Question 1

The Eurobond segment of the international bond market

Accepted Answer

A)  is roughly four times the size of the foreign bond segment.
B)  has considerably less regulatory hurdles than the foreign bond segment.
C)  typically has a lower rate of interest that borrowers pay in comparison to Yankee bond financing.
D)  all of the above D

Question 2

Because __________ do not have to meet national security regulations,name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market.

Accepted Answer

A)  Eurobonds
B)  Foreign bonds
C)  Bearer bonds
D)  Registered bonds A

Question 3

Private placement bond issues

Accepted Answer

A)  do not have to meet the strict information disclosure requirements of publicly traded issues.
B)  have auditing requirements that do not adhere to publicly traded issues.
C)  meet the strict information disclosure requirements of publicly traded issues, but have larger minimum denominations.
D)  none of the above A

Question 4

"Yankee" bonds are

Accepted Answer

A)  dollar-denominated foreign bonds originally sold to U.S.investors.
B)  yen-denominated foreign bonds originally sold in Japan.
C)  pound sterling-denominated foreign bonds originally sold in the U.K.
D)  none of the above

Question 5

Assuming that the bond sells at par,the implicit $/£ exchange rate at maturity of a British pound-U.S.dollar dual currency bonds that pay £581.40 at maturity per $1,000 of par value is:

Accepted Answer

A)  $1.95/£1.00
B)  $1.72/£1.00
C)  $1.58/£1.00
D)  $0.5814/£1.00

Question 6

The vast majority of new international bond offerings

Accepted Answer

A)  make annual coupon payments.
B)  have fixed coupon payments.
C)  have a fixed maturity.
D)  all of the above

Question 7

Publicly traded Yankee bonds must

Accepted Answer

A)  meet the same regulations as U.S.domestic bonds.
B)  meet the same regulations as Eurobonds if sold to Europeans.
C)  meet the same regulations as Samurai bonds if sold to Japanese.
D)  none of the above

Question 8

Zero coupon bonds

Accepted Answer

A)  have no interest income.
B)  are sold at a premium to par value.
C)  gave only capital gains income.
D)  both a)  and c)

Question 9

The four currencies in which the majority of domestic and international bonds are denominated are

Accepted Answer

A)  U.S.dollar, the euro, the Indian rupee, and the Chinese Yuan.
B)  U.S.dollar, the euro, the pound sterling, and the Swiss franc.
C)  U.S.dollar, the euro, the Swiss franc, and the yen.
D)  U.S.dollar, the euro, the pound sterling, and the yen.

Question 10

In the bond market,there are brokers and market makers.Which of the following are true?

Accepted Answer

A)  Brokers accept buy or sell orders from market makers and then attempt to find a matching party for the other side of the trade; they may also trade for their own account.
B)  Brokers charge a small commission for their services to the market maker that engaged them.
C)  Brokers do not deal directly with retail clients.
D)  All of the above

Question 11

Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S.dollars at a 5 percent coupon rate)that pays £500 per $1,000 par value at maturity.The cash flows of the bond are:  The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; the pound-based yield to maturity is i£ = 4%.

Accepted Answer

A)  $927.77
B)  $941.30
C)  $965.06
D)  $880.65

Question 12

Standard & Poor's has for years provided credit ratings on international bonds.

Accepted Answer

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.

Question 13

A five-year floating-rate note has coupons referenced to six-month dollar LIBOR,and pays coupon interest semiannually.Assume that the current six-month LIBOR is 6 percent.If the risk premium above LIBOR that the issuer must pay is 1/8 percent,the next period's coupon rate on a $1,000 face value FRN will be:

Accepted Answer

A)  $29.375
B)  $30.000
C)  $30.625
D)  $61.250

Question 14

Floating-rate notes

Accepted Answer

A)  are a form of adjustable rate bond.
B)  have contractually specified coupon payments, therefore they are fixed rate bonds.
C)  always trade at par value.
D)  both a)  and c)

Question 15

A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000.The bond has 10 years maturity remaining and the discount rate on otherwise identical non-convertible debt is 6.5%.The bond is convertible into shares of common stock at a conversion price of $25 per share (i.e.the bond is exchangeable for 40 shares).Today's closing stock price was $20.What is the floor value of this bond?

Accepted Answer

A)  $800.00
B)  $892.17
C)  $1,250
D)  None of the above

Question 16

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?

Accepted Answer

A)  $43.75
B)  $48.75
C)  $24.375
D)  $46.875

Question 17

A "foreign bond" issue is

Accepted Answer

A)  one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency.
B)  one offered by a foreign borrower to investors in a national market and denominated in that nation's currency.
C)  for example, a German MNC issuing dollar-denominated bonds to U.S.investors.
D)  both b)  and c)

Question 18

Eurobonds are usually

Accepted Answer

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.

Question 19

Find the value today of a 2-year dual currency bond with annual coupons (paid in U.S.dollars at a 5 percent coupon rate)that pays £500 per $1,000 par value at maturity.The cash flows of the bond are: 
 The dollar-based yield to maturity is i$ = 3%; the spot exchange rate is $1.80 = £1.00; expected inflation over the next three years is $\pi$$ = 2% in the U.S.and $\pi$£ = 3% in the U.K.

Accepted Answer

A)  $927.62
B)  $941.30
C)  $965.06
D)  $599.00

Question 20

With regard to clearing procedures for bond transactions

Accepted Answer

A)  it is a system for transferring ownership of bonds.
B)  it is a system for ensuring payment from buyers to sellers.
C)  most Eurobond trades clear through two major clearing systems.
D)  all of the above

Exam 12: International Bond Market