Question 1

Bonds backed by real property are

Accepted Answer

Mortgage bonds are backed by real property as collateral, providing security to bondholders.

Question 2

A contract that gives the holder the right to purchase a designated security such as common stock or bonds of the issuer anytime up to a future date at a price set today is called a

Accepted Answer

A warrant is a financial instrument that gives the holder the right to purchase a company's stock or bonds at a specific price before a certain date. It is similar to an option but typically issued by the company itself and can have a longer term to expiration.

Question 3

Bonds that pay no coupon and sell at a discount are called

Accepted Answer

A

Question 4

Information found in the bond indenture would include all of the following except

Accepted Answer

Maturity provisions, which detail when the bond will mature and the principal must be repaid, are a fundamental aspect of any bond and would be included in the bond indenture, not excluded. The bond indenture typically includes call provisions, convertibility provisions, and sinking fund provisions, among other details.

Question 5

The over the counter market is

Accepted Answer

The over-the-counter (OTC) market is indeed a network of brokers and dealers who trade securities directly among themselves rather than through a centralized exchange, primarily in the secondary market.

Question 6

Collateral bonds are

Accepted Answer

Collateral bonds are issued by corporations and are backed by financial assets that serve as collateral. This means if the issuer defaults, the bondholders have a claim on the collateral assets.

Question 7

General obligation bonds are

Accepted Answer

General obligation bonds are issued by state and municipal governments and are backed by the full faith and credit of the issuer, meaning they are considered a general obligation of the issuer. This means that the government entity is obligated to repay the debt with general revenues, including taxes.

Question 8

Congress chartered private enterprises called _____________ to issue government agency securities to reduce the cost of borrowing to certain sectors of the economy.

Accepted Answer

Government-sponsored enterprises (GSEs) are financial services corporations created by Congress to enhance the flow of credit to specific sectors of the economy, such as housing, agriculture, and education. They achieve this by issuing their own securities and using the proceeds to provide financing to these sectors, thereby reducing the cost of borrowing.

Question 9

_____________________are considered default-free securities.

Accepted Answer

Treasury securities are considered default-free because they are backed by the full faith and credit of the U.S. government, which has the power to tax and print money to ensure it meets its obligations.

Question 10

Any bond denominated in a currency other than the currency of the country it is sold in is called a

Accepted Answer

Eurobonds are bonds issued in a currency other than the currency of the country or market in which they are issued. They are a popular way for issuers to raise capital in a foreign currency.

Question 11

Any bond denominated in the local currency issued by a foreign corporation is called a

Accepted Answer

A foreign bond is specifically a bond issued in a domestic market by a foreign entity in the domestic market's currency. For example, a bond issued by a Japanese company in the U.S. market denominated in U.S. dollars would be considered a foreign bond. Eurobonds, in contrast, are international bonds issued in a currency not native to the country where it is issued, and Euroloans are international loans made by lending syndicates. Mortgage bonds are secured by a lien on real property.

Quiz 6: The Corporate and Government Bond Markets