Question 1

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

Accepted Answer

One advantage of Australian dollar eurobonds for borrowers is that many foreign companies have financing needs in Australian dollars, making these bonds a viable option to fulfill those needs.

Question 2

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:

Accepted Answer

The correct price is found by discounting the future cash flows (coupons and principal repayment) back to the present using the current market yield. Since the coupon rate (7.3%) is higher than the market yield (6.5%), the bond will trade at a premium to its face value, making option C the correct choice.

Question 3

A eurobond is a:

Accepted Answer

A eurobond is a bond sold primarily in countries other than the country of the currency in which it is denominated. For example, a eurobond denominated in euros may be sold primarily to investors outside of the eurozone.

Question 4

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

Accepted Answer

A eurobond is a fixed-interest security paying periodic coupons with principal repaid at maturity issued in the euromarkets. Euronote refers to short-term debt securities, eurocurrency refers to deposits held in currencies outside the issuing country, and eurocommercial paper refers to short-term unsecured debt securities.

Question 5

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

Accepted Answer

An ECP issue can deliver cheaper funds for best-name borrowers. This means that compared to other funding options, an ECP issue can provide lower costs for highly creditworthy borrowers. The other options listed are incorrect as they do not accurately describe the benefits of an ECP issue.

Question 6

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:

Accepted Answer

A eurobond is a bond issued in a currency other than the currency of the country or market in which it is issued. In this case, GBP bonds issued outside of the UK (in Germany and Japan) are considered eurobonds.

Question 7

In the euromarkets,a medium term note is:

Accepted Answer

A medium term note (MTN) is an unsecured debt instrument that has a maturity between one and fifteen years, making choice C the correct answer. It is issued by corporations, banks, and sovereign entities in the international capital markets. MTNs can be issued in various currencies, and the interest rate is typically fixed or floating. Choices A, B, and D are incorrect because they do not fully capture the characteristics of an MTN.

Question 8

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

Accepted Answer

An MTN (Medium-Term Note) is an unsecured security that can be sold directly by the issuer into the euromarkets with a maturity up to 15 years. NIF (Negotiable Investment Fund) is not a valid term related to this question. ECP (Euro Commercial Paper) is a short-term unsecured security with a maturity typically up to 270 days, not up to 15 years. Global Note is a term used to describe securities that are issued and handled through an international clearing system, not a specific type of unsecured security.

Question 9

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

Accepted Answer

Medium-term notes (MTNs) can have a range of maturities, be denominated in various currencies, may have fixed or floating interest rates, and can be issued in various quantities. However, they are not necessarily always sold in a single issue, so option IV is not correct. Therefore, the correct combination of features is i, ii, iii, v, and vi, which is only presented in option B.

Question 10

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

Accepted Answer

A eurobond is a long-term debt instrument issued by a corporation or government in a foreign currency, typically outside the country where the currency is issued. It is one of the most common instruments used by large corporations to raise long-term financing. Eurobonds are traded in the Eurobond market, which is a global over-the-counter market.

Question 11

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

Accepted Answer

Samurai bond is a descriptive name used for foreign bond issues by non-Japanese companies into the Japanese capital markets. Dragon bond typically refers to a bond issue by a Chinese company into the international capital markets, while Shogun bond is a term that has been used in the past but is not commonly used to describe any specific type of bond. Eurobond is a term used to describe bonds issued in a currency different than that of the country where they are issued, but it does not specifically refer to a bond issue by an Australian company into the Japanese capital markets.

Question 12

Eurobonds are long-term,corporate liabilities that are:

Accepted Answer

Eurobonds are long-term securities that can be marketed internationally, beyond just European countries or investors. They are not restricted to being owned by European banks, issued only by large European companies, or held by European investors.

Question 13

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

Accepted Answer

Tombstone ads are announcements of availability of new issues of securities, such as eurobonds, that appear in the financial press. They are named after their appearance, which typically includes a rectangle with the company name, type of security, and other relevant details, similar to a tombstone. Prospectus ads typically provide more detailed information about the securities and are used to promote the sale of new issues to potential investors. Red herring ads are preliminary prospectus ads that are circulated to gauge investor interest, but do not contain full details about the securities being offered. Subscriber ads are used to solicit orders from potential investors who have already expressed interest in the securities being offered.

Question 14

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

Accepted Answer

The lack of obligation for eurobond underwriters to maintain the bond's market price at or above the issue price is not considered an advantage for borrowers or investors. This can lead to market volatility and uncertainty regarding the bond's value.

Question 15

Which of the following is NOT a feature of eurobonds?

Accepted Answer

Eurobonds typically have fixed coupon rates, not rates that reset every six months based on the LIBOR. LIBOR is more commonly associated with floating rate notes or loans rather than fixed-rate eurobonds.

Question 16

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

Accepted Answer

Generally, an issuer employs a lead manager, and often co-lead managers, in an ECP issue. This is a key feature of the facility. The other options (A, B, D) are incorrect because ECP is typically a short-term facility, not a medium-term or long-term facility, and it does not have annual coupon payments as it is issued at a discount to its face value. Additionally, ECP facilities are often underwritten by a syndicate of banks.

Question 17

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

Accepted Answer

A Yankee bond is a bond from a foreign issuer denominated in U.S. dollars and issued in the United States.

Question 18

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

Accepted Answer

The preliminary prospectus for an issue of eurobonds is called a red herring. A red herring prospectus is a preliminary draft document that provides details about an upcoming financial securities deal, such as an initial public offering (IPO), but does not include all of the important details. The name "red herring" comes from the warning in bold red letters that the document is not yet finalized and may be subject to change.

Question 19

A eurocommercial paper (ECP)facility:

Accepted Answer

The answer of A eurocommercial paper (ECP)facility:
...

Question 20

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

Accepted Answer

Telstra purchasing debentures from a European company is an example of overseas investing, not overseas borrowing. The other three options all involve Telstra borrowing money from overseas sources.

Quiz 11: International Debt Markets