC under Rule 415 (the shelf registration rule). 
C)  was not traditionally used to refer to debt issues with a maturity greater than one year but less than 15 years. 
D)  have not been sold with maturities from nine months to 30 years, and even longer. A

Question 3

Which of the below statements is FALSE?

Accepted Answer

A)  Corporate debt obligations expose an investor to credit risk. 
B)  Credit risk consists of default risk, credit spread risk, and downgrade risk. 
C)  Corporate risk is typically measured by the credit or quality ratings assigned by nationally recognized commercial rating companies. 
D)  Commercial rating companies play a key role in the functioning of debt markets in the United States, and their role in other countries is increasing. 
A)  Corporate debt obligations expose an investor to credit risk. 
B)  Credit risk consists of default risk, credit spread risk, and downgrade risk. 
C)  Corporate risk is typically measured by the credit or quality ratings assigned by nationally recognized commercial rating companies. 
D)  Commercial rating companies play a key role in the functioning of debt markets in the United States, and their role in other countries is increasing. C

Question 4

The part of the risk premium or spread attributable to credit risk is called the ________.

Accepted Answer

A)  credit spread. 
B)  risk spread. 
C)  premium spread. 
D)  investor spread. 
A)  credit spread. 
B)  risk spread. 
C)  premium spread. 
D)  investor spread.

Question 5

Which of the below statements is TRUE?

Accepted Answer

A)  Short-term notes differ from corporate bonds in the manner in which they are distributed to investors when they are initially sold. 
B)  Long-term notes differ from corporate bonds in the manner in which they are distributed to investors when they are initially sold. 
C)  Medium-term notes differ from corporate bonds in the manner in which they are distributed to investors when they are initially sold. 
D)  All of these 
A)  Short-term notes differ from corporate bonds in the manner in which they are distributed to investors when they are initially sold. 
B)  Long-term notes differ from corporate bonds in the manner in which they are distributed to investors when they are initially sold. 
C)  Medium-term notes differ from corporate bonds in the manner in which they are distributed to investors when they are initially sold. 
D)  All of these

Question 6

A structured note is a medium-term note in which the issuer couples its offering with a position in a derivative instrument in order to create instruments with more interesting risk/return characteristics.

Accepted Answer

A) True 
 B)False

Question 7

Commercial paper is an alternative to bank borrowing for small bank holding companies.

Accepted Answer

A) True 
 B)False

Question 8

Which of the below statements is FALSE?

Accepted Answer

A)  Commercial paper is rated by the government. 
B)  Commercial paper can be directly placed by the issuer or issued by using the services of an agent or intermediary. 
C)  Other countries have developed their own commercial paper markets, and there is a Eurocommercial paper market. 
D)  By using credit support, smaller and less well-known companies with lower credit ratings have been able to issue paper. 
A)  Commercial paper is rated by the government. 
B)  Commercial paper can be directly placed by the issuer or issued by using the services of an agent or intermediary. 
C)  Other countries have developed their own commercial paper markets, and there is a Eurocommercial paper market. 
D)  By using credit support, smaller and less well-known companies with lower credit ratings have been able to issue paper.

Question 9

Traditionally credit risk is defined as the risk that the borrower will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed. This form of credit risk is called ________.

Accepted Answer

A)  spread risk. 
B)  market risk. 
C)  payment risk. 
D)  default risk. 
A)  spread risk. 
B)  market risk. 
C)  payment risk. 
D)  default risk.

Question 10

Medium-term notes are not rated by the nationally recognized rating companies.

Accepted Answer

A) True 
 B)False

Question 11

Which of the below statements is FALSE?

Accepted Answer

A)  A corporation that wants an MTN program will file a shelf registration with the SEC for the offering of securities. 
B)  A unique characteristic of medium-term notes is that they are continuously offered to investors at a single point in time by an agent of the issuer. 
C)  MTNs created when the issuer simultaneously transacts in the derivative markets are called structured notes. 
D)  A structured note is a medium-term note in which the issuer couples its offering with a position in a derivative instrument in order to create instruments with more interesting risk/return characteristics. 
A)  A corporation that wants an MTN program will file a shelf registration with the SEC for the offering of securities. 
B)  A unique characteristic of medium-term notes is that they are continuously offered to investors at a single point in time by an agent of the issuer. 
C)  MTNs created when the issuer simultaneously transacts in the derivative markets are called structured notes. 
D)  A structured note is a medium-term note in which the issuer couples its offering with a position in a derivative instrument in order to create instruments with more interesting risk/return characteristics.

Question 12

In regards to a syndicated bank loan, which of the below statements is TRUE?

Accepted Answer

A)  A syndicated loan is not arranged by either a bank or a securities house. 
B)  Each bank in the syndicate provides the funds for which it has committed. 
C)  The banks outside the syndicate have the right to sell their parts of the loan subsequently to other banks. 
D)  Syndicated loans are distributed by two methods: assignment or participation with each method having its relative advantages and disadvantages, with the method of participation the more desirable of the two. 
A)  A syndicated loan is not arranged by either a bank or a securities house. 
B)  Each bank in the syndicate provides the funds for which it has committed. 
C)  The banks outside the syndicate have the right to sell their parts of the loan subsequently to other banks. 
D)  Syndicated loans are distributed by two methods: assignment or participation with each method having its relative advantages and disadvantages, with the method of participation the more desirable of the two.

Question 13

Unlike an assignment, a participation ________, although the holder of the participation has the right to vote on certain legal matters concerning amendments to the loan agreement.

Accepted Answer

A)  does not confer privity of contract on the holder of the participation 
B)  confers privity of contract on the holder of the participation 
C)  confers a legally recognized relationship between two parties 
D)  does not confer privity of contract on the holder of the involvement 
A)  does not confer privity of contract on the holder of the participation 
B)  confers privity of contract on the holder of the participation 
C)  confers a legally recognized relationship between two parties 
D)  does not confer privity of contract on the holder of the involvement

Question 14

The Loan Syndications and Trading Association (LSTA) has helped foster the development of ________ for bank loans by establishing market practices and settlement and operational procedures.

Accepted Answer

A)  an illiquid and opaque secondary market 
B)  a liquid and transparent primary market 
C)  an illiquid and opaque primary market 
D)  a liquid and transparent secondary market 
A)  an illiquid and opaque secondary market 
B)  a liquid and transparent primary market 
C)  an illiquid and opaque primary market 
D)  a liquid and transparent secondary market

Question 15

A unique characteristic of medium-term notes is that they are continuously offered to investors over a period of time by an agent of the issuer.

Accepted Answer

A) True 
 B)False

Question 16

Credit risk consists of default risk, credit spread risk, and downgrade risk.

Accepted Answer

A) True 
 B)False

Question 17

Commercial paper is a ________ that is sold at a price that is less than its ________.

Accepted Answer

A)  discount instrument; maturity value. 
B)  coupon instrument; maturity value. 
C)  discount instrument; premium value. 
D)  coupon instrument; premium value. 
A)  discount instrument; maturity value. 
B)  coupon instrument; maturity value. 
C)  discount instrument; premium value. 
D)  coupon instrument; premium value.

Question 18

Senior loans cannot be distributed by participation.

Accepted Answer

A) True 
 B)False

Question 19

________ are subsidiaries of equipment manufacturing companies. Their primary purpose is to secure financing for the customers of the parent company.

Accepted Answer

A)  Bank-related finance companies 
B)  Captive finance companies 
C)  Independent finance companies 
D)  Confined finance companies 
A)  Bank-related finance companies 
B)  Captive finance companies 
C)  Independent finance companies 
D)  Confined finance companies

Question 20

When the treasurer of a corporation is contemplating an offering of either MTNs or corporate bonds, a factor that affects the decision is ________.

Accepted Answer

A)  the cost of the funds raised before consideration of registration and distribution costs. 
B)  the inflexibility afforded to the issuer in structuring the offering. 
C)  the cost of the funds raised after consideration of registration and distribution costs. 
D)  flexibility afforded to the investor in structuring the offering. 
A)  the cost of the funds raised before consideration of registration and distribution costs. 
B)  the inflexibility afforded to the issuer in structuring the offering. 
C)  the cost of the funds raised after consideration of registration and distribution costs. 
D)  flexibility afforded to the investor in structuring the offering.

Exam 19: Markets for Corporate Senior Instruments: I

________ are those that are not subsidiaries of equipment manufacturing firms or bank holding companies.

A medium-term note (MTN) ________.

Which of the below statements is FALSE?

The part of the risk premium or spread attributable to credit risk is called the ________.

Which of the below statements is TRUE?

A structured note is a medium-term note in which the issuer couples its offering with a position in a derivative instrument in order to create instruments with more interesting risk/return characteristics.

Commercial paper is an alternative to bank borrowing for small bank holding companies.

Which of the below statements is FALSE?

Traditionally credit risk is defined as the risk that the borrower will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed. This form of credit risk is called ________.

Medium-term notes are not rated by the nationally recognized rating companies.

Which of the below statements is FALSE?

In regards to a syndicated bank loan, which of the below statements is TRUE?

Unlike an assignment, a participation ________, although the holder of the participation has the right to vote on certain legal matters concerning amendments to the loan agreement.

The Loan Syndications and Trading Association (LSTA) has helped foster the development of ________ for bank loans by establishing market practices and settlement and operational procedures.

A unique characteristic of medium-term notes is that they are continuously offered to investors over a period of time by an agent of the issuer.

Credit risk consists of default risk, credit spread risk, and downgrade risk.

Commercial paper is a ________ that is sold at a price that is less than its ________.

Senior loans cannot be distributed by participation.

________ are subsidiaries of equipment manufacturing companies. Their primary purpose is to secure financing for the customers of the parent company.

When the treasurer of a corporation is contemplating an offering of either MTNs or corporate bonds, a factor that affects the decision is ________.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

Commercial paper is a that is sold at a price that is less than its .