Deck 7: Futures and Options on Foreign Exchange

Question 1

Which statement is NOT true about market makers?

A)Market makers stand ready to buy or sell on their own account
B)Market makers quote two-way bid and ask prices
C)Market makers trade with one another only
D)Market makers only make the bid-ask spread and charge no other commission

Answer 1

C

Question 2

A five-year Floating-rate note (FRN)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:

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

Answer 2

C

Question 3

Shelf registration allows an issuer to

A)shelve a securities issue and buy the securities later
B)shelve a securities issue and sell the securities later
C)preregister a securities issue and then shelve the securities for later sale
D)preregister a securities issue and then shelve the securities for later purchase

Answer 3

C

Question 4

In any given year,what percent of new international bonds are likely to be Eurobonds rather than foreign bonds

A)80%
B)45%
C)25%
D)15%

Question 5

Taxes on interest paid by nonresidents are called

A)interest taxes
B)non-resident taxes
C)non-resident interest taxes
D)withholding taxes

Question 6

A "foreign bond" issue is

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 yen-denominated bonds to U.S.investors
D)b and c

Question 7

Fixed-rate notes issued by a corporation with maturities ranging from less than 1 year to about 10 years in the international bond markets are called

A)international straight-fixed rate notes
B)euro-medium term notes
C)euro floating-rate bonds
D)international equity-related bonds

Question 8

A five-year $1,000 face value floating-rate note (FRN)has coupons referenced to six-month dollar LIBOR,and pays coupon interest semiannually.Assume that the last six-month LIBOR was 6.5 percent and the current six-month LIBOR is 6 percent.If the risk premium above LIBOR that the issuer must pay is .25% by how much did the coupon payment change?

A)increase by $2.5
B)decrease by $2.5
C)increase by $5
D)decrease by $5

Question 9

A "bearer bond" is one that

A)shows the owner's name on the bond
B)the owner's name is recorded by the issuer
C)possession is evidence of ownership
D)a and b

Question 10

The implicit SF/$ exchange rate at maturity of a Swiss franc/U.S.dollar dual currency bonds that pay $581.40 at maturity per SF1,000,is

A)SF0.58/$1.00
B)SF1.58/$1.00
C)SF1.72/$1.00
D)SF1.95/$1.00

Question 11

A "global bond" issue

A)is a very large international bond offering by several borrowers pooled together
B)is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets
C)has higher yields for the purchasers
D)has a lower liquidity

Question 12

Convertible bonds are a type of

A)straight-fixed rate bonds
B)euro-medium term notes
C)floating-rate notes
D)equity-related bonds

Question 13

Zero-coupon bonds issued in 1999 are due in 2009.If they are sold at 55 percent of face value,the implied yield to maturity is

A)5.50%
B)6.16%
C)8.31%
D)cannot be determined, need more information

Question 14

A "Eurobond" issue is

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)usually a bearer bond
C)for example a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands
D)All of these

Question 15

Bonds with fixed coupon payments in regular intervals and a designated maturity date are called

A)straight-fixed rate bonds
B)euro-medium term bonds
C)floating-rate bonds
D)equity-related bonds

Question 16

"Investment grade" ratings are in the following categories:

A)Moody's: AAA to BBB - S&P's: Aaa to Baa
B)Moody's: Aaa to Baa - S&P's: AAA to BBB
C)Moody's: AAA to A - S&P's: Aaa to A
D)Moody's: Aaa to A - S&P's: AAA to A

Question 17

Zero-coupon bonds were issued in 2005.If their implied yield to maturity is 5%,and the bonds will mature in 20 years,at what discount from the face value will they sell?

A)10%
B)25.42%
C)37.68%
D)cannot be determined, need more information

Question 18

Bonds with coupon payments indexed to some reference rates are called

A)straight-fixed rate bonds
B)euro-medium term notes
C)floating-rate notes
D)equity-related bonds

Question 19

Floating-rate notes (FRN)

A)experience very volatile price changes between reset dates
B)are typically medium-term bonds with coupon payments indexed to some reference rate (e.g.LIBOR)
C)appeal to investors with strong need to preserve the principal value of the investment should they need to liquidate prior to the maturity of the bonds
D)b and c

Question 20

Zero-coupon bonds were issued in 2005.If they are sold at 55 percent of face value,and the implied yield to maturity is 5%,the bonds will mature in

A)4.5 years
B)10.75 years
C)12.25 years
D)cannot be determined, need more information

Question 21

A- Canada Inc.has issued a dual-currency bond that pays $555.10 at maturity per SF1,000 of par value.The company's cash flows are exclusively in Canadian dollars.
a)What is the implicit $/SF exchange rate at maturity?
b)Will the company be better or worse off if the actual exchange rate at maturity is $0.6123/SF?

Question 22

What happens to the present value of the bonds in 4.,if the implied yield to maturity increases by 1%?

Question 23

Assume Bank of Montreal has two zero-coupon bonds outstanding,each for a face value $100,000,000.Bond A matures in 10 years and sells at a discount of 35% off face value and bond B matures in 20 years and sells at a discount of 60% off face value.Calculate the implied yield to maturity of each bond.

Question 24

An underwriting syndicate consists of all of the following except:

A)lead manager
B)managing group
C)underwriting syndicate
D)managing syndicate

Question 25

ABC Corporation,a Canadian firm,wants to float a bond issue in the United Kingdom.Which choices does the company have?
Discuss the main characteristics of each option.What do you recommend?

Question 26

ZZZ Corp.wants to issue zero-coupon bonds with a 10-year maturity.The implied yield to maturity on these bonds is 5% and ZZZ Corp.wants to raise $10,000,000.(Assume no transaction costs).How much money will ZZZ Corp.have to pay at maturity of the bond?