Deck 11: International Debt Markets

Question 1

When an Australian company borrows through an issue of bonds denominated in USD into the Japanese markets the company has conducted a:

A) a euroyen transaction.
B) a eurobond transaction.
C) a eurodollar transaction.
D) a eurokangaroo transaction.

Answer 1

B

Question 2

The largest borrowers in the international markets currently are:

A) wealthy individuals.
B) Japanese households.
C) financial institutions.
D) governments.

Answer 2

C

Question 3

A major reason for the ongoing growth of the euromarkets is:

A) that most euromarket securities are bearer instruments.
B) that interest rates on deposits are generally higher than in the domestic country.
C) the high level of regulation that reduces the default risk.
D) that a borrower may diversify debt across a number of international markets.

Answer 3

B

Question 4

In the euromarkets,the reference rate is usually the rate at which banks in the market offer funds to each other.All of the following are reference rates used in the euromarkets except:

A) SIBOR-Singapore Inter-Bank Offered Rate
B) LIMEAN-London Inter-Bank Mean
C) LIBOR-London Inter-Bank Offered Rate
D) LEAR-London Euromarket Average Rate

Question 5

Eurocurrency markets are:

A) domestic European money markets.
B) domestic European capital markets.
C) international markets providing intermediated bank finance.
D) international markets providing foreign exchange transactions.

Question 6

An Australian company that issues commercial paper denominated in Australian dollars into the USA is conducting a:

A) eurocredit loan.
B) euromarket transaction.
C) eurodollar loan.
D) eurodollar deposit.

Question 7

Costs faced by banks in the euromarkets operations tend to be:

A) higher per dollar of business transactions.
B) higher due to the large amounts of funds involved.
C) lower per dollar of business transactions involved.
D) higher due to the operating costs per dollar.

Question 8

The majority of financial instruments in the euromarkets are currently denominated in:

A) euros.
B) Japanese yen.
C) British pounds.
D) US dollars.

Question 9

The generally lower default risk of eurocurrency loans is a result of the fact that:

A) eurocurrency markets are more regulated than domestic markets.
B) loans are made to medium-to-large corporations and governments.
C) loans are for very high denominations.
D) many loans only pay interest at maturity.

Question 10

The existence of ________ allows large multinational corporations to use large banks or groups of banks to invest and raise short-term funds in many countries but not in the currency of those countries.

A) the World Bank
B) a strong US dollar
C) eurocurrency markets
D) the International Monetary Fund

Question 11

Eurodollars:

A) are USD-denominated bank deposits with fixed maturity and so are somewhat illiquid.
B) offer the borrower a lower interest rate than may be received in the domestic market.
C) are limited to European banks.
D) are somewhat illiquid USD-denominated bank deposits with fixed maturity, and offer the borrower a lower interest rate than may be received in the domestic market.

Question 12

Which of the following best defines a euromarket-type transaction?

A) A transaction conducted in 'European currency units' within the European Union
B) A financial transaction denominated in a currency outside the currency of the country where the debt issue is made
C) A wholesale foreign exchange transaction of a government or institutional investor
D) A financial transaction in USD, conducted solely within the European markets

Question 13

According to the text.the part of the euromarkets providing intermediated bank financing is the:

A) eurobank markets.
B) eurocurrency markets.
C) eurobond markets.
D) euronote markets.

Question 14

Deregulation of the international financial system and the process of globalisation in the early 1980s encourage:

A) banks to raise funds in the international markets.
B) investors into the international markets as they could earn higher returns.
C) borrowers to diversify debt across a number of international markets.
D) all of the given answers.

Question 15

Borrowers may access the international debt markets if:

A) they have a number of debt issues already.
B) they have a large number of shares on issue.
C) a large number of investors are willing to buy their shares.
D) they have good credit standing.

Question 16

Which of the following statements concerning a eurodollar deposit is correct?

A) Eurodollar deposits tend to pay yields below all marketable securities with similar maturities owing to their low risk.
B) Eurodollar deposits are highly liquid and pay interest only at maturity; hence the yield is higher than on marketable securities.
C) Eurodollar deposits tend to provide yields above nearly all marketable securities with similar maturities owing to the higher FX risk.
D) Eurodollar deposits tend to provide yields above nearly all marketable securities with similar maturities owing to the lack of a secondary market.

Question 17

Compared with a short-term advance in the domestic markets,a eurocurrency short-term advance:

A) may involve a revolving credit arrangement.
B) is generally denominated in US dollars.
C) has a rate of interest determined by the borrower's credit risk.
D) is all of the given answers.

Question 18

When an Australian company borrows in the euromarkets and the Australian dollar depreciates more than the interest rate advantage,the actual cost of the loan is:

A) lower than if the company had borrowed in Australia.
B) higher than if the company had borrowed in Australia.
C) unaffected, as the company has a natural hedge.
D) offset by the principal increase.

Question 19

Which of the following statements regarding the eurocurrency market is correct?

A) Eurocurrency securities are generally bearer ones
B) Most eurocurrency securities are listed on either the Luxembourg, London or Singapore stock exchanges
C) The market provides short-term direct finance
D) The major banks provide short-term advances and medium- to long-term eurocurrency loans

Question 20

Which of the following statements in relation to the relative cost of transactions in the euromarkets is incorrect?

A) Euromarket transactions transcend country boundaries and therefore are not exposed to foreign exchange risk.
B) They do not deal in small retail market transactions, so their administrative and operating costs per dollar transacted are lower.
C) Loans tend to be for large amounts to medium-to-large borrowers, and so fewer resources are devoted to credit risk assessment per dollar lent.
D) Since transactions are conducted outside the jurisdiction of central bank regulation, costs associated with regulatory controls are minimised.

Question 21

To facilitate the issue of a P-note in the international debt markets,banks:

A) set up a euronote issuance facility (NIF).
B) set up a syndicate of banks to underwrite.
C) agree to purchase any P-notes up to a predetermined amount.
D) do all of the given answers.

Question 22

An important function of an underwriting bank for a euronote issuance facility (NIF)is to:

A) provide the funding for the corporation.
B) approve the prospectus before distribution to the public.
C) dilute the corporation's equity.
D) buy the unsold notes and resell them to investors.

Question 23

One of the advantages to the corporation of an underwriting syndicate for the issue of notes under a euronote issuance facility is that it:

A) approves the prospectus before distribution to the public.
B) submits a combined bid for purchase that the corporation compares with other bids.
C) monitors and coordinates the actions of the different underwriters.
D) gives access to a line of credit extending beyond the life of the promissory note.

Question 24

The benefit of a euronote issuance facility to a bank is:

A) the bank has a more liquid asset on its balance sheet.
B) the bank can lend the borrower smaller amounts and roll them over at shorter intervals.
C) substantial fees are involved in the process.
D) the bank can issue funds that are dearer than funding through a longer-term facility.

Question 25

The main role of a lead manager for a syndicated loan facility program for a eurocurrency bank loan is to:

A) provide the funds to the issuer.
B) act as an arranger of the debt issue, and structure the facility.
C) act as an underwriting syndicate, and purchase paper not taken up by the market.
D) provide a supporting guarantee for the issue.

Question 26

The selling process for a NIF facility involves:

A) a tender process.
B) a panel may include as many as 25 financial institutions.
C) an issuer specifying a posted rate at which it is prepared to sell.
D) all of the given answers.

Question 27

A short-term,discount international security is called:

A) a eurobond.
B) a eurocommercial paper.
C) a euroCD.
D) a eurobill.

Question 28

When a bank sets up a euronote issuance facility for a large company,it gives the company the benefit of:

A) borrowing larger amounts compared with a straight loan.
B) having a shorter term facility compared with a straight loan.
C) having higher interest costs.
D) having a more liquid asset.

Question 29

A _______ is an unsecured,negotiable,medium-term note that is issued in euromarkets and many domestic markets.

A) eurocurrency term loan
B) eurocommercial paper
C) eurobond
D) euro floating rate note

Question 30

When a syndicated NIF issue is set up:

A) the syndicate of banks may also underwrite it.
B) the agent banks arrange the transaction, structuring the facility and negotiate the price and terms of the loan.
C) the facility agent oversees the legal aspects of the facility.
D) the arranger is responsible for the administration of the facility once the facility has been drawn by the borrower.

Question 31

The term basis point used for the margin added to the indicator rate is:

A) 0.01
B) 0.001
C) 0.0001
D) 0 1%

Question 32

A _______ is an unsecured,negotiable,short-term note that is issued in euromarkets and many domestic markets.

A) eurocurrency term loan
B) eurocommercial paper
C) eurobond
D) euro floating rate note

Question 33

According to the text,the primary reason for an underwriters' syndication for the issue of notes under a euronote issuance facility is to:

A) monitor and coordinate the actions of the different underwriters.
B) reduce the risk of selling a large issue.
C) charge higher underwriting fees.
D) submit a combined bid for purchase that the issuer compares with other bids.

Question 34

Which of the following is NOT a feature of a eurocurrency stand-by facility?

A) They act as a backup source of funds to issuers of eurocommercial paper.
B) They may be drawn upon during periods of tight liquidity.
C) They are highly reliable as a source of ongoing funding.
D) They are generally arranged for a period of up to two years.

Question 35

In the international financial markets,a euronote is a:

A) short-term international security paying interest annually.
B) short-term international security paying interest semi-annually.
C) long-term international security paying interest annually.
D) short-term international security discounted at less than face value.

Question 36

For a large eurocurrency loan,the _____ generally acts as a provider of funds.

A) co-manager
B) lead manager
C) participating manager
D) agent bank

Question 37

When a eurocurrency syndicated loan facility is arranged,a participating bank:

A) acts as an underwriter.
B) acts merely as a provider of funds.
C) is one of the lead managers of a syndicated debt facility.
D) arranges for the public notice concerning the loan.

Question 38

Which of the following is NOT a feature of a typical eurocurrency term loan?

A) For large amounts, a syndicate of banks can be involved.
B) The term of the loan is generally between 5 and ten years.
C) Loans are frequently drawn down in full at the commencement.
D) The loans are generally unregistered, bearer securities.

Question 39

The rate at which an issuer is willing to sell a euronote is called the:

A) ask rate.
B) bid rate.
C) posted rate.
D) going rate.

Question 40

Which of the following is NOT a generic feature of euronote issuance facilities (NIFs)?

A) Unconditional bearer P-notes are drawn by the borrower in its own name.
B) Short-term securities are issued with maturities ranging from 30 to 180 days.
C) Notes are bearer securities.
D) Notes are issued at a discount price, thus avoiding the need for a tender panel.

Question 41

A probable advantage of Australian dollar eurobonds for borrowers is that:

A) there is a secondary market on the Australian Securities Exchange.
B) because they are sold in Australia, they don't necessarily require a prospectus.
C) many foreign companies have financing needs in Australian dollars.
D) they are generally registered in Australia.

Question 42

Currently the yields for fixed-interest euromarket securities (MTNs)are 6.5% per annum.An existing MTN with a face value of USD 1 million,paying 7.3% per annum coupons and maturing in three years trades currently at a price of:

A) $982 371.28
B) $1 000 000.00
C) $1 049 367.68
D) $1 678 976.97

Question 43

A eurobond is a:

A) debt instrument sold only in Europe.
B) bond denominated in euros.
C) bond sold primarily in countries other than the country of the currency in which it is denominated.
D) bond sold primarily to European investors.

Question 44

A fixed-interest security paying periodic coupons with principal repaid at maturity issued into the euromarkets is called:

A) a euronote.
B) eurocurrency.
C) eurocommercial paper.
D) a eurobond.

Question 45

Which of the following is a benefit of a eurocommercial paper (ECP)issue?

A) An ECP issue is a fixed-interest security with annual coupon payments.
B) An ECP issue can deliver cheaper funds for best-name borrowers.
C) Generally, only a lead manager is required for an ECP issue.
D) An ECP issue is a medium-term facility with maturities generally longer than ten years.

Question 46

A multinational corporation based in the US is issuing GBP bonds denominated in pounds to be placed in Germany and Japan.This type of issue is referred to as a:

A) foreign bond.
B) Yankee bond.
C) eurobond.
D) domestic bond.

Question 47

In the euromarkets,a medium term note is:

A) an unsecured security with a maturity up to a year.
B) an unsecured bearer discount security.
C) an unsecured security with maturities up to 15years.
D) a bearer security that pays semi-annual coupons.

Question 48

An unsecured security sold directly by the issuer into the euromarkets with a maturity up to 15 years is a/an:

A) NIF.
B) ECP.
C) MTN.
D) Global Note.

Question 49

Medium-term notes (MTNs)issued into the euromarkets may be defined as having a number of specific features.Which of the following are features of medium-term notes?
I)Include a range of maturities
Ii)Denominated in a range of currencies
Iii)May have fixed-rate interest coupons attached
Iv)Sold into the market in a single issue
V)May have floating interest rate coupons attached
Vi)Issued in various quantities

A) i, ii, iii, iv, v
B) i, ii, iii, v, vi
C) i, iii, iv, v, vi
D) All of the given answers

Question 50

A large,well-rated company that is looking for a large amount of long-term financing is likely to issue into the ______ market.

A) eurobill
B) eurocurrency
C) eurobond
D) euronote

Question 51

Which of the following descriptive names refers to a foreign bond issue by an Australian company into the Japanese capital markets?

A) Dragon bond
B) Shogun bond
C) Samurai bond
D) Eurobond

Question 52

Eurobonds are long-term,corporate liabilities that are:

A) owned by European banks.
B) issued only by large European companies.
C) held by European investors.
D) marketed in all countries.

Question 53

Announcements of availability of new issues of eurobonds that appear as advertisements in the financial press are known as:

A) tombstone ads.
B) prospectus ads.
C) red herring ads.
D) subscribers' ads.

Question 54

Which of the following is NOT an advantage for eurobond borrowers or investors?

A) They may be rapidly issued into the international markets.
B) There is a lack of home-country regulation.
C) The lack of regulation in the countries in which they are put up for sale.
D) The eurobond underwriters are not obliged to maintain the bond's market price at or above the issue price.

Question 55

Which of the following is NOT a feature of eurobonds?

A) The predominant currency of issue is the USD.
B) The coupon rate of most eurobonds is reset every six months, based on the LIBOR.
C) The amount raised in a eurobond issue is generally at least USD 50 million.
D) Most fixed-rate issues are structured with the principal repayable on maturity.

Question 56

Which of the following is a key feature of a eurocommercial paper (ECP)issue?

A) An ECP issue is a fixed-interest security with annual coupon payments.
B) The ECP facility is not underwritten by a syndicate of banks.
C) Generally, an issuer employs a lead manager, and often co-lead managers.
D) An ECP issue is a medium-term facility with maturities generally longer than ten years.

Question 57

A/An _______ is a foreign debt security denominated in US dollars issued into the US capital markets by a Japanese firm.

A) junk bond
B) Yankee bond
C) AMEX bond
D) Samurai bond

Question 58

The preliminary prospectus for an issue of eurobonds is called a:

A) letter of commitment.
B) leading prospectus.
C) red herring.
D) tombstone.

Question 59

A eurocommercial paper (ECP)facility:

A) involves issues typically more than USD750 million.
B) involves usually less than 6 banks for the marketing.
C) has a panel that agrees to purchase any paper up to a predetermined amount.
D) does not require the borrower to have a high credit rating as it uses the credit ratings for the panel of banks.

Question 60

Which of the following statement is NOT an example of overseas borrowing by the Australian company Telstra?

A) Telstra organises a loan through a major bank in Germany.
B) Telstra purchases debentures from a European company.
C) Telstra sells eurocommercial paper in overseas markets.
D) Telstra sells debentures denominated in Yen to overseas investors.

Question 61

Which of the following is NOT a feature of euro floating rate notes (FRNs)?

A) The coupon rates are usually reset every 6 months.
B) FRNs are bearer securities.
C) Many have a call option that gives the investor the right to sell the bond back to the issuer prior to maturity.
D) An FRN issue is usually about USD 100 million.

Question 62

Borrowers who wish to access the deep US capital markets require a credit rating of:

A) AA or above.
B) BB or above.
C) BBB or above.
D) B or above.

Question 63

Debt issues with a credit rating of ________ and above are regarded as investment grade by the S&P rating agency.

A) BCC
B) BB-
C) BBB
D) BB+

Question 64

Which of the following is NOT an advantage for US investors in ADRs?

A) ADRs are paid dividends in US dollars.
B) ADRs are denominated in US dollars.
C) ADRs are subject to US legal jurisdiction.
D) The ADR market is relatively illiquid.

Question 65

When a debt security is issued and its performance does not meet the expectations of the S&P rating agency,the debt rating may be placed initially on:

A) credit hold.
B) credit downgrade.
C) credit watch.
D) credit notice.

Question 66

Which of the following is NOT correct regarding ADRs?

A) The ADR market is deep and liquid.
B) An ADR facility can be established for private placement of new shares in accordance with Rule 154A of the Securities Act 1963.
C) A depository share is generally composed of more than one share of the foreign issuer.
D) Currently there are a large number of depository receipts, traded in many countries.

Question 67

The key difference between a Yankee bond and a US dollar eurobond is:

A) a Yankee bond is issued by a US company into the US capital markets.
B) a Yankee bond is issued by a company in Japan but is denominated in US dollars.
C) a US dollar eurobond is issued by a foreign company into the US capital markets.
D) a Yankee bond is issued by a foreign company into the US capital markets.

Question 68

A _______ is a euromarket,medium- to long-term bearer security with a rate of interest referenced to LIBOR.

A) eurocurrency term loan
B) eurocommercial paper
C) eurobond
D) euro floating rate note

Question 69

Which of the following is NOT a major factor in the credit rating process conducted by agencies such as Standard & Poor's?

A) Sovereign risk of the country of the issuer
B) Industry risk associated with the type of issuer
C) Financial capacity of the issuer
D) Return attached to the particular issue

Question 70

Euro floating rate notes are bonds with floating:

A) par values.
B) maturities.
C) coupon rates.
D) call provisions.

Question 71

The higher the credit rating given to a bond issue:

A) the higher the credit risk.
B) the higher the yield.
C) the lower the yield.
D) the higher the country risk.

Question 72

An American depository receipt is:

A) a security issued by a foreign company that is listed only on the New York Stock Exchange.
B) a security issued by a foreign company that is listed on both the New York Stock Exchange and the American Stock Exchange.
C) a security issued by a US bank and evidenced by a depository share.
D) a foreign share that has a multiple listing both in the US and its domestic market, and needs to pay a deposit before listing.

Question 73

Borrowers who wish to access the euromarkets require a credit rating of:

A) AA or above.
B) BB or above.
C) BBB or above.
D) B or above.

Question 74

Consider the following five statements. i.A eurobond is a bond issued by a foreign borrower in a currency that is not the currency of the country in which the bond is issued.
Ii)Eurobonds tend to be bought mainly by banks and institutional investors,rather than by individuals.
Iii)Straight eurobonds are fixed-interest securities with periodic coupon payments.
Iv)FRNs are coupon instruments; however,the coupon is reset periodically throughout the term of the note.
V)Convertible notes give the holder the option to convert the bond,on predetermined terms,into another form of instrument such as equity.
How many of these statements are true and how many are false?

A) 1 statement is true and 4 are false.
B) 3 statements are true and 2 are false.
C) 2 statements are true and 3 are false.
D) 4 statements are true and 1 is false.

Question 75

Consider the following five statements. i.A eurobond is a bond issued by a foreign borrower in a currency that is not the currency of the country in which the bond is issued.
Ii)Eurobonds tend to be bought mainly by banks and institutional investors,rather than by individuals.
Iii)Straight eurobonds are fixed-interest securities with periodic coupon payments.
Iv)FRNs are coupon instruments; however,the coupon is reset periodically throughout the term of the note.
V)Convertible notes give the holder the option to convert the bond,on predetermined terms,into another form of instrument such as equity.
Which of the following are correct?

A) i, ii, iii and iv are true.
B) i, ii, iv and v are true.
C) i, ii, and iv are true.
D) i, iii, iv and v are true.

Question 76

An ADR program that has the ADRs listed on one or more US exchange but not sold as a public offering is a _______ form of ADR program.

A) level-one
B) level-two
C) level-three
D) level-four

Question 77

The advantage(s)of an ADR program for a corporation is/are:

A) it affords a company access to the large US capital markets.
B) it increases the profile of a company expanding internationally.
C) it provides a broader investor base for the corporation.
D) all of the given answers.

Question 78

A euro floating rate note differs from regular eurobonds in that it:

A) has a longer maturity.
B) differs substantially in default risk.
C) has coupons that are regularly reset.
D) is not taxed.

Question 79

Corporations can use the shelf registration method for Yankee bonds,because:

A) pre-registered securities can be quickly brought to market.
B) the main registration period is eliminated for up to three years.
C) investment bankers prefer to handle issues this way.
D) investment bankers earn more fees in the process.

Question 80

Which of the following is NOT a feature of euro floating rate notes (FRNs)?

A) Typically, FRNs issues are at least USD100 million.
B) FRNs are a bearer bond issue in the euromarkets.
C) A FRN call option gives the issuer the right to redeem the bonds before maturity.
D) As the coupon is adjusted frequently over its lifetime, the price of the FRN is quite volatile.